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As new software and IT services increase in complexity, the need for a unifying strategy is more important than ever.
Jake Statham, CFO Asia
July 1, 2002
Ask Philip Scorgie what the most significant IT improvement for his business has been in the past few years, and the answer won't be newfangled wireless technologies or obscure EDI solutions. It will be simply that, for the first time, everyone at his company is reading from the same script. Scorgie is the chief information officer for Deacons, an Asian law firm employing about 650 people. Over the past four years, Scorgie has transformed how Deacons's large Hong Kong-based practice shares information and manages its technology resources — by standardizing its IT infrastructure.
From a chaotic setup in which crucial legal information was scattered among incompatible databases and every PC was hand-built to different specifications, Scorgie shifted the entire practice onto a unified computing environment on near-identical machines from a single vendor. The result is a system that today is both easier to manage and vastly more stable; with everything configured the same way, crashes are easier to avoid. Upgrades are simpler because Scorgie no longer has to order from different vendors, schedule and download software patches from multiple sites, or process dozens of bills. And lawyers can at last easily access information they need from their desktops.
Soon the transformation will be complete. After 12 months of work, Microsoft SQL Server will replace a legacy practice management system at the end of 2002. Scorgie says the previous Unix-based system was arguably more reliable, but the lower maintenance cost and better compatibility of the new system far outweigh any disadvantages. "The bottom line is that integrated products always offer higher ultimate reliability because there's less complexity to manage," says Scorgie.
Raising the Flag
Those four words — less complexity to manage — could be a rallying cry for CFOs under pressure to get more bang for their IT buck at a time when corporate computing resources are being stretched in ever more directions. Integrating data, applications, and business processes seamlessly and cheaply has long been a core concern for IT managers, as well as for CFOs who rightly question why they should sign off on the umpteenth proprietary system that may require thousands of developer hours to implement.
But as globalization and the growth of E-business continue to up the levels of IT diversity most companies must manage, the need for some sort of unifying framework is more important than ever. And harder to achieve. "There's a tremendous challenge for CIOs to reduce costs and boost productivity," says Danny Tam, general manager for Sun Microsystems in Hong Kong. "That boils down to people looking for consolidation," he says.
Nigel Lee, Asia Pacific director of consulting services for US-based IT services giant EDS, has noticed increased interest in standardization from IT managers who binged on technology during the Internet stampede. Now, in the tougher economic climate, those managers are under pressure from CFOs to rationalize the diversity of applications built up during the boom cycle.
For CFOs weighing integration strategies, the decision to standardize broadly comes down to a choice between two opposing schools of thought. On the one hand, there's the "best-of-breed" approach, where you select systems best suited to individual tasks and then figure out how to get them to talk to each other. Standardizing, however, means jettisoning this approach in favor of end-to-end, "total solutions" that skirt the integration issue through unified components from a strictly limited number of vendors. Both approaches have their advantages, and which is right will depend on a company's particular circumstances, the complexity of its needs and the extent to which it is wedded to legacy infrastructure.
Hong Kong utility CLP Power has chosen the end-to-end approach and, so far, has good reasons to be pleased with its choice. The principal subsidiary of US$3.2 billion-a-year CLP Holdings is in the advanced stages of a multi-year IT restructuring program aimed at reducing the number of applications in use, streamlining hardware procurement, and standardizing business groups on Microsoft and SAP products. The transition has been so successful that the electricity provider has been able to shave 18 percent off the total cost of ownership for its PCs and expects substantial savings through the use of an integrated enterprise resource planning (ERP) system. The company declines to give a figure, but in a recent brochure projects savings at HK$150 million (US$19.2 million).
CLP's standardization drive first took shape in 1998 when the company was looking for a financials package to replace a mainframe-based system. Chief information officer Richard Brisbane-Cohen recalls how senior executives were concerned that a choice should not be based purely on the technical merits of competing packages. What they were really looking for was synergy. "When you start stringing 3,000 PCs together and you have more than 200 servers, you end up in a position where if you don't get something more than just putting them together, you're losing out," says Brisbane-Cohen.
First, however, the company had to rationalize what it had — pruning what had grown into a hard-to-manage melange of incompatible platforms, overlapping programs and hardware of every specification. "We had every vendor known to man," jokes Brisbane-Cohen. "When you walked into our computer room, every rack was different," he says. This not only made it hard to achieve pricing power with individual suppliers, but complicated technical support and maintenance as IT staff needed many different skills.
