IT Advantage Fall 2009

Fall 2009
Transforming IT
An Interview with
Christian Mardrus
of Renault
IT Advantage
◊ The Seven Elements of Effective IT Integration: A PMI Road Map
◊ Optimizing the IT Budget for the Downturn—and Beyond
◊ Surviving the Coming Telecommunications Shakeout
◊ From Crystal Ball to Strategic Evaluation: How to Optimize Bets on Technology Trends
◊ An Update on the Innovation Value Institute’s IT Capability Maturity Framework
The Boston Consulting Group (BCG) is a global management consulting firm and the world’s leading advisor on
business strategy. We partner with clients in all sectors
and regions to identify their highest-value opportunities,
address their most critical challenges, and transform their
businesses. Our customized approach combines deep insight into the dynamics of companies and markets with
close collaboration at all levels of the client organization.
This ensures that our clients achieve sustainable competitive advantage, build more capable organizations, and
secure lasting results. Founded in 1963, BCG is a private
company with 66 offices in 38 countries. For more information, please visit www.bcg.com.
Preface
There is still a lot of doom and gloom among executives with regard to the economy—and for good reason. As The Boston Consulting Group has written elsewhere, the “good old days” are gone and businesses
are being challenged in fundamental ways. But the
downturn also has a silver lining for many companies
because it affords them rare opportunities for truly transformational
change that could translate into long-term competitive advantage.
This issue of IT Advantage begins with a discussion of a topic that will
remain on the front burner during the downturn and beyond: IT postmerger integration. The topic tends to get short shri from executives
on the business side, yet a failed IT integration can undermine even the
most compelling deal. We look at the elements of a successful IT PMI—
both the hard and so sides—and suggest steps for making it work.
Next is a distinct view on another topic that is front and center on
most IT executives’ agendas: cost cutting. Many IT cost-reduction efforts are focused on “finding the next 10 to 15 percent.” But greater
savings are possible if IT’s efforts are undertaken jointly with the business side and closely aligned with fundamental restructuring efforts.
What follows are two articles on transformation. The first is an interview with Christian Mardrus of Renault, who discusses how he transformed Renault’s IT—not only to save costs but also to reinvest for the
longer term and provide critical support to Renault’s strategic mission.
The second article is centered on the telecommunications industry,
where incumbents will need to transform their entire organization to
survive the industry’s pending shakeout—and a revamped IT function
will be the defining feature of a next-generation operating model.
Contents
HOT TOPIC
The Seven Elements of Effective
IT Integration: A PMI Road Map
2
FOCUS
Optimizing the IT Budget for
the Downturn—and Beyond
7
FOCUS: Q&A
Transforming IT: An Interview with
Christian Mardrus of Renault
12
INDUSTRY SPOTLIGHT: TELECOM
Surviving the Coming
Telecommunications Shakeout:
How Optimized IT Capabilities
Can Drive Competitive Advantage
for Incumbents
18
VIEWPOINT
From Crystal Ball to Strategic
Evaluation: How to Optimize Bets
on Technology Trends
23
OUTLOOK
Gaining Momentum: An Update
on the Innovation Value Institute’s
IT Capability Maturity Framework 26
We conclude with two pieces that are longer term in focus. The first
describes how to get past the hype about emerging technologies and
decide which trends will deliver value for your business. The final article
provides an update on a unique IT-assessment tool launched this year
by the Innovation Value Institute, a global consortium of more than
40 leading organizations from industry, academia, and the nonprofit
sector—including AXA, BP, Chevron, Google, Intel, Microso , and SAP.
We hope you find these articles stimulating and that you’ll send your
ideas to [email protected]. We look forward to hearing from you.
Wolfgang Thiel
Senior Partner and Managing Director
Global Leader, Information Technology Practice
IT A

HOT TOPIC
The Seven Elements
of Effective IT Integration
A PMI Road Map
by Hanno Ketterer, Michael Grebe, James Platt, and Michael George
M
ergers, both forced and unforced, will
remain a common event for the foreseeable future—and IT integration will
be one of the key factors that determine
whether those mergers ultimately deliver the targeted benefits. Most companies know this and
focus on it. Still, the results typically fall short and the
same questions arise repeatedly:
Even more common is the failure to address the “so ,” or
people, side of the integration. A large-scale IT integration
is particularly problematic. Management teams are changing, cultures are clashing, and there is no clarity regarding
who will have a role going forward. At the same time,
people are being asked to execute the largest change program they have ever contemplated. Firms that do not address these issues virtually guarantee themselves failure.
◊ Why does the IT integration never seem complete despite an enormous amount of spending?
Companies can and should do better. We outline below
the elements of a successful postmerger IT integration.
These encompass both the hard and so sides of the
process and are tailored to the CIO of the new organization, who has a unique vantage point and is ultimately
the key determinant of whether the effort succeeds or
falls short.
◊ Why are IT synergies never fully delivered?
◊ Why does the business feel more constrained than it
did before the integration?
This is not to suggest that IT postmerger integration
(PMI) is simple. On the contrary, it is a disruptive, timeconsuming, complex, and expensive process, as well as a
psychological and emotional trauma for those involved.
Yet it is a navigable challenge if companies approach it
comprehensively and systematically.
Sadly, though, most companies don’t. Most never adequately address the “hard” side of the integration, failing
to make the necessary systems decisions, identify cost targets, and develop implementation plans. One company
that decided not to establish cost targets up front had to
revisit that decision when it became clear that the proposed integration solutions were unaffordable. Another
company’s IT organization neglected to bring the business side on board and was surprised when key platform
decisions were reversed. Yet another IT organization was
unable to deliver the targeted synergies because of poor
tracking of results.

