As companies race to adopt new cloud computing technologies and systems to effectively compete as digital enterprises, they quickly discover that with new systems, applications, and processes comes monumental new complexity.
At a fundamental level, legacy systems of record, which are critical to running core operating functions, like Finance, ERP, CRM, and HR were not designed to seamlessly connect with key systems of engagement or systems of intelligence used to create sustainable customer experiences.
At a practical level, developing and deploying new systems of engagement and systems of intelligence requires very different skills and capabilities than maintaining systems of record.
Taken together these two levels of complexity, if not dealt with properly, can bring a company’s operating performance to its knees.
The Hard Dollar Costs of Complexity
The Hackett Group’s benchmark study on the cost of complexity documented that:
- Companies with higher than average technology complexity spend 25% more than average companies and 58% more than companies with low complexity.
- The most significant cost factor is the number of applications per end user:
- Companies with high numbers of applications employ 27% more FTE’s than average companies.
- World class IT functions support 44% fewer applications per end user than typical companies.
The chart below shows the significant cost variance impact on operating performance between high and low complexity.
Hackett Benchmark Data Reveals Elevated Operating Cost in G&A Functions with High Technology Complexity
Significantly reducing technology and process complexity will not only improve your operating performance but can dramatically impact your organization’s agility, adaptability, and speed to market.
The Root Causes of Complexity
In addition to documenting the hard dollar costs of complexity, the Hackett Group study also identified the top 10 root causes of technology complexity:
- Lack of standards or adherence to standards
- Outdated, inadequate technology/data architecture
- Business cases that fail to identify compatibility issues, redundancies or other conflicts
- Mergers and acquisitions without systems consolidation or integration
- Rapid growth
- Lack of system sunsetting or asset management program
- Deferred maintenance, updates, upgrades
- Rampant customizations to applications
- Poor data governance
- Shadow IT
Deploy a Trapped Value Recovery Program to Reduce Complexity
Over the past five years, I have worked with CIOs and other C-Suite executives to reduce complexity by deploying our trapped value recovery program shown on the slide below. The goal of this program is to recover scarce resources, budget, and capacity by identifying legacy systems and processes that can be either modernized, consolidated, replaced, or eliminated. When done fully and effectively, it significantly reduces the complexity of all the processes and systems of record needed to operate the company.
Trapped Value Recovery Exercise
Simplifying complex, redundant, and siloed systems and processes that dilute the business value of IT
- Identify and unlock trapped value in legacy IT systems, applications and processes.
- What specific systems of record are candidates to be:
Companies that want to compete as digital enterprises need to operate at the speed of change. Any level of complexity will slow that speed down and compromise your organization’s ability to outperform your competition. Being able to reduce complexity and increase agility is fast becoming the new standard of operating excellence.
This article originally appeared on Peter Moore’s newsletter.