Wavestone The IT Leader’s Recession Playbook

THE I T LEADER’ S RECESS ION PLAYBOOK

INTRODUCT ION

Each recession has different causes and attributing factors, which in turn present new challenges. As the coronavirus- driven recession is unprecedented, it is recommended that IT organizations develop contingency plans through the end of the year. The key to these plans is not whether the company can predict the timing of the downturn and recovery period, but whether the company can identify the signals indicating the appropriate time to begin the shift back to the office and a return to normal or even increased IT demand patterns. With that in mind, can IT develop an efficient approach to transitioning services back to a standard support model without any gaps in performance or availability? Cutting costs and complexity is necessary during the downturn, but it should not come at the expense of growth and innovation. This strategy brief offers guidelines and actions IT can take right now in core areas of the business to maintain smooth, undisrupted operations and protect the progress made thus far in your digital transformation initiatives. Our consultants propose their best ideas on how to weather the storm and ensure you have in place what you need to thrive afterwards.

AL IGN I T INVESTMENTS WI TH THE NEW REAL I TY

This economic downturn should be met with a frank review of corporate and IT strategies. You can’t wait until the normal strategy review cycle in early 2021. Review your current strategies and determine new priorities as the economic downturn has changed everything. Is it a priority to protect your people? Look across the entire portfolio of investments in projects and business administration units with this new lens. If protecting people is a priority, then look at investments (preferably in the pipeline rather than ones with sunk costs) that do not require a lot of capital and move those up in priority. If it’s not a priority to protect your people, look for areas where you can reduce SLAs, eliminate or buy services that are rarely consumed or not a priority, or shift investments from people-intensive projects. Are there products or services the business was planning to offer that aren’t as important in the current economy? Are there products or services the business was planning to offer that are more important in the current economy? Look across the portfolio of investments and reprioritize to maximize ROI and align IT investment with the new reality for the business.

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It’s imperative that the organization chooses the appropriate mix between fixed vs. variable costs, internal vs. third-party costs, capital vs. operating costs, and build vs. buy decisions. Tightened purse strings demand accuracy and precision in spend. How best can you achieve this? Which areas should you focus on? F IVE CRI T I CAL LEVERS TO REDUCE COST AND COMPLEXI TY IT organizations can use this period to evaluate the resiliency of their existing operating model and identify opportunities to enhance the level of efficiency. Now is when you have the most visibility on what works and what doesn’t. The must-haves and nice-to-haves are becoming clearer.

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In the short term, understand the variable component of the IT budget and bring variable spending down to help the company manage through the revenue trough. / Reassess discretionary projects to determine ‘pause vs. play’ decisions, especially those that use third-party labor. / Reduce volumes of anything being purchased as-a-service (e.g. software licenses, cloud server instances); you can turn volumes back up after the downturn. / Leverage the reduced resource (RRC) terms of managed services contracts, if possible. / Reevaluate contract (staff augmentation) labor. In the longer term, learn from this experience to reengineer the IT cost structure to enable scalability, both up and down, to respond to small and large changes in demand. / Renegotiate contracts to allow significant changes in service volumes and pricing. / Move to flexible services (e.g. cloud services) that can be turned on and off on short notice. / Consider staffing models that keep only the most critical roles in-house and contract for commodity labor.

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FIVE CRITICAL LEVERS TO REDUCE COST AND COMPLEXITY

Here are five critical levers you can push to reduce cost and complexity while staying focused on high-value areas.

IT and business processes outsourcing contracts When reviewing ongoing and expiring contracts, ask yourself: Do we need these goods or services right now or can we pause for two to five months? Decide if the tools and services provided are vital to operations. Look at streamlining the features you’re paying for—for instance, if you plan to implement some features now and others later, can you pay for a feature only when it goes live? If the service is not critical to the business, ask for a three to six-month suspension. Benchmarking For contracts expiring over the next three to six months, take note of your exit clauses. Prior to renewal, ask for a discount or a best and final offer. Use benchmarking or contract health checks to identify the key levers that can help in a renegotiation.

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Right-shoring : Ensure the right services are being delivered from the right location—maximize offshoring.

Right FTE skills : Right-skills are a key to optimizing costs; Assess and analyze the current FTE skills and future skill requirements. Unnecessarily over-skilled resources may not add value, but are more expensive

Staffing pyramid : The span of control within the delivery and support teams is frequently skewed towards senior roles. Optimizing this can lead to significant reduction in costs.

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Contract health checks Assess the contract portfolio and prioritize for renegotiation or recompete. Key factors to consider are:

Tech solutions and automation: Revisit the solutions and platforms used to deliver services. Well-represented technical and automation solutions consistently achieve year-on-year efficiencies.

Right-sizing: Reduction of bloat in vendor’s team size.

Pricing model: Analyze the current pricing model as it might not be the right model for the engagement, and you might be paying more for what is being consumed.