The Seven Elements of a Successful IT
Integration
Neglecting to properly assess progress is a root cause of
failure in IT integration. Many of the usual systems and
processes are no longer relevant and things can change by
the hour, with today’s success or failure oen incorrectly
coloring the CIO’s longer-term view. What’s needed is a
lens that allows the CIO to step back, escape the day-to-day
noise, and see the big picture—to determine where things
really stand and what key actions are necessary to get back
on course. The elements below can serve as that lens, allowing CIOs to assess where they are and take the appropriate actions to bring the integration back on track.
Element 1: The Targeted Synergies Are
Achieved Without Compromises
Achieving IT synergies is seemingly a relatively simple
process: cut the development budget and reduce operaT B C G
tional manpower. The relationship between integration
activity and synergies is oen poorly understood, however. And if synergies are not carefully thought through,
problems in service and change capabilities can quickly
emerge, creating long-lasting business issues. On the other hand, costs can quickly spiral out of control as the business tries to transform its capabilities and IT uses the
business’s transformation effort as an
opportunity to upgrade.
To make sure that the targeted synergies
are realized, CIOs should plan to do the following:
Element 2: The New IT Organization Is
Formed with No Loss of Key Talent
When faced with an uncertain future, the best people
start looking at other options. It is essential, therefore, to
take proactive steps to retain key IT talent. In one recent
IT integration that we observed, nearly all of the best
people two layers from the CIO in the acquired company
departed. This le the merged organization with vacancies in roughly 33 percent
It is crucial to
of the positions at a vital level in the
organizational structure.
make systems
decisions quickly and
transparently.
◊ Think through the overall approach and
set initial synergy targets before the integration begins.
◊ Make sure up front that all critical personnel understand and agree on the business needs and the key
decisions (for example, regarding platform choices)
that will drive synergies.
◊ Ensure that it is apparent to all from the outset where
the synergies are coming from and that the business
side understands the implications for IT changes and
service.
◊ Be specific and clear regarding the timing of the delivery of synergies, particularly when those synergies involve reducing head count. Make sure that issues like
soware capitalization are fully taken into account.
◊ Confirm with budget holders that cost and service targets are locked into budgets. There is no such thing as
being too granular here. If a savings target is not linked
to a specific team and assigned to a budget, the savings
will never occur.
To retain the right talent, CIOs can take
several actions:
◊ As early as possible, identify critical
people—both managers and those with essential
knowledge—in the target and transition organizations
and assure them of their future roles. Like Gothic cathedrals with lost floor plans, internally developed IT
systems are oen inadequately documented. The resignation of a single middleware expert can bring the
work stream to a grinding halt because a desperately
needed skill set is now missing.
◊ Put retention plans in place to secure critical people.
Monetary rewards remain the strongest incentive (and
are oen relatively cheap versus the cost of replacing
skills), but direct communication is also important. Inviting key people for 15-minute face-to-face chats with
the CIO may be all that is required to reassure and
retain them.
◊ Make sure that the leadership team is committed and
visible, with both organizations’ teams closely aligned.
◊ Be careful in choosing people for roles. Maintaining a
balance between the two organizations can be very
important.
◊ Tightly link costs—on both the business and IT sides—
with synergies, and apply normal hurdle rates to ensure that progress stays on track.
Element 3: Systems Integration Decisions
Are Made Quickly and Perceived as Fair
◊ Make sure that suppliers understand what is expected
in terms of integration activities and reductions in operating costs. Conversations with suppliers are oen
fragmented during integration efforts, and suppliers
are sometimes able to win significant projects without
committing to their own synergy targets.
In our experience, it is crucial to make systems decisions
quickly and transparently. Very oen, this is the point at
which a psychological chess match ensues between rival
organizations fighting for relevance, each with its own
scoring systems and means of justification. Unless this
infighting is curtailed, progress will be delayed and questions will linger.
IT A

HOT TOPIC
CIOs can prevent the chess match by taking the following
actions:
agreed on an unambiguous view of what is essential,
lock down plans and focus on delivery.
◊ Establish straightforward principles for systems selection up front—for example, “the acquirer’s systems will
be used unless there will be major business harm in
doing so”—and get buy-in. These principles should be
consistent with the proposed new operating model.
◊ Audit all acquired operations as early as possible. Understand how they are managed and their principal
risks and bottlenecks to ensure that the integration
continues to flow.
◊ Put in place a clear process for making
choices, one that is not mired in detail
but is sufficiently explicit to be seen as
fair and transparent: we are not flipping
a coin but nor are we comparing lines
of code.
Develop a clear
approach for day one,
lock down plans, and
focus on delivery.
◊ Make sure that specific choices are
made quickly, that all parties sign off,
and that the rationale is communicated.
◊ Where possible, focus on integration, not transformation. Sometimes there is no choice but to press forward
with a transformation effort as well, but the full consequences (in terms of both cost and time) need to be
understood.
Element 4: The New IT Organization
Operates Efficiently
It is oen hard during an intense integration to think
about efficient operations. Yet unless coherent actions
are taken, what is le aer the initial flurry of activity is
an operation that doesn’t meet the business’s needs and
requires post-PMI transformation. Getting it right starts
on day one. Integration and business-as-usual activities
need to be aligned, new governance forums have to be
established early, and a focus must be maintained on
day-to-day operations. Compounding the challenge is the
fact that there is oen a personnel selection process going on and the new team that emerges may not have
experience with all of the operations, creating a high risk
of service problems.
The following steps can help the CIO ensure that operations are efficient:
◊ In advance, develop a clear plan for day one and ensure that the essential activities to make the plan succeed are understood. In our experience, most such
plans are overly ambitious. Once all key parties have

