Finding the weak links

In the face of mounting economic pressure, government agencies and local authorities are increasingly looking for ways to reduce their costs. One of the first areas to be affected is usually human resources, since this typically accounts for the lion’s share of operational costs. When it comes to IT support (another, usually large financial burden), local council CIOs are being asked to review and reduce IT support centre resources and study the cost-benefits of outsourcing service components. Here the challenge is to know which elements of the IT environment are best kept in-house (often as much a control as a cost issue) and which can be cost-efficiently handed over to an external service provider.

Doing more with less
The directive by councils to reduce IT spend usually comes with the proviso that service levels – especially those that are citizen-facing – are not compromised. In other words, the mandate is to do more with less while retaining the same, or better, quality: a balancing act that is often very difficult to get right.
    
The ‘Catch 22’ in this scenario is that the strategy to eliminate IT service and processing costs is expected to be achieved through the application of the technology itself. It is better use of IT, or implementing new solutions that must take up the slack of staff reductions, increase efficiencies and reduce operational costs – “spend to save” a well known maxim for many years. However, the chances are that in a downturn new applications and systems investment is just as likely to suffer as staffing.

Which bricks are load-bearing?
So, given all these challenges, how does a council go about identifying the people, processes and technology components that can safely be downsized, eliminated, outsourced or just not renewed; that is decide to eke out the life of the assets for another year or two to avoid capital expenditure even though this may result in slight higher operational costs? To use an analogy: Which bricks can be safely removed from the structure without causing the edifice to collapse?
    
Making an informed decision about the structures that sit at the heart of a business is best achieved by a scientific, fact-based approach and cannot be left to subjective reasoning alone or at worst best guesses. The council must have access to objective benchmarks on key performance indicators (KPI’s), quality outcomes (SLA’s), best-practice processes, competitive market pricing and a range of other metrics. Unless this review is based on a thorough analysis, making random staff cuts or putting a freeze on IT projects can have more serious and negative long-term cost implications than near-term savings. However, it is frequently the case that a “do nothing” stance is often adopted when spending restrictions prevail, on the basis that people rarely get fired for not losing money, even if the lack of investment leads to even greater opportunity loss.

Measuring value
To accurately measure the value of an IT service, one cannot look at cost in isolation. This is because the per-head cost for providing, say, desktop, help desk or e-mail support (whether in-house or outsourced) may be £5 at one company and £15 at another. At first glance, the latter price may seem expensive. And yet the £15 per-head option may deliver a higher overall business advantage that enables the council to deliver a superior product or service and so be more competitive, thus justifying the additional cost.

Meeting business needs
Likewise, the cost of an IT employee, service team or support centre needs to be measured against KPI’s such as rates of productivity. A cost may be low but performance may be even lower. And yet measuring cost-to-performance ratios alone can also be misleading.
    
Costs may be minimal while the volume of productivity is high, and yet the result of this output could be poor, inefficient or misaligned to business needs. It may be wide of the mark when it comes to meeting key objectives like delivering customer satisfaction, providing mission-critical system availability or in providing accurate, real-time information at the point of decision.

Best-practice processes
This suggests that accurately measuring the business value of an IT service, support team or technology component requires that it be examined in the context of how well it meets business objectives and the level of maturity of a government agency’s business processes. The more mature the environment, the more likely it is to be standardised around best-practice processes and incorporate structured methodologies designed to deliver pre-defined business outcomes. While this may demand a more complex technology infrastructure, the upside is there is less room for error, fewer obstacles and more efficient results – all of which contribute to lower overall cost of the IT service environment.  

Cheapest is not always best
To give an example, a manufacturer may implement an ERP system to speed his supply chain and enhance his revenue base. Whether it achieves these objectives depends on a range of considerations. For optimal performance across the logistics flow, the application may require around-the-clock IT servicing and a new communications platform to support straight-through processing.
    
It may also need all of the supply chain stakeholders to change their ways of working. An ERP support team that provides a 9am-to-5pm service and works within a legacy environment may be the least expensive. By comparison, the team that provides 24-hour support has developed an end-to-end workflow environment and has successfully engineered change management and may because of this investment charge a premium. It is clear, however, that the higher cost solution offers the higher quality and better value to the business.  

The high cost of complexity
Another factor that impacts the cost, performance and quality of a council’s IT service environment is overall infrastructure complexity. This might be a positive, feature-rich type of complexity that has evolved out of a high level of process maturity. More likely, however, it is the result of disparate legacy hardware, applications, databases, connectivity platforms and so on – all of which have aggregated over time and cobbled together across multiple departments and/or geographies. These require complicated, high maintenance workarounds to link them together and the cost of maintaining this complexity will be much higher than a modern, standardised and integrated platform.  

Identifying blockages
This covers just a few of the considerations that a council must take into account when tackling the very difficult question of how best to streamline its IT resources and cut costs. In fact, identifying staff reductions is probably the last port of call, not the first.         

The place to start is by revisiting the council or local authority’s business objectives and then working backwards to find the ‘weak links’ or blockages to achieving these goals. This might involve looking at the costs of propping up redundant or inefficient technology or finding out where certain practices or processes need to be re-engineered and goals re-defined.  

Safeguard mission-critical support
Whatever the outcome of the council’s resource reduction study, in order to guarantee its long-term ability to support its many customer-facing agencies (many of which, like benefits or housing, are mission-critical) cost-cutting should only be undertaken when backed up with thorough analysis of best-practices, cost and performance metrics and objective fact.
    
Other aspects that should be borne in mind are:

  • When assessing the current situation and comparing against others to determine best practice avoid staying solely within the local authority market. Where a particular council may appear to be very efficient and cost effective against other councils yet against the wider market place opportunities for savings could well be revealed.
  • As discussed earlier, new systems give councils an opportunity to introduce new processes and make savings as a result – either in the IT department itself or, as a result of the new systems in other departments. When procuring new systems or equipment, councils will always follow EEC and UK procurement regulations and tender for new systems. Whilst this will undoubtedly provide the most cost effective and highest value to the council the tenders may be all poor (that is, they may represent the “best of a bad bunch” without the council realising it) as compared to the wider market.  
  • Many councils have long-term outsourcing contracts that are reviewed at regular intervals. This is an opportunity for the council to make use of a specialist consultancy that has access to current market price and service data so that CIOs can negotiate new contracts with their supplier from a position of strength, leveraging this knowledge of comparative market pricing.

For more information
E-mail: info@metrigroup.com
Web: www.metrigroup.com

Article written by Robert Saxby, senior consultant, Metri UK.

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