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Smart Enterprise: Greater Expectations

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budget that leverages scalable cloud services, in which you pay only for what you use." Perkins offers another take on the "one budget or many" question. He argues that every enterprise should have two IT bud- gets — or, at least, separate its budget into two spending components: discretionary and nondiscretionary. Nondiscretionary spending, he explains, involves both capital and operating expenses devoted to keep- ing the lights on. That includes the operation and maintenance o f e x i s t i n g a p p l i c a t i o n s a n d infrastructure, as well as production services such as e-mail and desktop sup- port for offi ce workers. CIOs have ultimate responsibility for this budget and need to both explain and minimize it. Minimizing nondiscretionary unit costs will drive IT effi ciency, an imperative that CIOs accept as the new normal of IT budgeting. Creative Budgeting At Thermo Fisher Scientifi c, a $10 billion (revenue) maker of laboratory software and equipment, VP and CIO Ina Kamenz manages a worldwide staff of more than 800 people. She also runs the Waltham, Mass.-based company's shared services infrastructure, which includes global appli- cations, global infrastructure and IT services such as Web services, asset management and database support. Kamenz's mission for her nondiscretionary budget: Keep costs con- stant, even as the company grows. "In any year we could add hundreds to thousands of employees through acquisitions, but I still hold my shared services budget pretty fl at," Kamenz says. "Every year I expect to improve our effi ciency to offset growth." For CIOs in all industries, initiatives to drive efficiency gains can include infra- structure consolidation through server and desktop virtualization, streamlining data archiving and backup, optimizing the global service desk, and standardizing and simplifying networks, operating systems and databases. Enterprises are also outsourc- ing IT commodity services, due, in part, to having fewer staffers after head-count cuts during the recession. "I don't expect enterprises to build staff back up again," says sourcing consultant Roth. "That's probably going to drive outsourcing purchases and investments in cloud services and hosting." Enterprises can boost effi ciency by nego- tiating smarter for needed products and services, Roth notes. "Some enterprises don't believe you can negotiate, and thus pay rack rates for everything, while others want everything for free," he says. "The trick is fi nding a happy medium, where you as the customer gain the ability to benefi t from the suppliers' products, but you haven't cut them so close that you get bad service." To track the gains of these and other effi - ciency measures, it pays to benchmark the cost of IT operations and compare them to industry norms. "We benchmark everything we can," says Kamenz of Thermo Fisher Scientifi c. "This includes our cost per service desk call, number of support staff per user license, the productivity of our combined onshore/offshore application development model, the utilization of our VoIP system, our call center productivity and more." These granular benchmarks, which can be used to justify budget requests, can be preferable to big-picture benchmarks such as IT budget as a percentage of annual revenue. "You can't just look at one number," Kamenz says. "You may be able to improve it, but it would be at the expense of everything else." Such single-focus benchmarks can also miss the mark in assessing the value that IT delivers. If you're asking for x percent of sales revenue, you may be able to show that fi gure is lower or higher than the competi- tion's, but you won't gain any insight into the value the business receives from that investment, according to consultant Perkins. Once a CIO knows how much capital he or she will need to keep the lights on and the servers functioning, it's time to turn to the discretionary budget. This budget is used to fund development of new functionalities, replace existing systems, and make major upgrades to the infrastructure. Discretion- ary projects generally provide financial benefits, too, such as increased sales or reduced costs, or intangible benefi ts such as delivering a higher-quality product or Segmenting the IT Budget CIO consultant Bart Perkins suggests dividing the IT budget into two buckets: nondiscretionary and discretionary spending. The key to budgetary approval lies in showing effi ciency gains from nondiscretionary spending and return on investment (ROI) from discretionary projects. THE TWO IT BUDGETS BUDGETARY ELEMENTS BUDGETARY GOAL Nondiscretionary budget Funds to operate and maintain existing Improve effi ciency by (keeping the lights on) apps and infrastructure, and for core IT reducing unit costs or by services such as Web, e-mail, desktop supporting more users support and help desk within same budget Discretionary budget Funds to develop new IT functionality, Provide business value in (new projects) replace existing systems and make the form of positive ROI, major infrastructure upgrades usually presented in a business case study DATA: Leverage Partners, 2010 2 1 "The trick is fi nding a happy medium, where you as the customer gain the ability to benefi t from the suppliers' products, but you haven't cut them so close that you get bad service." —Randy Roth | Partner | Corporate Contracts PHOTOGRAPH: THINKSTOCK 20 SMARTENTERPRISEMAG.COM

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