◊ To ensure that service standards remain
at premerger levels, avoid combining operations in the initial stages.
◊ Don’t use the integration to create new
“best in class” processes. Instead, pick
one organization’s model (normally
the acquirer’s) and build governance
around that model.
◊ As soon as possible, manage integration and businessas-usual activities together in order to avoid resource
and other conflicts.
◊ Think through the timing of systems decisions carefully and, if needed, establish “freeze periods” (during
which no active changes are made) and other safeguards as the management team changes.
◊ Keep external suppliers informed of progress and ask
them to “over-resource” in key periods.
◊ Implement operational changes carefully. It is better
to delay synergies than to create service issues by moving too quickly.
Element 5: Customer and Vendor Relations
Remain Strong
It is imperative that the integration does not jeopardize
relationships with customers. While it is unrealistic to expect that the transition will be seamless from a customer
perspective, every effort should be made to minimize any
negative impact. Similarly, it is of vital importance to
maintain strong relationships with key vendors, which
can be an important source of targeted synergies. Understanding what these vendors want and working with
them as partners can be enormously beneficial, especially when they provide access to critical capabilities.
There are a number of ways for the CIO to safeguard relationships with customers and key vendors:
T B C G
◊ Evaluate the implications of planned IT changes for
customers
can cause major delays in the overall integration. Accordingly, the process must be carefully managed. Decoupling
activities and developing contingency plans can be the
keys to timely delivery.
◊ Create plans to minimize customer impact and develop a clear customer-communications strategy
The mindset of the business side also needs to be taken
into account when planning. In general, business synergies can be delivered quickly in a merger, oen without
much IT involvement. The full delivery of IT synergies,
by contrast, can take years—especially in the bigger integrations. Compounding matters, the majority of IT synergies can be delivered without full systems integration
because change efforts can be quickly focused on key systems. The end result is the so-called integration trap: the
business wants to move on and is frustrated that IT is still
spending time integrating, and the business case for IT
integration begins to fall apart. (See the exhibit “Finishing the Integration Quickly Can Help Companies Avoid
the Integration Trap.”)
◊ Analyze vendor relationships holistically and quantify
the gains and losses of any potential moves
◊ Develop a strategy for negotiating with key vendors to
derive maximum value from the relationship during
the integration and beyond
Element 6: The Integration Is Delivered
On Time and As Planned
What makes an integration different from most change
programs is its size and the level of interdependencies
among the different parts. Integration plans can thus be
highly interlinked, and a slight delay in an early activity
Finishing the Integration Quickly Can Help Companies Avoid the Integration Trap
An overly lengthy IT integration can leave the business
feeling frustrated
Synergies ($)
Year 1
Year 2
Year 3
Year 4
IT synergy delivery
Business synergy delivery
IT integration effort
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
IT work is directly
supporting the
delivery of
business synergies
The initial IT work
is complete, and
business synergies
are being realized
The business is ready
to focus on growth, but
IT is still engaged in
integration
The business and
IT are aligned
The business is
grateful
The business
is frustrated
Q1
Q2
Q3
Q4
Source: BCG analysis.
IT A

HOT TOPIC
To avoid the integration trap and ensure that the integration is delivered successfully and on time, CIOs should do
the following:
lar pulse checks will establish a baseline against
which the impact of specific initiatives can be accurately measured.
◊ Develop a clear breakdown of the IT work structure
and make sure it is aligned with the delivery of business and IT synergies.
◊ Develop specific actions to address issues as they
emerge.
◊ Create a baseline plan to provide a benchmark for future changes. Include necessary resources, costs, and
synergies, and ensure that the timing of delivery is
built into tracking systems.
◊ Identify “hot spots” and elevate them to ensure that
projects are decoupled when necessary and that corrective actions are taken.
◊ Where possible, develop plan B options for critical activities.
◊ Institute strong and effective interdependency management by creating a program management office.
◊ Synchronize IT integration activities with business integration activities. If elements of the IT integration
will not be completed until aer the business integration, the scope of these efforts should be carefully
managed and the proposal should have buy-in from
the business side.
Element 7: Morale Remains High
Morale is oen the most overlooked part of an integration. Without proactive monitoring and communication—and clear action plans—significant issues can arise,
ranging from low productivity to the loss of key talent.
◊ Focus the messages on the benefits of the integration and the additional opportunities for those who
remain.
◊ Make sure that selection processes—for both personnel and systems—and other integration decisions are
made in a transparent way and are seen as fair.
The Challenges and Rewards of Solid
Execution
Merging two IT landscapes is a difficult, complex, and
exhausting task, one that many companies never complete. If mismanaged, it can fail to deliver the targeted
synergies. It can also exact a sizable toll on staff, with
talented people jumping ship and those le behind feeling demoralized.
By being aware of the guidelines above, however, you can
do much to ensure that your particular IT integration succeeds. The challenges are great because you will need to
address all facets simultaneously and on an ongoing basis. But the result—an IT organization that is an innovative, strategic weapon and enables the business to get the
jump on the competition by opening up new technological possibilities—will more than justify the effort.
Hanno Ketterer is a partner and managing director in the Amsterdam office of The Boston Consulting Group. You may contact him by
There are a number of ways for the CIO to make sure
that morale remains high:
e-mail at [email protected].
Michael Grebe is a partner and managing director in the firm’s Munich
◊ Set up a clear, multichannel communication strategy
for staff and allow an open dialogue—but remember
that an overemphasis on broadcast messages and
newsletters can sometimes be as damaging as not
communicating at all.
office. You may contact him by e-mail at [email protected].
James Platt is a partner and managing director in BCG’s London
office. You may contact him by e-mail at [email protected].
Michael George is a PMI topic expert and researcher in the
◊ Proactively monitor morale. An early warning is essential to developing an appropriate response. Institute a “pulse check”—a regular survey that monitors
staff on the basis of a common set of questions. Regu
firm’s Düsseldorf office. You may contact him by e-mail at
[email protected].
T B C G
FOCUS
Optimizing the IT Budget for
the Downturn—and Beyond
by Michael Grebe and Claudia van Laak
T
he ongoing economic downturn is forcing
many companies to continue to tighten the
reins on costs—and IT is being asked to do
its share. This is especially true for ITintensive industries such as banking, where
IT accounts for up to 20 percent of administrative expenses.
In this environment, the critical challenge for CIOs is to
ensure that any further cuts to the IT budget are not so
severe that they compromise IT’s ability to support the
business’s day-to-day activities or its pursuit of costreduction targets. Simultaneously, CIOs must make sure
that IT can support the firm’s grow the business
initiatives so that the company is in the best possible
position for the eventual economic upturn. Finally,
CIOs in specific industries (for example, financial services) must ensure that IT can support the company’s
implementation of new regulatory requirements—
which could well necessitate making new investments
in IT, notwithstanding the company’s general cost-cutting mandate.
In short, today’s CIOs have a tall order—but also a rare
opportunity. On the one hand, the crisis forces them to
go beyond traditional IT-efficiency improvements. On
the other hand, it offers them a unique chance to make
fundamental changes to the IT cost position because the
business is open to more radical approaches to cost reduction.
This article offers thoughts on how CIOs can meet these
challenges and find the right mix of IT cost-reduction
levers. It also suggests a new and expanded role for the
CIO as a true partner to the business throughout the
remainder of the downturn and beyond.
IT A
Determining an Appropriate IT CostReduction Strategy
In order to devise an appropriate IT cost-reduction strategy, CIOs need a clear understanding of the company’s
current business status and its near- and longer-term
prospects and objectives. Working closely with the business, the CIO must answer several important questions:
◊ What is the company’s current cash position? Is there
a critical need to conserve cash in the near term?
◊ What additional moves might the company make to
weather the downturn, and what capabilities should
IT have in place to support those moves?
◊ How does the company see its business over the medium and longer term? What will revenues and administrative expenses look like over the next several years?
Based on the answers to these questions, the CIO can
determine an appropriate IT budget. Benchmarking
against the industry can serve as a useful gauge.1 On the
basis of, for example, the percentage of revenues that
industry peers spend on IT, as well as the company’s
own revenue and cost forecasts, the CIO can derive an
appropriate future IT spending level. From the answers
to the above questions, he or she can also determine
how quickly any necessary cuts to the IT budget must
be realized. Finally, the CIO can determine which levers
to pull, aiming to ensure that those moves do not compromise necessary capabilities.
1. Over the last decade, BCG has developed a comprehensive IT
benchmarking database, one that allows for industry-specific, apples-to-apples comparisons.

