Look at demand when cutting costs: CHH

When looking to cut costs, look at the demand for your IT services as well as the cost of their supply, advises Russell Jones, CIO for Carter Holt Harvey.

When looking to cut costs, look at the demand for your IT services as well as the cost of their supply, advises Russell Jones, CIO for Carter Holt Harvey.

The forestry-based conglomerate has just completed the first phase of a major restructuring, in the process achieving unspecified savings 50% bigger than planned, Jones says.

The programme, known as Step Change, followed the company benchmarking its operations in 2001 and then reviewing its IT spending, including the reasons for it.

Detailed initiatives were then agreed with the 30-plus business units within CHH, along with its outsourcing unit, Oxygen Business Solutions.

Significant to this was CHH developing “a much more comprehensive cost management and reporting regime”, looking at account ledgers, software licences and depreciations, but in more depth and across the entire corporation. Such reviews had happened within separate departments before, but looking at them together uncovered unspecified savings not previously realised, Jones says.

A new internally developed pricing model made costs transparent on any individual service line. Thus people were able to know for the first time the individual cost of everything that Oxygen provided such as desktop support, WAN, data warehousing, business payroll processing, and could manage their demand accordingly.

“For the first time we have given business units the opportunity to manage their consumption of IT resources,” Jones says.

CHH also worked with suppliers on reducing costs and improving the efficiency of their delivery. Maintenance was also rationalised, infrastructure consolidated, and the company “tightened up dramatically” on its own capital investment programme, imposing higher hurdles on investment.

Again Jones declines to be specific, and argues it was not a case of saving X percentage or Y dollars, but rather “can we afford to spend money in that area, why are we spending this much money and why have two systems when one will do?”

CHH also worked with its outsourcing division Oxygen on the programme, “squeezing” its CHH revenues as it was forced to reduce the cost of its services, making the entity more efficient. The corporate also looked at open source, implementing some, but deciding that was more for the future; it rationalised its licensing costs, including the number of licences, and outsourced more, with even its outsourcer Oxygen now outsourcing some of its own work.

“Step Change has changed the projections of how we are spending, we have a much better understanding of where costs fall and our decision-making is based on that,” he says.

The main difference to IT managers, Jones says, is that those within Oxygen have had to become more efficient, and those elsewhere in CHH have to think more about what they are spending money on, preventing “unbridled” spending increases. Step Change also allows CHH to benchmark its businesses more with each other, to discover why one entity can run an application or service at a price that is very different to another.

The programme also revealed that CHH could save money where it thought it could not, such as on “intractable” or “non-compressible” items like standard lease agreement licenses that have an agreed fixed term.

“If you do talk to people about what you are trying to achieve, there is room for improvement. I would encourage people to look at everything. Don’t assume that because it is fixed, it cannot be changed,” Jones says.

CHH is progressing with stage two this year, with the focus to be aimed more at getting value for money from its IT systems.

“We are now trying to generate more business value instead of looking at what it costs. How we can improve? But it is early days,” Jones adds.

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