Brisbane-Cohen's response: eliminate clutter. Email clients that differed from one business group to the next — running the gamut from Eudora to Novell GroupWise — were replaced with Microsoft Outlook. Unbundled versions of Word, Excel, PowerPoint, and multiple releases of Microsoft's Office suite were consolidated; Office 2000 is now the standard. Wherever practical, Microsoft SQL Server replaced an eclectic assortment of databases. And the company's ad hoc deployment of operating systems was reined in. Now just about everything — from desktops to servers to SAP applications — runs on Windows 2000.
Next came the hardware. "Two or three years ago, we were unable to easily ascertain the number of combined products on our data center floor," admits Brisbane-Cohen. Now the company has an enterprise agreement with Compaq, recently merged with Hewlett-Packard, to provide servers, desktops, and some (though not all) laptops. CLP Power is even standardizing networking and switching equipment for the improved efficiency and flexibility — or "architectural value", as Brisbane-Cohen calls it — that a unified network offers.
Cutting Out IT
The company has not only changed what it buys, but how it buys. By limiting the number of its vendors, CLP has found it easier to automate procurement and outsource the setup and installation of new machines, with the result that the IT department can often be left out of the process altogether. Any executive with the requisite budget and authority can make a self-service purchase online and have a machine delivered, with the correct software pre-installed and pre-configured to company specifications, without intervention from CLP's own IT staff. For larger purchases where active company input is required, CLP is increasingly taking part in online auctions with other regional utilities to gain the best prices.
Some obvious benefits of standardization have been financial. Longer-term enterprise agreements with key suppliers offer cost protection that makes budgeting easier. And going for an integrated approach has enabled CLP to replace best-of-breed programs with versions that perform adequately and are less costly. Running databases off Microsoft SQL Server, for example, is roughly ten times cheaper than before, says Brisbane-Cohen, who has been pleasantly surprised by the system's steadily improving robustness.
There have been less tangible payoffs, too, like fewer hassled executives griping over files they can't open and applications that work in one situation or location but not another. And because so much hardware and software is identical, programs and files work more smoothly with each other. If something breaks down, the cause is more likely to be known. As a result, technical support teams spend less time providing on-site assistance and more time fielding higher-value queries through centralized helpdesks. "One of the benefits of standardization is that we can centrally affect policy and management," says Brisbane-Cohen.
If standardizing bread-and-butter desktop PCs, servers and productivity applications has been a boon, it's nothing compared with the efficiency gains and cost savings CLP expects to achieve through integrating ERP on SAP. CLP has already installed the first components of an enterprisewide SAP system that eventually will extend to human resources, customer care and billing, and work management. Brisbane-Cohen expects a return on investment in 20 months.
Before SAP, the company relied on proprietary software, much of which had been developed in-house. "We had procurement systems, material management systems, supply-based management systems, hundreds of different applications," says Brisbane-Cohen. Many of these will be gradually retired and replaced by SAP-based systems. In the next three years the number of IT systems in use in the company will drop by an estimated 30 percent. Apart from simplicity and interoperability, a key benefit is more economical implementation. "If you want to create an interface, it's going to cost you 20 to 30 percent of the project. It's a massive job. Basically we've outsourced our interfacing costs to SAP," he says.
No Easy Answers
Still, standardizing is by no means the only answer. The seductive claims of vendors pushing end-to-end solutions need to be balanced against the flexibility of made-to-measure applications as well as a CFO's natural desire to maximize the lifespan of existing systems. Anecdotal evidence suggests most enterprises in the region still haven't figured out the optimum mix. "As a result of the legacies most organizations have, I can't think of an example where we've opened the bonnet and haven't seen spaghetti," says Lee of EDS. He also claims that the CFO of a major international bank in Asia admitted to him that the bank still had 150 different systems for capturing customer information.
And not everyone agrees that standardization is necessarily productive. Some feel the modern IT environment has become too complex for a "one size fits all" approach, and that however much the latest blockbuster enterprise suites are touted as fully integrated, getting the moving parts to operate in sync can be unexpectedly labor-intensive. "What companies don't realize is that a massive amount of customization needs to be done," warns Robin Giang, research manager for IT solutions for IDC Asia/Pacific. Others are more deeply skeptical. Alex Mayall, managing director of research services for US-based consulting, integration, and outsourcing provider Computer Sciences Corp., believes standardization can kill innovation — especially when applied to the core business activities on which a company competes.