FOCUS
Selecting the Right Levers for Reducing
IT Costs
For most companies, there is a range of levers for reducing IT costs. (See Exhibit 1.) Most of those levers fall into
two categories:
to support the company. Yet our experience shows
that even on a third pass at cost reduction, companies
can save 4 percent of the initial IT cost base in the
first year—and ultimately achieve long-term annual
savings of 18 percent of the initial IT cost base, on average—while maintaining essential capabilities. (See Exhibit 2.)
◊ IT efficiency moves, or measures initiated by the IT
leadership that increase the efficiency
of the IT function but will have little or
Even on a third pass
no impact on the business
at IT cost reduction,
◊ Business-enabled IT cost reduction, or
measures initiated jointly by IT and the
business that optimize IT costs while
maintaining or improving IT’s support
of the business
companies can save up
to 18 percent of costs.
Most companies will need to use a combination of the
two categories of levers, with the precise mix determined
by their particular circumstances and objectives.
IT Efficiency Moves
IT organizations that have already endured one round of
cost cutting may be skeptical that they can pull more
from the IT budget without compromising IT’s ability
Exhibit 1. There Are Two Categories of
Cost Levers—IT Efficiency Moves and
Business-Enabled IT Cost Reduction
High
2
Business-enabled
IT cost reduction
Business
involvement
1
IT efficiency moves
Low
Short term
Long term
Urgency for realizing
IT cost savings
Source: BCG analysis.

During a second or third pass at IT cost
reduction, the most commonly applied
levers are renegotiation and consolidation
of supplier contracts, optimization of IT
infrastructure and operations, optimization of the IT project portfolio, simplification of the IT architecture, and optimization of the IT organization.2
Renegotiation and Consolidation of Supplier Contracts. This lever will entail two main thrusts: demand
management, or the optimization of “what you really
need” by adjusting quantity, volumes, and specifications
of purchases; and supply management, or the optimization of “the way you buy” by revamping supplier selection and consolidating and renegotiating vendor contracts. Typical savings with this lever can range from 2 to
8 percent of total IT costs.
A leading North American bank managed to reduce its total IT costs by even more than 8 percent through this
means. The bank’s IT infrastructure environment was
characterized by high complexity, poor reliability, and higher-than-average costs. Much of the cost was driven by a
single, large outsourcing contract that accounted for 34 percent of the bank’s total IT expenditures. With the vendor’s
contract up for renewal within a year, the bank decided to
pursue a different negotiation strategy. Rather than letting
the contract expire and asking both the vendor and its
competitors to bid on the work, the bank worked proactively with the vendor to negotiate better terms.
To prepare for the negotiation, the bank sized the overall
savings opportunity for each of its service towers (such as
mainframe, servers, WAN, and so on) by comparing its
own internal costs to industry benchmarks. The bank
then sorted the opportunities into three major groups:
2. This is based on BCG’s internal analysis of more than 60 IT costreduction projects that BCG has observed over the last three years.
The work spanned all major industries and regions.
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Exhibit 2. IT Cost-Reduction Efforts Can
Still Generate Significant Savings—Even
on the Second or Third Round
Potential IT cost savings over time
from a second or third cost-cutting effort
%
45
40
40
35
Typical savings can range from 6 to 12 percent of total
IT costs.
Optimization of the IT Project Portfolio. This lever focuses on the adjustment or even cancellation of current
IT projects and maintenance efforts as well as the implementation of a rigorous portfolio-management process,
including the establishment of effective governance principles. The potential savings can range from 4 to 9 percent of total IT costs.3
30
25
20
18
16
15
10
10
8
4
5
1
0
4
Short-term impact Medium-term impact
(within 12 months) (within 24 months)
5
Long-term
annual impact
(steady-state)
Average savings as a percentage of the initial IT cost base
Range (minimum to maximum savings) as a percentage
of the initial IT cost base
Source: BCG analysis.
price or margin reduction, technical transformation, and
demand management. For mainframe, for example, the
bank renegotiated licensing agreements; discussed a redimensioning of the systems network architecture
through rationalization, simplification, and modernization; and explored a partial offloading of applications and
application groups onto cheaper midrange boxes.
Through these discussions, the bank and the vendor developed effective technical solutions and transformation
plans for each service tower, resulting in roughly a 25 percent savings on the overall contract. This was a win-win
situation for both sides: the bank drove down costs and
spared itself the risks of transitioning to a new vendor,
and the vendor held on to a major global client.
Optimization of IT Infrastructure and Operations.
This lever comprises a very broad set of measures, including the standardization of hardware and soware,
the optimization of code, the virtualization of servers,
the adjustment of replacement cycles of hardware and
soware, the sale and leaseback of assets such as data
center facilities, a reduction in the number of devices
per user, and optimization of facilities management.
IT A
Simplification of the IT Architecture. This lever involves identifying and reducing complexity in the IT application landscape or in the IT infrastructure and operations. Typical measures are the consolidation, rationalization, retirement, and harmonization of applications.
Savings can range from 5 to 18 percent of total IT costs.
Optimization of the IT Organization. This final lever
entails restructuring the IT organization and implementing skill management and HR principles to improve the
organization’s overall efficiency. Typical savings can range
from 1 to 3 percent of total IT costs.
De-layering—that is, taking out one or more management layers—can be a particularly effective means of
rapidly reducing costs. A European car manufacturer
reduced its IT management staff by 25 percent by applying three different de-layering levers. First, it grouped
small departments and created pools of competencies
(analysts, developers, and so forth), leading to an increase in spans of control from five to eight. Second, the
company reinforced the idea that project management
was a separate career track and relieved project managers of their line-management duties. Third, the company
established a staffing function to regularly manage staff
allocation in the competency pools. Besides reducing
costs, these actions led to faster communication and
decision-making, greater accountability, less bureaucracy, and better morale.
CIOs should thoroughly explore all of the IT efficiency
levers. Each has the potential to deliver significant savings—even to an IT organization that has already undergone several cost-reduction efforts.
3. In our experience, many companies that adjust their project portfolio subsequently lose discipline and quickly restore the list of projects. Hence, it is valuable to continually review the portfolio.

