Strictly business: IT dollars

The days of pouring money into IT with anticipation of seeing the business grow accordingly have given way to a climate of strictly governed, demand-driven purchasing coupled with strategic project planning.

When John Loebenstein, group executive for information technology at St George Bank, is asked to outlay funds for a project involving IT, he knows there won’t be any post-implementation cost crises.

But is his IT spending subject to executive committee scrutiny? “Absolutely,” Loebenstein said. “Business ideas are brought forward and IT will then become involved in order to estimate the development and running costs.”

The estimates of business ideas costings then go to an investment review committee before finally being approved as a formal project. This extensive review process is known internally as project governance and ensures all spending within the bank is tightly controlled — whether it includes IT or not.

St George also has an IT steering committee that monitors that department; however, IT spending is treated no differently from that of other departments.

According to Loebenstein, such a rigorous authorisation procedure for all new projects also prevents loss of time due to project cancellation.

“Don’t look to spend money on IT,” Loebenstein said. “Be very clear about your business objectives and what you intend to do. That’s the way to spend money wisely.

“Once a project is approved it won’t be shelved,” he said.

In terms of the amount of money the bank commits to technology projects, Loebenstein expects to see a reduction this year; however, there are various classifications of spending within the organisation.

“We have set spending in order to keep the doors open,” Loebenstein said. “Our expenditure is related to the grade of service we provide. There will be a reduction in that spending this year; however, that does not mean it is ‘negative’. St George has invested heavily in infrastructure over the past few years and we have all the products ready to expand the business.”

The bank doesn’t allocate funds for fancy or elaborate systems and is always looking to make the most efficient use of assets. John Loebenstein “We benchmark in terms of utilisation of assets,” Loebenstein said.

“Doing this reduces risk of failure as well as saving some money. Almost all of our data is held in a central repository.”

St George’s technology infrastructure investments, although tightly controlled, have resulted in fluctuations of its IT staff numbers.

“We don’t see laying off staff as a means to cut costs,” Loebenstein said. “The last six months have seen IT staff at the bank reduce by about 300. This is a function of reduced demand rather than cost cutting. Over the past few years we have hired more people than we have let go.”

Purpose built

Although reluctant to comment specifically, Loebenstein sees an overall drop in technology spending within the banking sector. St George’s spending priorities for 2003 will be in areas other than technology.

“This year we intend to reorganise the business along segmentation lines [a term used to define products and services which are relevant to different customer segments],” Loebenstien said. “These relate to financial lifestyles, products, and services, and do not require any IT development.”

Whether IT project budgets are established to enable strategic goals, or to continue to support an existing service, the business implications are always present.

Centrelink is one of Australia’s largest users of information systems and has a long history of leveraging technology for service delivery.

About 10 years ago, what was then the Department of Social Security and is now Centrelink undertook a major infrastructure optimisation project when migrating to a Novell NetWare LAN-based network design from a Wang minicomputer environment.

“Centrelink inherited this infrastructure in 1997,” Jane Treadwell, the agency’s CIO, said. “During the [initial] market testing of the Centrelink IT infrastructure, the infrastructure undertook limited change as future directions were to be provided through the tendered solution.”

A decision to adopt a strategic sourcing policy was taken and Centrelink had to move quickly to address its ageing infrastructure.

“Tenders were let or are planned to replace or upgrade PCs, servers, storage, storage area networks, mainframe capacity, service management and networking equipment — almost every component of the infrastructure,” Treadwell said. “Elements of the infrastructure that were immediately optimised included mainframe software licensing, Unix server consolidation, and data centre relocation.”

Treadwell said Centrelink is now constantly renewing and replacing elements of its IT infrastructure in the interests of optimisation and to achieve better “value for money”.

“Savings achieved have then been applied to future projects, thus capping the overall budget,” Treadwell said. “A review of Centrelink efficiency conducted by BCG last year found that it had increased its levels of productivity by 21 per cent over its first five years of operation, and that IT had contributed to this.”

The idea of spending money on IT in order to improve core systems, and hence services, is central to the department’s business model. Centrelink is not a profit motivated organisation.

“This is typical of government agencies, where a key driver is accountability, efficiency and performance,” Treadwell said.

“Centrelink’s unique role as a service provider on behalf of other government agencies with a strong focus on customer service and collaboration with other service organisations is compelling us to open up our channels and connect with individuals, community organisations, businesses and government.”

Treadwell said Centrelink’s IT project spending parallels the demands of the agency’s business plan and more specifically, the expectations of government and client departments.

“Major initiatives begun last year relate to electronic delivery of our services, which encompass natural language speech recognition, Web portals and customer self service,” she said.

This year Centrelink will investigate a blend of transformational and performance oriented technology initiatives, some of which will be in collaboration with other community-based and government agencies. “For example we are looking at a redesign of our data network, utilisation of next generation providers and high-bandwidth carrier services, continued consolidation and use of more manageable technologies such as SAN, and expanding the use of open software,” Treadwell said. Jane Treadwell Even with these current initiatives, Centrelink’s overall spend is likely to remain at current levels, according to Treadwell. “Not withstanding price-performance, more than half the budget will be spent sustaining the current level of service,” she said.

The anatomy of Centrelink’s corporate IT governance is by no means straightforward. IT spending is subject to board and executive committee scrutiny. There is a five-year, corporate strategic plan, and a three-year, corporate operational plan. From this, the individual teams develop their annual plans, which are endorsed by the executive. This highly structured approach has been in place since Centrelink’s second year of operation.

“IT governance is an important responsibility for the executive committee. The overall IT governance system extends from the IT committee of the board through the executive team, comprising the CEO and four deputy CEOs, and then into the information and technology group,” Treadwell said.

“Formal processes for planning, project management, policy development, funding and performance monitoring through a balanced scorecard and accountability are integrated across the organisation and then through to each team. There is a separate program for corporate governance, including financial and audit activities.”

At the end of all that decision making Centrelink has a commitment to return an efficiency dividend of one per cent each year to government. The IT teams are required to contribute, as well as enabling other teams to lift their productivity with smart deployment of technology and information.

Treadwell said Centrelink, and its former incarnation the Department of Social Security, has an exceptionally solid track record on delivering value from technology investments.

“For example, Stratplan, the network replacement project and the network 2000 project. Each project has given extraordinary return in both transformation, and cost-performance terms,” she said.

“Centrelink’s procurement is made under government IT procurement guidelines; it is transparent and works to ensure value for money under any market.”

As Centrelink’s focus is heavily service-oriented and there is no incentive to “grow the business”, there are constant cost-control measures.

“The key cost-control measure in recent years has been improved commercial arrangements. The emphasis on more appropriate contracts — better matching of money paid to value received — and on optimising the use of software licence conditions,” Treadwell said.

“For example, instead of licensing a software product on each IBM mainframe, license it on one mainframe and route all the work to that mainframe.”

The next most important measure in spending control, Treadwell said, is examining new projects more closely to ensure value.

“This has largely been done by applying enterprise architecture considerations and sound project management guidelines,” she said.

“We are moving now into portfolio management techniques to further the value management disciplines, and tracking the portfolio mix from many perspectives including mix between transformational investment versus running the business.”

With IT leaders watching technology spending very closely over the course of 2003 and for the foreseeable future, technology objectives of delivering better long-term business solutions will become commonplace. Whether spending is related to new projects, maintenance or optimisation, technology users as well as vendors and consultants are now more inclined to deliver increased value for the prized IT dollar.

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