Post on 22-Apr-2015
CONFIDENTIAL
Managing IT through a
CHALLENGING
ECONOMY
Microsoft – Achieve More event
Hong Kong, March 6, 2009
1
5 KEY IT TRENDS IN THE CURRENT DOWNTURN
• CIOs and corporate finance collaborate on generating ideas to use IT assets as a lever to generate cash, including areas in outsourcing management, leasing of assets, and vendor financing
• CIOs need to evaluate IT investments for new business capabilities in a fact-based way in brokering with business units to allocate more precious IT budgets
• CIOs should enhance relationships with internal legal and corporate-affair teams and be prepared to seek solutions at manageable cost to meet increasing government and regulatory mandates
• CIOs need to be ready to explain what it would take to improve the value equation for IT investment when CEOs tend to shut off discretionary projects during the downturn
Source: McKinsey analysis
• CIOs need to dynamically manage vendor relationships as a portfolio as the offshoring and outsourcing landscape shifts rapidly with downward pressure on aggregate demand, local government sponsored initiatives, mergers and new entrants
IT and corporate finance merge
Tension around IT budgets increases
The “last” IT projects?
Regulators demand more from IT
The outsourcing and Offshoring landscape shifts
2
Note: Before recession ranking based on years 1998 and 1999; after recession ranking on 2004 and 2005
Source: CPAT; Compustat; McKinsey analysis
DOWNTURN WAS A DISRUPTIVE MOMENT FOR INDUSTRIAL LEADERS
Half of leaders lost their position after a recession
Competitive landscape shift after the downturn in 2000(IT industry example)
Overall IT industry
Lea
ders
Lag
gard
s
Aft
er
rece
ssio
n
Before recession
LeadersLaggards
11%
10%
11%
68%
Software
Lea
ders
Lag
gard
s
Aft
er
rece
ssio
n
Before recession
LeadersLaggards
11%
10%
10%
69%
System hardware
Lea
ders
Lag
gard
s
Aft
er
rece
ssio
n
Before recession
LeadersLaggards
11%
10%
10%
69%
Semiconductors
Lea
ders
Lag
gard
s
Aft
er
rece
ssio
n
Before recession
LeadersLaggards
15%
5%
7%
73%
IT ServiceLea
ders
Lag
gard
s
Aft
er
rece
ssio
n
Before recession
LeadersLaggards
9%
12%
13%
66%
Percent of companies
3
• Strengthen core business or capture emerging opportunities through acquisition
• Regain focus via pruning non-core or unprofitable assets
• Focus sales & marketing on high value segments
• Optimize pricing structure
• Launch new product offering in high growth areas
POST-RECESSION LEADERS EXCELLED IN 3 ASPECTS
Initiate strategy transformation
Improve business efficiency
Drive smart growth
Leadership after downturn
• Outsource non-essential manufacturing
• Streamline product portfolio
• Improve procurement management
• Accelerate cash conversion cycle
Source: McKinsey analysis
4
IT spending typically fell much faster than GDP during past recessions…
IT ROLE WILL BE MORE CHALLENGING IN CURRENT DOWNTURN GIVEN LIKELY FLAT OR REDUCED IT SPENDING
08
06
04
02
00
98
94
92
90
88
86
82
80
84
78
76
74
96
70
72
-10
-5
0
5
10
15
20
25
30
35
US GDP and IT spending growthPercent change
Source: BEA; Economist; 2008 McKinsey Quarterly Survey on information and technology strategy
GDP growth (2000 dollars)
IT spending growth
Recessionary periods
…and McKinsey survey shows that ~75% CEOs expect flat or decreased IT operating expenses
By how much, if at all, do you expect your organization’s IT operating expense will change in 2009?(Percent of respondents, N = 548)
U.S. DATA
GDP
IT
Year
-6.3
-13.2
74-75
-7.5
-12.3
78-82
-3.7
-8.5
89-91
-3.7
-27.0
01-02
13
Don’t know
43
23Increase
21
No change
Decrease
5
IT CAN SUPPORT BUSINESS IN CURRENT DOWNTURN BY IMPROVING IT AND BROAD BUSINESS PERFORMANCE AND BY ENABLING BUSINESS TRANSFORMATION
Build a lean IT infrastructure, processes and operation through a set of initiatives including:• Better demand management via value-based service portfolio selection and
service level adjustment• Integrating and streamlining the operation of IT hardware and software
components• Consolidating sourcing and fully leveraging skills outsourcing• Lean IT operation processes
Use IT as a lever to support improvement in efficiency and effectiveness
across a variety of business processes and functions, including• Developing customer insights and refining pricing discipline