FOCUS
Business-Enabled IT Cost Reduction
level with 24/7 support), which addressed the business’s
need for 12 hours of support six days per week.
The second category of levers for reducing IT costs is
measures jointly undertaken by IT and the business. The
Reductions in central IT services can generate indirect
goal here is to identify business areas where there is high
savings through the elimination of processing and storage
IT complexity and cost but relatively low value added in
buffers—for example, by lowering the storage duration of
terms of profit or value contribution—and optimize or
finance reports. The extent to which these savings can be
eliminate those areas. The targeted optirealized will depend heavily on the setup
mization can be achieved with three differof the company’s central IT—for example,
Identify business areas
ent levers.
the degree to which critical services and
applications are concentrated by location
where there is high IT
Making IT Costs More Responsive to
and business domain.
complexity
but
lower
Volume Reductions. This has to do primarily with staff layoffs or a decline in
Lowering IT Costs by Reducing Busivalue added.
product sales. In the event of major layoffs,
ness Complexity. This can be achieved
by, for example, closing down internationfor example, the question for IT and the
al sites, eliminating or simplifying products that demand
business to answer is by how much IT costs can be scaled
complex IT support but deliver little in the way of profit
down. Costs for end-user equipment and certain network
or value, or eliminating or streamlining business processservices—such as voice, local area networks, and remotees. With such moves, it might be possible to decommisaccess service—can usually be lowered in direct proporsion certain corresponding IT applications, application
tion to reductions in head count. If layoffs exceed a cermodules, or variants of applications and thereby elimitain level, additional savings for storage and the IT help
nate dedicated infrastructure. The result can be substandesk are possible. The extent to which IT costs can be
tial IT cost savings.
lowered ultimately depends on several factors—including
the current level of outsourcing and contract terms, such
as guaranteed minimum volumes and the transferability
Combining IT Efficiency Moves and
of volumes between years.
Business-Enabled IT Cost Reduction
Reducing IT Costs Through Service-Level Reductions
in Selected Business Domains. This includes reductions
in aspects of end-user support, such as the availability and
service hours of the IT help desk, as well as reductions in
central IT services, such as the availability of applications
(for example, enterprise resource planning and e-mail).
Service-level reductions in end-user support might result
in some indirect IT cost savings—for example, parts of the
help desk might no longer be required. If the help desk is
outsourced, the company might be able to negotiate a better price point for reduced help-desk availability. The CIO
of a European universal bank made the cost of specific IT
service levels transparent to business unit leaders and offered price reductions if they agreed to a service-level adjustment (from “gold” service to “silver” or even “bronze”).
The business unit leaders appreciated the increased transparency and, aer discussions with their various department heads, decided to accept lower IT service levels for
37 percent of their applications, in aggregate. This was
mainly achieved through the introduction of a new service level, “silver plus” (in place of the previous “gold”

