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For years we are reducing TCO and increasing IT enabled business value. And in fact, there are so manifold measures, best practices, methods, tools, technologies and solutions to improve IT effeciency as well as to deliver more value to the business available. And most companies and IT departments leverage these to a large extent.

Poor_IT_Economics_Disease.pngSo, my question is: Why does the “Poor IT Economics Disease” always come back?

Here are 10 root causes I found:

1. High business dynamics combined with limited flexibility of IT resources and cost

2. Fast, anorganic growth (i.e. mergers & acquisitions)

3. Insufficient understanding between business and IT

4. Lack of an IT strategy and missing architecture management

5. Bad prioritization and selection of (IT) projects

6. High degree of individualization (regarding business processes and IT solutions)

7. Bad project execution

8. Quick & Dirty (Interims-) solutions – which remain

9. Decentral organizational structures without central governance combined with political decisions

10. Lack of competencies/ skills (e.g. to manage exteral provider, to manage new technologies)

My advice:

  • Recognize pattern and identify root causes for the “Poor IT Economics Disease” in your IT organization (beyond solving incidents and problems)
  • Analyze your (IT) project portfolio: Which projects/ actions cure symptoms of the disease? Which projects/ actions solve or manage the root cause?
  • Build up a strategic masterplan which helps to manage root causes you cannot influence and eliminate root causes you can control
  • Leverage Design Thinking to uncover and solve rood causes
    Check this interesting blog: Inefficiencies in your IT Operations? SAP can help you with Design Thinking!

Your view matters: What is your perspective regarding these root causes? What other root causes you see?

I would like to know your thoughts.

More information:
Check my blog about TCO Benchmarking:
Control your IT Cost & identify Improvement Opportunities with TCO Benchmarking;
Follow me on Twitter @SAPSpotlight or connect to LinkedIn

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4 Comments

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  1. Andy Silvey

    Hi Christian,

    a great list, one more item I would add,

    11) Unrealistic financial/economic expectations – trying to do too much with unrealistic $$$ expectations and continuous pursuit of cost cutting, there comes a point where the only way suppliers can reduce costs is to reduce quality

    Best regards,

    Andy.

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      1. Andy Silvey

        Hi Christian,

        I didn’t have much time yesterday, but I wanted to say it is an excellent blog and excellent list.

        Something I have never understood,

        there is something called household economics.

        Household ecomonics is the economics of one’s household, it means the ecomonics we practice at home in our families and households.

        Something I know, if I ask a man to build a wall, and if I continuously beat him down on the price, there comes a point where he runs out of margin on the work to build the wall and at that point, if he doesn’t walk away, but continues to accept my ‘negotiation’ then his only possibility to reduce the cost will be to use lower quality materials (especially in areas not visible to the human eye, eg not so deep foundation, weaker cement etc) and do lower quality work, ie, spend less time. When the wall is built it might look nice in the beginning, but for sure, it will not last long.

        Another example, if buy the lowest price shoes for my daughters during a winter or summer season, it is often the case, that I wil have to buy a second pair as the lower priced inferior quality shoes simply will not last, and in the end the cost of having two pairs of lower cost shoes for the winter or summer season is actually more than buying a quality pair of shoes in the beginning.

        I heard that in Poland, they have a saying, ‘I am not rich enough to buy the cheapest’, that’s one of the ‘go figure’ phrases.

        These are lessons from household, home economics.

        And for the life of me, I have seen so many companies in their pursuit of lower costs who ignore the simple lessons of household economics and fall into these traps.

        It might be, it is the quarterly budget pressure, that Managers know, they can do it cheaper this quarter and meet their spending targets and then simply do the same next quarter and meet their budget targets. And so the CFO is happy.

        But actually if they were to take the pragmatic approach and spend a little more in the beginning with the longer term view they would normally end up spending less over the whole year and having larger profit and making the shareholders really happy.

        I don’t understand why more companies do not take this view.

        All the best,

        Andy.

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        1. Christian Jaerschke Post author

          Hi Andy,

          Thanks. I like this term “household economics”. In my years as management consultant I told clientes always there is two choices:

          (1) Go for low price (buy cheap) and pay higher cost on the mid-long run

          (2) Invest in quality (buy for a higher price) and save cost on the mid-long run

          I think this is good “household economics” applied to business and IT.

          Cheers,

          Christian

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