Pricing: Benchmark vendor pricing as this is frequently the single largest source of cost reductions.

COLA: Misaligned COLA clauses have a compounding year-on-year effect and lead to significant value leakages.

SLAs: Recalibrate the existing provider-friendly SLAs to best-in-class SLAs with stringent fee-at-risk and consecutive SLA default penalties.

Contractual T&Cs: Reassess the key terms and conditions for certain aspects which might lead to higher contract value.

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FIVE CRITICAL LEVERS TO REDUCE COST AND COMPLEXITY

Software asset management Most of the cost avoidance in software asset management (SAM) can be achieved via processes that don’t require a capital investment. And the savings can be huge for companies that haven’t implemented any kind of SAM program before.1 Also, software companies might be planning to increase license audits as their revenue from sales is impacted. A good SAM program helps to avoid paying potentially large fines and increasing the likelihood of more vendor license audits, which are costly to perform. Are you overengineering your solutions and licenses? For instance, did you buy Office 365 E5 licenses when you could use E3 with a security add-on for half the price? / Look into implementing a SaaS management platform (SMP). This is an emerging IT management practice designed to centralize and holistically manage most, or all, of a company’s SaaS products. The SMP space is trending to grow at 20% annually due to organizations shifting from on-premise software to SaaS solutions. This solution can tell you actual utilization of SaaS software in real time. With this information, you can remove underutilized applications altogether or decrease licenses. / Use software rationalization to remove duplicate or unused systems. Things to think about: / Vendor management There are two areas where the vendor management office plays a critical role in capitalizing on cost saving. a) Building and applying a formal supplier governance model Supplier governance focuses on existing contracts and applies a standard set of processes to ensure suppliers are meeting SLAs and preventing further value leakage from the original contract. This governance is applied to the top 20% of suppliers, where these suppliers have the largest impact on the enterprise.

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1 “Executive Viewpoint on Software Asset Management: Time for a Reset”. IDG and Deloitte. https://www2.deloitte.com/content/dam/Deloitte/us/Documents/risk/us-rfa-deloitte-asset- management-time-for-reset.pdf

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b) Formalizing a supplier cost optimization effort to rationalize the supplier landscape Supplier cost optimization focuses on examining the entire supplier landscape and investigating opportunities for run-rate savings and cost avoidance. This effort is an enhanced form of category management, which identifies redundancies from a technical and supplier perspective.

In VMO, it’s about increasing rigor:

/ Re-focus on invoice management to ensure you’re not being over- billed. Provide checklists for invoice reviewers that require them to review and report what they find. / Conduct strategic alignment sessions now rather than waiting for the next cycle to find out where service providers can help with your new or adjusted strategies and priorities. / Pursue performance credits that you may have turned a blind eye to. / Review contracts with leaders in the in-scope service areas. There are always obligations that providers are responsible for that no one has tracked. Again, make sure you’re getting what you’re paying for. / Hold providers accountable for any automation that they have agreed they are obligated to perform.

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FIVE CRITICAL LEVERS TO REDUCE COST AND COMPLEXITY

Enterprise architecture CIOs and IT leaders should spend the next six months focusing on current products, services, and underlying processes. Now is the ideal time to invest in an enterprise architecture practice to be a driving force to make that happen. It is unsurprising that the IT department always ends up finding itself in a situation where they tend to pick up every request thrown to them specific to line of business, but in the end, they lack insight into whether the project they are assigned to truly meets the overall business objective. Enterprise architects can help determine if there is a clear overall IT strategy in place and how a request links to the main strategy. Every IT project carries cost elements. Enterprise architecture teams can help identify unnecessary complexity and duplications. In order to maintain an effective EA practice, the following metrics (sample) with help drive immediate results: / Percentage of initiatives that make use of reusable technology components. / Cost savings from enhanced process efficiency. / Percentage reduction in number of projects that accumulate technical debt. / Time to complete IT requests in new territories. Supply chain network optimization CIOs ought to take a proactive approach to collaborate with their supply chain organization, to uncover data within their demand and supply network, to improve resiliency and efficiency during these hard times, and to support customers and partners. / If the enterprise supply chain is not digitized, this is a good opportunity to digitize the business processes and implement the right digital solutions for the business to truly integrate the supply chain network. / Help drive a robust sales and operations planning process to support the organization. Simulate various business scenarios to better prepare for the impact and outcomes.

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THE DOWNTURN AS A CATALYST FOR INNOVAT ION

Innovation and cost optimization go hand in hand, with one fueling the other. Innovative solutions bring in the cost savings which in turn can be used for additional innovation in the environment. Strategies that have proven to be successful for certain organizations include:

Performing application portfolio rationalization to reduce application footprint.

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Development of microservices for applications.

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Adopting SaaS for applications like CRM.

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Implementing containers for effective orchestration of microservices.

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Adopting DevOps for enhancing the CI/CD pipeline.

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Adopting crowdsourcing.

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Consolidation of IT infrastructure, or sale of infrastructure assets.