Most companies will need to engage in a combination of
IT efficiency moves and business-enabled IT cost reduction to achieve the targeted IT cost savings. The precise
mix will depend on the company’s current condition and
its longer-term prospects and plans, and thus on the
amount and urgency of any required savings. There is no
one-size-fits-all IT cost-reduction strategy.
◊ A company whose circumstances demand a major restructuring effort (such as a 40 percent reduction in
assets and a significant reduction in business complexity), along with a substantial change in its business
model, will have to transform the IT function significantly. This will entail aggressively utilizing both categories of levers.
◊ A company that is in a less extreme situation but expects heightened business volatility in the near to
intermediate term will focus primarily on businessenabled IT cost reduction to make IT costs more responsive to changes in the business. The CIO could, for
T B C G
example, renegotiate the outsourcing contract for data
center services and end-user devices so that the company could benefit from scale effects (in the form of
lower prices for increased volume) on additional devices if business improves—but also make arrangements to return devices if business deteriorates.
Regardless of the precise mix a company
ultimately uses, the savings that can
be achieved through the effective combination of the two categories of levers is
sizable. As part of a major restructuring
program, one leading European bank
realized savings of 28 percent of its total
IT costs. It did so through the following
actions:
◊
◊
◊
◊
◊ Get the IT house in order. Continue to increase the efficiency of the IT function by applying the full range of
IT cost-reduction levers. Plan for the longer term by
developing a full spectrum of scenarios for the future
IT organization and determining the required capabilities and resources—through strategic workforce
planning, for example.
◊ Develop a clear understanding of the IT
costs resulting from business complexity and business volumes and the potenposition themselves as
tial savings that could be achieved if
proactive partners to
business products were eliminated,
locations were closed, or business volthe business.
umes fell and staff were cut. Proactively
make suggestions to business unit leaders about process simplifications that could translate
into reduced business or IT costs. In taking on this role,
Applying the full range of IT efficiency levers, with a
CIOs become effective sparring partners for business
particular focus on the renegotiation of contracts
unit leaders and can help reduce business complexity
with two major suppliers (16 percent)
in the right areas.
Adjusting IT to reduced business complexity and volumes—for example, by closing down specific interna◊ Help the business seize emerging opportunities and
tional business locations and IT applications aer the
prepare for the upturn. Start the dialogue with busibank terminated several products (3 percent)
ness leaders on ways to exploit options that the crisis
generates, such as M&A opportunities or possibilities
Reducing service levels—for example, by adjusting
for new products or business models. Companies that
“change the bank” IT spending to benchmark levels
want to emerge stronger than they were before the
(3 percent)
downturn must look beyond cost reduction—and CIOs
can act as both an enabler and a driver.
Simplifying the IT architecture, with a focus on the
consolidation and partial renewal of two major parts
In short, CIOs should push IT to the forefront—and keep
of the application landscape, including the consolidait there. Both the IT function and the company as a
tion of several risk-standard software packages
whole will reap substantial benefits.
(6 percent)
CIOs should aim to
Michael Grebe is a partner and managing director in the Munich
Getting into the Driver’s Seat
In the current environment, CIOs should aim to position
themselves as proactive partners to the business, both in
lowering costs and in ensuring that the company can realize its longer-term objectives. To achieve this, CIOs will
have to act decisively on several fronts. Specifically, they
must do the following:
office of The Boston Consulting Group. You may contact him by e-mail
at [email protected].
Claudia van Laak is a topic specialist in the firm’s Düsseldorf office.
You may contact her by e-mail at [email protected].
◊ Work in close cooperation with business unit leaders
to understand business projections in order to derive
an optimal IT budget and realize the required
savings.
IT A

FOCUS: Q&A
Transforming IT
Christian Mardrus of Renault Talks to
Antoine Gourévitch, a Partner at
The Boston Consulting Group
C
hristian Mardrus was
the CIO of Renault
from 2006 to mid2009. He has been a
member of Renault’s
Management Committee since
2008. On June 1, 2009, he was
appointed to a new position as
managing director of global logistics
for the Renault-Nissan Alliance.
Mardrus recently spoke with
Antoine Gourévitch of The Boston
Consulting Group about the
transformation of Renault’s IT
function that he led during his
tenure as CIO—what drove it,
challenges faced along the way,
results, and key takeaways.
When did Renault launch the IT
transformation, and what
inspired it?
We initiated the transformation in
mid-2006 immediately aer I was
appointed CIO. We envisioned it as
a three-year effort. What inspired
the idea to pursue the transformation was the recognition that IT
had issues that needed to be
addressed. The general quality of
service was poor, a fact confirmed
both by internal feedback from the
business and by external benchmarking. And the department had

a real image problem within the
company. CEO Carlos Ghosn, for
instance, thought the IT organization was expensive and not
delivering the expected benefits to
the business.
There were also highly visible
issues with two of our three
outsourcing relationships, those for
application development and
workstations. On the people side,
there was real resistance to change
within IT. People would stick to
their comfort zones and their usual
working practices regardless of
changes to their job descriptions.
And the way IT was organized
wasn’t working, even though the
previous CIO had made many of
the right moves, such as the
centralization of infrastructure and
the creation of application development “factories.”
There was also a strong need for IT
to step up its game to support the
company’s “Renault Commitment
2009,” a new initiative that had
been launched by Carlos Ghosn
Christian Mardrus
Born: 1959 in Aix-en-Provence, France
Education: Engineering graduate of Ecole Polytechnique and
Corps Interministériel des Télécommunications
Career:
Early: Direction Générale des Télécommunications (French telecommunications
authority, now France Telecom)
1986–1991: Peat Marwick International
1991–1999: The Otis Group (organization/information systems, sales, and service)
1999: Joined Renault
1999–2002: Director of Information Systems for Sales
2002–2004: Vice President, Services in the Sales & Marketing Department
2004–2006: Director of the French Sales Network
2006–2009: CIO, Senior Vice President, Information Systems
2008–present: Member of Renault’s Management Committee
2009–present: Managing Director of Global Logistics (Renault-Nissan Alliance)
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early in 2006. This was an ambitious growth plan that set aggressive targets for quality, operating
margins, and volume. The plan
also encompassed a general move
toward a more quantitative
management model for Renault. IT
needed to be able to facilitate
these efforts, particularly in the
areas of new-product development
and international expansion.
What were the transformation’s
specific objectives?
There were three, and we considered them equally important. One
objective was to enhance the
quality of service to the company
in the context of Renault Commitment 2009. Another was to
strengthen the alignment between
the business and IT sides in order
to deliver projects that better
suited the business’s needs. Over
time, much of our global IT
workforce had been centralized in
global IT headquarters, and the
loss of proximity to our internal
clients ultimately had a negative
impact on the relationship between business and IT. So we
began to remedy this by physically
moving some IT teams closer to
their clients. The third objective
was cost optimization. The goal
here was productivity enhancement—rather than straightforward
cost cutting, which can be done
fairly easily by simply reducing the
number of projects.
reduction would come at the
expense of the business side. And
the IT organization viewed the
transformation as just another
round of downsizing. So we didn’t
have much support from anyone
initially.
A key win was finding
€200 million in cost
savings and reinvesting
half in the business side.
Did the effort launch smoothly?
The first three months were
difficult, and at times I felt very
much alone. Again, there was
considerable skepticism within IT,
particularly among the first line of
managers, who had suffered
through several reorganizations
and couldn’t envision how this one
would succeed. But the operational
teams were more open to change.
And things were slow to improve
across a range of parameters.
Despite the fact that we had
implemented our first set of
measures, the KPIs [key performance indicators] were worsening.
Applications didn’t work, and the
help desk wasn’t answering user
calls. Our first efforts to foster
greater teamwork did not succeed,
because the managers doubted
that we could make it work. So no,
the launch wasn’t smooth.
What was the reaction internally
when the transformation was
announced?
When did things first start to
look up?
There was a lot of skepticism, both
from the business side and from IT.
The business was worried that cost
The turning point was the actual
draing of the transformation plan
at the end of 2006. [See the exhibit
IT A
“Renault’s IT Transformation
Followed a Timeline of Major
Milestones and Deliverables.”] A
small group of four or five of us put
the plan to paper, starting from a
blank page. We presented a credible
plan to the IT operational teams
and then gave a convincing presentation to Renault’s executive
committee using a simple document written in plain business
language. The committee responded very positively, telling us, “Now
we understand what you’re trying
to do.” We followed with a presentation to the CEO, which was similarly
well received. In short, we got very
strong buy-in from leaders on the
business side, and the dynamics
started to change aer that.
We accelerated our efforts in early
2007 in order to have some quick
wins under our belt in time for
Renault’s internal IT convention
several months later. A key win
was the identification of a potential €200 million in cost savings,
which we subsequently realized—
and then reinvested €100 million
in business development to help
the business take on more projects
to support international growth.
This was a much more powerful
message to both the business and
IT sides than if we had simply
achieved €100 million in cost
savings. And it reinforced the
message that this effort would be
very different from previous IT
cost-cutting plans. The €200 million
also served as a target and motivator for the operational teams.
How, specifically, did you take
the transformation forward?
First, we decided not to start with a
reorganization, which would have

