When it comes to enterprise cloud and sources of business value, the discussion typically focuses on business agility, flexibility and cost efficiency. One of the most powerful, yet unsung ways that cloud is actually driving enterprise-class business value in practice is through standardization and simplification. In fact some of the most compelling business cases seen to date are where cloud platforms are used by enterprises to drive standardization and rationalization of platforms, processes and workflows. How does standardization create value?
- Efficiency – standardizing workflows and processes frequently improves efficiency, as the “return on customization” is often less than many organizations expect. While every organization likes to believe they’re special and unique, for the majority of business processes they’re not. And efficient processes require fewer resources, whether that be time or money.
- Performance improvement – standard processes also enable common metrics and performance measurement, providing management the visibility needed to drive process improvement. This works in two ways – it’s easier to immediately identify broken processes that aren’t working (the “exceptions”) and also easier to identify best practices that should be leveraged more broadly.
- Management and support – by definition, standardization eliminates the need for specialized skills, resources and investments, whether it be for applications, infrastructure or any other IT resource. Standardization can increase resource utilization, and eliminate costs associated with duplicative support functions across multiple processes or platforms.
At first glance it wouldn’t appear that these levers would be that powerful, but the opposite is actually the case. While not sexy, these levers can drive stunning cost reduction and efficiency improvements in large, global enterprises. Three common patterns have seemed to emerge for how enterprises are doing this:
- Global business process standardization – the first pattern is global enterprises using the reach of SaaS applications to drive global process and workflow standardization. SaaS models can be particularly helpful for firms that want to standardize processes across a globally distributed workforce that may in some cases only have access apps through mobile devices. One particularly interesting example is Rio Tinto, a $50 billion global metals and mining company. Seeking to standardize procurement workflows and improve visibility across the $14 billion it spends annually on external vendors, the company deployed Quadrem (owned by Ariba) across 700 procurement employees and 49 locations. Though the rollout took over a year, and required 50 trainers, the company claims $475 million in total savings from the procurement transformation effort. This value wasn’t created by the TCO efficiencies of SaaS, but rather the procurement savings through more effective processes and improved visibility.
- Infrastructure rationalization – another increasingly common pattern is enterprises using private cloud models to drive infrastructure rationalization and standardization. Ricoh recently cut infrastructure costs by 30% by using private clouds to drive global infrastructure rationalization. Through its transformation effort, Ricoh consolidated nine data centers into two, and eliminated over 1,000 servers. The private cloud which spans the two remaining data centers is now used by 35 operating units, and provides 50% of internal customer infrastructure needs in addition to corporate IT workloads. Another great example is Commonwealth Bank of Australia(CBA), who dramatically consolidated and streamlined the infrastructure services offered to business units. Standard infrastructure offerings and reference architectures were dramatically reduced and offered through a standard services catalog, cutting IT infrastructure costs by an estimated $100 million.
- IT simplification – a final pattern is the use of standard cloud platforms and components to simplify IT processes. A great example of this is State Street (recently discussed in another post) which is leveraging private clouds to drive standardization of core application development processes, platforms, tools and approaches. With the standardization effort, State Street is seeking to increase leverage from approved open source components, increase code reuse and normalize change control processes. The estimated impact? $600 million in cost savings within 3 years of migration, and reduction of total written code by 30-40%.
It could be argued that benefits from process standardization and simplification could be achieved without cloud, or any other technology for that matter. After all process reengineering has been with us for quite awhile now. But it’s also true that cloud platforms can make is easier and cost efficient to drive standardization, particularly with global enterprises.