VideoIt all started not long after Michael Kutschenreuter joined Siemens Information & Communication Networks (ICN) in April last year. Results for the quarter ended June 30th were devastating — Ebitda was minus $558 million (E563 million), compared with $132 million for the same period the previous year. Demand for its products was decreasing, while competitive pressures were increasing. And board members in Munich were growing more and more impatient to see evidence that ICN's $1.19 billion restructuring effort was working. Out of frustration, Kutschenreuter fired off an internal memo in July, warning that the $12.9 billion division of Siemens, the German electronics and engineering giant, was "virtually bankrupt" and called for drastic measures in order to put ICN back on course.
While the rest of the firm digested the memo, the 47-year-old Siemens veteran went to work addressing ICN's woes. "It was clear that my hands were tied as far as growing the top line of the business was concerned," he says. "But what I could do was look within the company to see where we could cut costs and tighten spending. IT was a logical place to start."
For sure, Kutschenreuter isn't the only finance chief who wants to get more bang out of every IT buck. Gone are the go-go 1990s, when companies used the economic boom and dot-com mania to justify their bloated IT budgets.
These days companies insist that they've come to their senses. Ever since economies worldwide began their descent last year, all sorts of corporate technology projects have been scaled back or cancelled altogether.
Sense and Sensibility
So does this herald a new, more prudent era of corporate IT management? It's too early to say. Surveys from various IT research houses indicate that the days of lavish spending might be over, yet companies are acutely aware of technology's importance in driving internal efficiencies and competitive superiority, and are loath to cut back too much on IT. A recent poll carried out by IDC and sponsored by Microsoft of 550 large European companies found that nearly 40 percent of respondents are spending the same amount on technology as they did last year, while 43 percent have increased spending.
But companies by now should have learnt their lessons, says Dale Kutnick, CEO and co-research director of Meta Group, an IT consulting and research firm. He reckons that IT strategies now need to reflect a new cost-consciousness while, perhaps more importantly, focusing on monitoring the performance of investments. As he puts it: "It's no longer about how much you spend, but how you spend."
That explains why corporate bosses aren't asking for, but demanding, quick payback times, thorough business plans, and careful, regular pre- and post-implementation analyses of all major technology projects. For some CFOs, that means re-introducing their companies to old IT-investment disciplines that had fallen by the wayside in the rush to E-business. For many others — Kutschenreuter included — it means developing entirely new methodologies to ensure that their IT portfolios deliver more value than they have in the past.
At ICN, it's been nothing short of a revolution. "IT investments used to be made without much discipline. Not anymore," says Kutschenreuter.
When he joined the firm, benchmarks revealed that the cost of IT as a percentage of revenue at ICN — a figure Kutschenreuter declines to disclose — was uncomfortably high. The trouble was that ICN had grown rapidly through acquisitions over the past few years and had inherited a number of IT systems that were nowhere close to being integrated with ICN's own infrastructure. Flummoxed, Kutschenreuter gave up trying to count how many legacy applications the company was running — the number of ERP systems alone was "in the double-digit region," he says. "Of course, this can't be efficient."
That wasn't the only thing that rankled ICN's finance chief. As he saw it, ICN's IT spending habits had been allowed to slide out of control during the dot-com boom. "All the E-business hype was driven by new tools — CRM, SCM, you name it — and we spent a lot of money on them," he says. "As long as we were profitable, people really didn't seem to mind."
Kutschenreuter reckoned he could change all that. "A CFO can do more than just concentrate on those traditional tasks like reporting and controlling," he says. "The CFO has the overview of the internal processes and rather than just saying to the rest of the company, 'We have to cut costs', we can actually show them the way and give them the tools to do that."
Hence a colorful display of charts and tables on Kutschenreuter's laptop screen today. The display is the culmination of a yearlong project aimed at radically transforming how IT investments are made throughout ICN. On one side of the screen, a series of columns show the financial impact of a proposed supply-chain application up to 2005. On the other, a chart plots the risk-return analysis of the project.
CFO + CIO = ROI
The idea to roll out a single, standardized ROI methodology took off last summer after Kutschenreuter held a meeting with Stefan Langkamp, ICN's CIO, to discuss technology spending. "As soon as we decided on the methodology, we moved fast," Kutschenreuter recalls. "In four weeks we made our first ROI calculations," and though, as he concedes, the software wasn't "100 percent perfect, it was a good start."
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