FOCUS: Q&A
focused the energy of the teams on
internal politics. Instead, we started
by addressing key operational
levers, such as how to reduce time
to market, how to reinforce the role
of the project manager, and how to
streamline infrastructures.
We divided the effort into 11 work
groups and gave each a mission. It
took us about three weeks to dra
those missions. Each work group
was given clear objectives but also
a fair amount of freedom in how to
pursue them.
That said, we took a very hands-on
approach early on to show that we
were serious and to impart a sense
of urgency. With a three-year plan,
people tend to think there’s plenty
of time. But the first year is the
most critical, and we had to
establish that in people’s minds.
There also seemed to be a sense
among some of the teams that
senior management’s dedication
to the transformation would wear
off over time, and we had to
counter that sense of doubt. To
address these issues and instill the
necessary rigor and discipline, we
monitored the teams weekly and
managed many of the details. Aer
a few weeks, everything started to
fall into place. Managers who had
initially skipped these weekly
meetings quickly started attending once they realized that this
was where the decisions were
being made.
organization for the rest of the
company. This decision helped put
a much more positive spin on the
overall program for the IT staff
and made it clear that there was a
payoff for all the effort.
We ramped up the scope and
complexity of the challenges we
addressed over time. We started
with the rationalization of infrastructures, the optimization of
development processes and tools,
and a redesign of the global model
of the IT function, including
renewed worldwide network
contract negotiation, virtualization
of servers, and the creation of a
captive offshore development
center in India. A year into the
program, we added more technical
topics, including a streamlining of
the application landscape and a
simplified project methodology,
At this stage, we also decided to
reinvest the proceeds from the
cost-savings plan in a complete
renewal of the IT infrastructure—
including workstations, which are
a very visible “product” of the IT
Renault’s IT Transformation Followed a Timeline of Major Milestones and Deliverables
Implementation, phase 0:
transformation
preparation
Implementation, phase 1:
detailed planning
and quick wins
Implementation, phase 1:
execution
Diagnosis
Vision workshop
◊ Quick wins identified
◊ Key objectives
◊ Detailed plans developed
◊ Global road map ◊ Executive committee
and savings locked into budget
◊ Overall potential validation
◊ Road-mapping tool put in place
3 weeks
3 months
2006
4 months
◊ 50 percent of actions implemented
◊ World-class KPIs measured
12 months
6 months
2007
Source: Renault; BCG analysis.

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which gave more power to the
project managers. Finally, we took
on projects related to HR management and organization.
In order to enhance the IT organization’s credibility with the
business and accelerate its transformation from an order taker to a
business partner, we put in place
some rules to ensure accountability. We decided, for example, that
no project should last more than
nine months, and that packaged
soware should be implemented
with a maximum of 10 percent
customization.
How were the different streams
managed?
Every senior manager in IT was
put in charge of a topic, in line
with his or her normal area of
responsibility. We also assigned
topics to young managers who
hadn’t yet proven themselves but
whom we thought had potential.
We made any necessary adjustments, including reassignments,
quickly. We also provided support—for methodology, benchmarking, and the like—as required,
including support from consultants.
The goal was to make sure that we
stayed on top of everything and
didn’t drop any balls.
A vital component of the management effort, we determined, was
detailed reporting. We made sure
that we captured all of the necessary information, in detail, on a
weekly basis, and we acted on it in
real time.
In a nutshell, management of the
overall transformation succeeded
What are some of the highlights
of the results?
There are many. We made significant improvements in our quality
of service. User satisfaction
improved by 26 percent globally, as
measured by our monthly survey.
We also delivered on our primary
objective of being able to quickly
restore IT service across the system
in the event of failure. Local
solutions were designed by the
local operating teams—only the
KPIs were defined centrally. So the
teams felt accountable.
◊ World class certification achieved
◊ 90 percent of savings secured
(~65 percent delivered)
◊ All savings delivered
18 months
2009
IT A
Did the transformation stay on
schedule?
Yes. Some projects moved along
faster than others, of course, but
overall we met our milestones.
Surprisingly, we did best on some
of our most ambitious projects,
such as the streamlining of the
application landscape, which had
met with a lot of management
skepticism initially. But we put a lot
of energy and dedication into those
projects and it obviously paid off.
Implementation, phase 2:
ramp up
2008
because everyone knew that his or
her results would ultimately have
to be presented to IT’s management committee, and because no
one could ignore or alter the
transformation’s initial objectives.
We met our cost-reduction targets,
and 100 percent of our first-year
savings were reinvested in new
business projects and modernization of infrastructure. Overall, we
cut our budget by 17 percent, net,
through increased productivity:
three years aer the initiatives were
launched, we are delivering a larger
volume of projects than when the