• Optimizing delivery scheduling and inventory management
• Enhancing the management and utilization of support staffs
• Improving decision making, risk and performance management processes
Leverage IT to enable the execution of new business transformation strategy, including
• Providing tangible operation tools to enable frontline transformation early on
• Delivering new systems to encode transformative mindset, processes, and
capabilities• Enabling integrated information and KPI-centric performance system for
decision-making and for tracking
Source: McKinsey analysis
DescriptionIT efforts
Improving IT efficiency and effectiveness
Leveraging IT to drive business improvement
Enabling business transformation via IT
6
Leveraging IT to drive business improvement
Enabling business transformation via IT
10 LEVERS ARE KEYS FOR RAPID IMPROVEMENT IN IT EFFECTIVENESS AND EFFECTIVENESS
* sample of 30 companies in various industries
Source: McKinsey team analysis
Illustrated cases in next 2 pages
IT efforts
Improving IT efficiency and effectiveness
2-4%
21-48%
Total savings in the first 12 months
Demandmanagement
Technologymanagement
Sourcing
Processimprovements
7-24%
6-11%
6-9%
Savings potential Percent of IT costs*
Ten key levers for IT efficiency & effectiveness
• Project portfolio review• Value realization audit• Service level adjustments
• Contract consolidation and renegotiation
• Optimized skills sourcing
• Application sunsetting
• Server consolidation
• Network optimization
• Selective Lean IT
• Helpdesk optimization
7
A LEADING ASIA FINANCIAL INSTITUTE ADOPTED VALUE-FOCUSED PORTFOLIO MANAGEMENT FOR QUICK IT EFFICIENCY IMPROVEMENT
Keep
Rescope/ defer
Source: McKinsey analysis
The bank reduced 10% of total USD 0.4 billion IT budget,through aligning IT portfolio with business priority, focusing on 42 strategic projects,closing low priority projects.
IMPACT
From traditional approach…
To value-focused approach
5
10
15
20
0
25
NB
V
KeepRescope/
defer
Size of project spend
Size of project spend
Hurdlerate
0
10
15
20
25
5
NB
V
Keep
Rescope/ defer
8
Enabling business transformation via IT
Improving IT efficiency and effectiveness
IT CAN ACHIEVE MUCH MORE IMPACT ON BUSINESS PERFORMANCE IMPROVEMENT BEYOND IT EFFICIENCY IMPROVEMENT ITSELF
* Assumes run rate at 6-18 months (timing to achieve run-rate impact varies across examples) ** McKinsey 2008 survey
Source: McKinsey experience
Leveraging IT to drive business improvement
IT efforts
Technology enablement in the business efficiency and effectiveness can provide up to 10x the impact of IT efficiency programs…
IT impact on run-rate EBIT* (illustrative examples)
Percent
15% IT cost reduction
1.0-2.0Merchandising
3.0-4.0Supply chain
3.0-5.0Pricing
0.5
… and McKinsey survey shows executives consider improving business processes is the highest priority in IT initiatives**
Percent of respondents (N = 548)
102
42
41
34
Improve effective and efficiency of
business processes
Improve IT costs
Provide managers with information
for planning
Ensure compliance with regulations
9
IT CAN CREATE HIGH-POTENTIAL OPPORTUNITIES ACROSS BUSINESS PROCESSES IN VARIOUS INDUSTRIES
Finance
Back-office functions
Business processes
HR Risk Legal Facilities ITPerformance management
Manu-facture*
Fulfill and bill
Process orders
InvoiceManage logistics
Ship to custo-mer
Process returns
Collect
Design for manufacture
Source ma-terials
Schedule opera-tions
ProduceManage inven-tory
Develop
Market and sell
Research market
Design products
Proto-type and test
EngineerManage library
Develop campaigns
Market to custo-mers
Respond to inquiries
Manage sales
SupportOperate contact center
Manage prob-lems
Manage self-service
Dispatch field service
• Improve the management and utilization of field forces and of customer support centers
• Sharpen awareness of risk exposure• Improve decision making and per-
formance management processes
* Applicable to companies with manufacturing operations
Source:McKinsey analysis
• Streamline supply chain and logistics to improve delivery scheduling and to optimize inventory
• Develop insights into customer segments
• strengthen pricing discipline to reduce pricing leakage and promote best practices in sales
Optimizing business processes and systems
New insights gained from data
10