Convert the fixed costs of the current IT environment to variable costs with as-a-service options like IaaS, PaaS, and SaaS.

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Adoption of non-human interfaces like AI/ML-based chat.

Aggressive adoption of the cloud.

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THE DOWNTURN AS A CATALYST FOR INNOVATION

As an example, consider the case of a leading supply chain management software company. The company adopted a path-breaking approach of moving its client-facing IT infrastructure from private cloud to public cloud in order to:

Scale its business growth.

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Release its budget to fund transformation by driving 25% in operational savings, by investing in automation and AI. Drive efficiencies in operations by increasing support of a DevOps model.

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The client embarked on an aggressive cloud-adoption journey wherein on-premise private cloud workloads were migrated to the public cloud environment in order to fulfill its objectives to be 100% hosted on public cloud and sunset its private cloud. Technology has always been an enabler for enterprises to forge ahead during the good times, but there also many opportunities to leverage technology to drive the business in a downturn. Successful companies know that it is during trying times that customers rely on and expect more from them. To that end, leading companies will look to innovative tech solutions to continue delivering to their customers and growing their lead in the market. An important place to start is with operational efficiency to reduce costs and optimize business operations with robotic process automation, AI-based enablement and automation, to name a few. Not only do these opportunities quickly improve run costs, drive efficiency and generate costs savings, more importantly, they fuel a company’s ability to redirect spend to more strategic opportunities like business intelligence, product development, and service innovations. In addition, given contemporary delivery approaches like open source platforms, elastic cloud environments, agile delivery, and software as a service, firms are able to expend less capital while quickly delivering iterative and increasing value to their customers. As with all competitive environments, winning companies view difficult environments as an opportunity to extend their lead, differentiate themselves, and create competitive advantage—especially where one isn’t intuitively obvious. This is a tried and true winning recipe in times of economic surplus and shortage alike. The important thing for companies to focus on in times of economic downturn is not how to dial down technology investment, but instead how to be more decisive with their select investments and laser-focused execution. This, in turn, creates exponential value from each dollar invested.

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CONCLUS ION

CIOs and digital leaders shouldn’t be afraid of taking a detour from or putting on hold their current ongoing digital transformation journey to focus on handling the business impact of the current economic climate. As we’ve seen in this brief, there are many viable approaches IT organizations can take to weather the storm, and all without impeding the progress your team has made thus far. In fact, once the financial markets return to normal, we expect that they would reward growth and profitability more so than just profitability. IT leaders should put on a business leader hat and expand the business continuity plans to handle global crises like the world is facing now. And more than ever, they need to embrace a people- first leadership style to execute actions based on empathy. Take this opportunity to assess your application portfolio and technology landscape to rationalize and prioritize what is critical for handling current challenges.

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As economist Paul Romer famously said, “A crisis is a terrible thing to waste”. IT leaders should keep an eye on the horizon and envision the future state of the business over the next two to three years. You shouldn’t solely focus on saving money, but also prepare for the return of growth. / Start by aligning IT investments with the new reality. / While cutting cost and complexity, don’t forget to focus on high-value areas. / Innovation isn’t just possible during a downturn; it’s a catalyst for recovery. Companies who look at a downturn as an opportunity to outsmart the competition will naturally turn to technology as their key lever. By doing so they can drive efficiency to improve the bottom line, and in turn innovate to grow the top line.

CONCLUS ION

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WEATHER THE STORM. RESHAPE YOUR BUS INESS

TODAY TO RE INVENT YOUR TOMORROW.

Visit us at wavestone.us or give us a call at (610) 854-2700 to see what we can do for you.

About Wavestone US

Wavestone US is the North American arm of global management and IT consulting firm Wavestone. We have supported the transformations of more than 200 Fortune 1000 companies across a wide range of industries, leveraging a strong peer-to-peer culture, offering a practitioner’s perspective on IT strategy, cost optimization, operational improvements, cybersecurity, and business management. It is our mission to help business and IT leaders successfully deliver their most critical transformations and achieve positive outcomes. We drive change for growth, lower cost, and risk, and create the trust that gives people the desire to act.

Authors

/ Bob Casale | Managing Director / Siva Saravanan | Managing Director / Doug Smith | Managing Director / Sarthak Brahma | VP, Strategic Growth / Keith Chappell | Practice Partner

/ Mike Abramovich | Principal / Deepak Bansal | Principal / Ilene Jones | Principal / Kerrye Wasserman | Principal / Saurabh Kapoor | Manager

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In a world where knowing how to drive transformation is the key to success, Wavestone’s mission is to guide large companies and organizations in their most critical transformation projects, with the ambition of a positive outcome for all stakeholders. That’s what we call “ The Positive Way ”.

Wavestone brings together 3,000 employees across 8 countries. It is a leading independent player in the European consulting market. Wavestone is listed on Euronext Paris, and recognized as a Great Place To Work®.

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