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Why operational efficiency is about so much more than just cutting costs

How a CIO cut costs by 40% while also improving IT services

· IT strategy,IT transformation,Efficiency

Winston Churchill once remarked: “Christmas is a season not only of rejoicing but of reflection”. With that in mind, we come to you this month not only to wish you and your family a safe and enjoyable holiday season, but also to share a few of the insights we are reflecting on as 2015 draws to a close.

Prime Minister Malcolm Turnbull’s recent announcement of a $15 million digital marketplace to enable startups, small and medium sized businesses to sell to and work with government, is an exciting new direction for Australia. The government has also pledged to spend $5 billion each year on ICT projects via the digital marketplace. One of many benefits of this is to help stem the flow of entrepreneurs and digital natives to overseas markets and keep them in Australia where their ideas and energy are needed.

Mr Turnbull’s recent comments to the Business Council of Australia revealed a lot about this shift. Here’s what he said:

“When you think about the big firms, the big companies that have essentially recreated a digital world, or reformed our world in the digital space, many of them … if they were humans, would still be at school. Google itself, the giant Google, dominating the landscape, 17 years old. And the elder statesmen of the digital age, Microsoft and Apple, are 40 and 39 respectively.” 

- Malcolm Turnbull, Australian Prime Minister

Just think about that for a minute. The technology that has transformed our world — really turned it on its head — is younger than many of you reading this blog. When you view it through that lens, the government’s shift in focus towards technology and innovation not only breathes fresh life into our national economy, but also bodes well for organisations grappling with digitising their IT infrastructure while remaining agile and future-focused.

The boom and bust cycle

While boom and bust cycles are nothing new – especially in the mining industry – remaining viable during a bust cycle is not simply a matter of cutting costs (ie: reducing headcount). CIOs know that when your CEO tells you to shave 30% off your IT spend, he doesn’t mean reduce services by 30%, he means maintain services but be more efficient about delivering them.

Such was the dilemma Carl Duckinson faced as CIO at Newcrest back in 2012 when the gold miner’s fortunes rapidly declined to a degree that threatened its survival. After a decade of growth, in two years Carl lost tens of millions of dollars from his IT budget as well as hundreds of staff. Despite the reduction in staff, the IT services his diminished workforce needed to provide remained virtually unchanged.

How did Carl manage this quixotic conundrum?

Advice the CIO didn't follow

He rejected the slash-and-burn economics recommended by the consulting firm hired to advise the business, and instead focused on operational efficiency. He identified areas within the IT budget that were expendable or unproductive, and diverted funds away from those areas to ensure vital services were maintained. This approach not only kept the wheels turning when the business needed it most, but also set a proven example that other managers around the business could model their own restructures on.

By reinvesting the 30% of the IT budget that was deemed non-value adding into areas where it was needed, Carl created a 100% efficiency dividend for the IT department — which translated into a 40% reduction in the company's global IT spend.

Another key driver Carl looked at was succession planning and talent development within the IT department, which helped identify the ambitions and abilities of his staff. He then used this information to mitigate the redundancy process — and took the somewhat radical step of ‘leading from the front’ and making his own role redundant.

For more information about developing an operational efficiency strategy for your business, contact Carl or Tom for a confidential discussion.

Just before you go...

We'd like to wish all our readers a wonderful Christmas break. Take the time to catch your breath, read a good book, spend time with the kids, catch up with friends, go for a bike ride or toss out a line. Then step into 2016 as you mean to continue — recharged and focused. You can bet that's what we'll be doing.

Merry Christmas and see you in 2016.

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