There are other concerns. One is security. "By consolidating, the risk is that if someone gets in, they get everything," says Scorgie, for whom the IT changes at Deacons were a delicate balance between improving access to information and safeguarding sensitive legal material. Another is that many large firms have invested so much in existing systems that, no matter what the problems of incompatibility, starting over is too costly.
Rather than standardization, say some, companies should be looking at standards. In particular, at open standards such as XML and SOAP that many claim will transform enterprise computing, enabling technically incompatible applications to share data without the need for expensive reengineering. These protocols form the basis of a new generation of Internet-based offerings called web services that, if taken to extremes, promise to make many aspects of conventional integration redundant.
Yet for all the differing views on the relative merits of IT standardization, there is universal agreement in one area. This is that success depends far more on people than on technology itself. Managing change is the most challenging aspect of any standardization plan. It's not just about training staff to use new software and ensuring project milestones are met. Getting senior management and staff on board and changing entrenched business processes are just as important.
How hard this is depends on what is being changed. According to EDS's Lee, standardizing infrastructure is easiest because disruption to staff and processes is often minor. Changing the "data transport" or enterprise application integration (EAI) layer — how programs interact and share data across an organization — is technically demanding but still a relatively easy sell. Internal politics are most likely to interfere with actual changes to major applications, as business units resist giving up cherished legacy systems in which they've invested time and resources. "That's another reason why many rationalization and merger policies just don't seem to go the way they're meant to," says Lee.
Technology managers and consultants offer a variety of advice for CFOs considering IT standardization. The first is to be careful of trying to standardize too much, or to see standardization as a complete solution. "Any CFO who goes down that path is almost doomed to a large transition cost," says Lee. Another is to recognize that you can't change everything overnight: Standardization is initially disruptive, and incremental improvements may be the best way to introduce new systems. A third is to avoid being a maverick: Go with vendors and technologies that will still be around a few years from now. Finally, take a strategic view. Use standardization not just to cut costs but also to add business value and create opportunity.
Ultimately, standardization is just one path to a common goal: easier and more efficient sharing of information. Whether an all-in-one solution looking to next-generation interconnection protocols to streamline data flows — gluing together a melee of systems through traditional integration — is the right choice depends on individual business circumstances. But while corporate mission statements these days often talk about diversity, CFOs are discovering that when it comes to the computer room, a touch of gray uniformity rarely hurts.
Jake Statham is a freelance writer based in Hong Kong.
The New Standard Bearer?
End-to-end solutions versus best-of-breed? For an increasing number of companies, this perennial IT dilemma may soon fade. The emergence of open-standard web services promises to make sharing data between applications so much easier that both traditional systems integration and end-to-end solutions will become less necessary.
One company that is pinning its hopes on this vision of the future is Hong Kong-based Tai Fook Securities. Tai Fook is overhauling its IT infrastructure to prepare for expansion into new product offerings — including forex, bullion, derivatives, and insurance — and new geographic markets, particularly China.
Refusing to tie itself to one technology, the company instead is following a strategy chief technology officer Nelson Ying labels the "three Os": open source, open architecture, and open platform. At one level, Tai Fook's new system will be conspicuously non-uniform, combining applications from US-based Sun Microsystems, Oracle, and BEA Systems. But, says Ying, every component will be replaceable and the system will make extensive use of J2EE, Sun's answer to Microsoft's .NET web services platform. This will provide the adaptability to roll out new products quickly as business dictates. It will also make it easier to integrate different trading channels, previously isolated "dynasties" that had little interconnection, says Ying.
As part of the plan, Tai Fook is also streamlining IT infrastructure. The company plans to consolidate some 100 servers onto fewer than 50 more powerful Sun machines that switch dynamically between tasks, a move expected to reduce substantially annual IT operating costs and capital expenditure.
Improved capacity and flexibility without increasing one of the company's key cost drivers — headcount — are among the reasons for the change, according to CFO Peter YH Wong. The plan makes financial sense, he explains. Using a single vendor enables Tai Fook to obtain attractive terms. Also, the company is acquiring the new servers on a three-year operating lease. This allows it to pay only for the capacity it uses, "switch on" extra processing power as traffic dictates, and improve return on capital investment by booking the cost as revenue expenditure instead of a capital item. —J.S.