The telco company was able to reduce their pricing leakage andincrease revenue on new contracts by 3-5%,improvingmargins by 15-20+%, in a 6-12 month period
A TELECOMMUNICATION COMPANY IMPROVED SALES PERFORMANCE THROUGH IT-ENABLED INTEGRATED INFORMATION SERVICES
Source: McKinsey analysis
Pilot and rollout changes
Identify opportunities across all value drivers
• Developed a set of dashboards to track performance across the sales organization
• Deployed data analysis tools to Identify revenue gaps based on issues resulting from poor sales practices with discounting and policies
• Linked contracts, sales, customer, and order information across business units to provide an integrated view of business information
• Automated links between sales performance and compensation
Inexpensive links to bring data together
Key initiatives
IMPACT
11
Improving IT efficiency and effectiveness
Leveraging IT to drive business improvement
IT IS CRUCIAL TO ENABLE BUSINESS TRANSFORMATION
Source: McKinsey Quarterly Survey on information and technology strategy, Oct 2008
Enabling business transformation via IT
IT efforts
Business transformation is ranked as a top target in building ITcapabilities, in order to further company goalsPercentage of respondents ranking No. 1 (N = 548)
33
9
32
19
20
38
15
Current
34
Ideal
Transformative role
Supports differentiated
performance
Improves business
efficiency
Lowest IT cost
12
Improving IT efficiency and effectiveness
Leveraging IT to drive business improvement
IT CAN DRIVE OVERALL BUSINESS TRANSFORMATION
Source: McKinsey analysis
Enabling business transformation via IT
IT efforts
Key levers IT role in support business transformation
• Augmented MIS for managing and
tracking KPI
• Analysis and reporting capability for
tracking key initiatives
• Simple temporary tools targeting
core business values
• Rapid prototyping with clear benefits
• Systems to embed new processes
and rules
• Integrated and transparent
information
• Reporting and workflow automation
• Knowledge sharing and community
exchange platform
• Delivering tangible
operational changes for
frontline personnel early on in a business transformation
process
• Empowering management to
lead through the provision of
relevant information
• Enabling personnel to foster
new mindsets, capabilities,
and behavior
13
A JAPAN-BASED GLOBAL BANK ENABLED NEW OPERATING MODELS VIA IMPLEMENTING NEW IT ARCHITECTURE AND SYSTEMS
Source: McKinsey analysis
New operating model
New IT architecture
Develop and rollout new system • Prioritization by business value
creation and time• Piloting at small BUs• Parallel rollout with operating
model
• Streamlined functionalities based on business domain definitions
• Standardized and simplified interfaces across tiers
• Leveraging existing components and packaged software
• New operating model enabling – New pricing model – Refined customer segmentations– Improved multi-channel
management– Enhanced sales process
Key initiatives
The bank expects to rollout new operational model within 18 months, improving its EBITA by over 0.5% with USD 100 Billions net incomes
IMPACT
14
5 KEY IT TRENDS FOR CIOS TO CONSIDER IN THE CURRENT DOWNTURN
• CIOs and corporate finance collaborate on generating ideas to use IT assets as a lever to generate cash, including areas in outsourcing management, leasing of assets, and vendor financing
• CIOs need to evaluate IT investments for new business capabilities in a fact-based way in brokering with business units to allocate more precious IT budgets
• CIOs should enhance relationships with internal legal and corporate-affair teams and be prepared to seek solutions at manageable cost to meet increasing government and regulatory mandates
• CIOs need to be ready to explain what it would take to improve the value equation for IT investment when CEOs tend to shut off discretionary projects during the downturn
Source: McKinsey analysis
• CIOs need to dynamically manage vendor relationships as a portfolio as the offshoring and outsourcing landscape shifts rapidly with downward pressure on aggregate demand, local government sponsored initiatives, mergers and new entrants
IT and corporate finance merge
Tension around IT budgets increases
The “last” IT projects?
Regulators demand more from IT
The outsourcing and Offshoring landscape shifts