Loss of biz opportunities tops hidden costs

Business execs say legacy IT infrastructure that is obsolete or rigid is creating hidden costs such as loss of business opportunities and diminishing staff productivity, but investing in innovation and better management practices can help.
Written by Kevin Kwang, Contributor

The root of most cost-related IT evils for companies today lies in a rigid, obsolete IT environment, which then leads to hidden costs such as the loss of business opportunities and lowered productivity, said executives. However, investing in innovation and better management practices can help alleviate these costs, they added.

One executive, IBM's Hemant Shah, said the absence of flexibility, which is "common" to many legacy IT functions, impedes a company's agility. This then results in the loss of business opportunities, which represent the "biggest hidden cost" for enterprises, said the Asean executive for infrastructure business, systems and technology group in an e-mail.

He also noted that employees will pile more hidden costs on the company if they continue working with legacy systems. "The second biggest cost is that of individual productivity of the entire organization's personnel, which is caused by the absence of productivity enhancements enabled through IT," said Shah.

Using an electronic or digital workflow, for example, would add value to an employee's productivity and streamline the company's operations compared with a paper-based workflow, he suggested.

To a lesser extent, the cost of energy used by IT, which is paid for by corporate accounts and thus not visible as an IT expense, as well as the loss of skilled manpower due to a lack of a talent grooming and retention program, are some of the other costs not usually factored in by companies, added the IBM exec.

Leslie Ong, ESSN manager, HP Enterprise Business Singapore, agreed with Shah on the root cause of companies' top hidden costs. He told ZDNet Asia that rigid infrastructures and aging applications continue to eat into "the bulk of IT budgets". He put this at about 70 percent of the operations end of the business, which severely restricts the amount that can be spent on innovation to keep up with today's constantly changing business environment.

To back this up, Ong cited an internal research conducted by Coleman Parkes in March this year, which indicated that more than one out of two business executives felt their organizations suffered from "innovation gridlock". The study also found that almost 7 out of 10 IT executives felt the gridlock prevented them from investing in new technologies to meet changing business needs.

Because of a rigid, near obsolete IT environment, today's top hidden costs for companies comprise "lost effort, opportunity and time", the HP executive said.

To better manage these costs, organizations need to have visibility around a key ratio: "IT maintenance and operations costs versus IT innovation costs", urged Ong.

He pointed out that if companies spent more of their budget to service or "keep the lights on" for their IT systems, this would be money and time not invested on training and development, automating business procedures and innovating so that IT supports business goals better.

"It's like eating the seed grain rather than sowing the seeds for greater gains in the future," said Ong.

Lenovo Asean's country general manager Ronnie Lee, meanwhile, trains his focus on the management of companies' hardware--an area which he said can help reduce firms' IT costs.

He explained that while the purchase price of a PC is about 20 percent of the total cost of ownership (TCO) over its useful lifespan, which is about three to five years, the remaining 80 percent of the cost are incurred on things like "maintenance upgrades, warranty and disposal".

To reduce cost, Lee said "independent studies have shown that the 80 percent of after-sales PC lifecycle costs can be reduced by up to 50 percent if well managed".

The executives' sentiments appear to reflect the results derived from ZDNet Asia's IT  Priorities Survey 2H2010. In the study, 46.9 percent of IT executives and decision-makers indicated that increasing productivity was their "top priority", while cost savings came in second at 42.8 percent.

Additionally, 52.3 percent of respondents said they have seen their IT budget increase over the last year, while 15.8 percent reported a decrease in their financial resources, the report stated.

That said, even though the general picture of the industry is one of steady growth, with a recovery of momentum following the recent global financial crisis, IT executives indicated that there is now a "greater need" to justify their expenditure.

"Times are still tough and IT is rarely given a blank cheque. Decisions, particularly on purchasing, are being increasingly reviewed and reassessed," the study noted.

Conducted in July, the survey polled 3,657 IT decision-makers in the Asia-Pacific region including Singapore, China and India.


Source: ZDNet Asia IT Priorities Survey 2H2010

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