FOCUS: Q&A
transformation was launched and
at a higher level of service.
We’ve also had considerable
success in some of our more technical efforts, particularly with regard
to the streamlining of the application landscape. And through our
cooperative process and workgroup approach, we developed a
global network of technical
experts. Our corporate teams
based in our headquarters did a
good job of facilitating the network
and ensuring the involvement of
the local teams.
To make sure we stayed focused,
we had defined specific KPIs that
we monitored over the three years.
We didn’t spend hours defining
those KPIs, since the choice
ultimately doesn’t matter that
much. But having them in place is
crucial for allowing simple communication to the teams and keeping
everyone on the same page. And
they’re having an impact. For
example, one of our objectives was
to reduce the number of calls to
the help desk by 20 percent, 30
percent, and as much as 50 percent
in the first, second, and third years,
Driving a Successful IT Transformation: Major Hurdles and
Imperatives
Each IT transformation is unique, by definition. But there are challenges and
must-take actions common to most efforts, as Renault’s experience shows.
At the top of those respective lists are the following:
Hurdles
◊ IT middle management is unwilling to change for fear of losing power
◊ Local IT teams do not trust the corporate center
◊ IT teams that are close to the business have embraced the business’s
biases toward IT and are reluctant to change—the business equivalent
of the so-called Stockholm Syndrome
◊ IT has lost its “can do” suppliers
Imperatives for a successful transformation
◊ Create a shared vision between business and IT of what needs to be
done
◊ Demonstrate commitment that the transformation will happen and that
“this is for real”
◊ Define and clarify the new rules of the game so that all parties know what
is expected and have the incentive to change
◊ Manage the transformation effort—and simultaneously manage the IT
organization throughout the duration of the transformation—“like a business,” with the appropriate focus on areas such as planning, investments,
human resources, operations, and service quality
Source: BCG analysis.

respectively. We achieved 20
percent in the first year, 35 percent
in the second year, and are currently at 44 percent. We also
reduced by half the number of
major incidents.
Finally, the success of our efforts
was confirmed by a third party
when a benchmarking company
endorsed by the CEO certified that
our overall performance as an IT
organization was “world class.” So
we’re very happy with our results.
Did the transformation leave the
IT organization and Renault in a
better position to weather the
economic downturn?
Yes, it did. It has reduced our costs
and made us more agile, which in
turn has strengthened our ability
to support the business.
What are some of the key
lessons you took from the effort?
Perhaps the most important is the
notion that “what gets measured
gets done.” It is vitally important to
set targets, establish KPIs, and
measure. Even if some of your
targets are pulled out of thin air,
they will get people focused.
It is also critical to communicate,
both broadly and locally. People are
eager for communication, especially
during times of change. To address
this, we set up e-conferences on a
regular basis for all IT staff worldwide: on average, between 600 and
700 people (out of a total of over
2,500) attended those conferences.
The conferences consisted of a
30-minute presentation and a
30-minute Q&A. This format gave
everyone an opportunity to interact
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directly with top IT management
rather than having to go through
their traditional line of reporting.
And this type of pulse checking can
do more than simply build morale.
It can maximize the efficient use of
resources. We actively solicited
feedback from more than 1,000
staff members during the transformation regarding how they viewed
the process and their role in it. This
helped us determine where we
needed to focus additional efforts.
What’s more, we found that it can
be very helpful to leverage outside
support, especially when launching
a major effort. Teams can find it
hard to start from scratch in a real
transformation; outside support
helps establish the right starting
point and a platform on which to
build. Using external benchmarks
can also be constructive in maintaining focus and momentum over
time. Finally, we found that using
the Capability Maturity Model
IT A
Integration process-improvement
approach was useful, because it
focused the teams around a
common objective. And working
toward and achieving CMMI Level
3 certification was a real motivator
and made the teams proud.
We actively solicited
feedback from more
than 1,000 staff
members.
operational level, individual team
by individual team. This is time
consuming but critical for keeping
the entire organization involved.
Looking ahead, the next major
challenge for us is to strengthen
our partnership with Nissan.
Beyond that, we see a potential
need for greater cooperation with
other partners in the automotive
industry—so we will need to foster
interoperability and “open” IT
systems within Renault.
Antoine Gourévitch is a partner and
With the transformation behind
you, what are you working on
currently and what are your
future plans?
managing director in the Paris office
of The Boston Consulting Group. You
may contact him by e-mail at
[email protected].
IT top management’s current focus
is to ensure that our results are
sustainable. We’re also working to
strengthen our processes and move
toward continuous improvement.
And we’re engaged as well in
ongoing communication at the

INDUSTRY SPOTLIGHT: TELECOM
Surviving the Coming
Telecommunications Shakeout
How Optimized IT Capabilities Can Drive
Competitive Advantage for Incumbents
by Melanie Bockemühl, Frank Felden, Juliane Kronen, and Claudia van Laak
T
he telecommunications industry is undergoing a radical restructuring, one that poses
significant challenges to incumbents. Deregulation and lower barriers to entry have
sparked an explosion of new competitors,
including cable operators, television networks, media
companies, systems integrators, and equipment manufacturers. Many of these businesses enjoy structural cost advantages over incumbents owing to their leaner operating
models, lower asset intensity, and superior technology.
Most are also less burdened by the regulations and expensive labor contracts that constrain established players.
In concert, the industry’s sweeping move to fiber optics
and IP technologies has unleashed a wave of product and
service innovations, such as VoIP, IPTV, mobile advertising, and social networking. Collectively, these pose a material threat to the economics of incumbents’ traditional
roster of offerings, particularly fixed-line and mobile
voice.
Significantly compounding the challenge for incumbents
is the economic downturn, which has translated into even
greater pressure on both the cost and revenue fronts and
has intensified the need to provide an improved customer experience. The downturn has also raised the specter
of hostile acquisitions—particularly for companies that
have lost significant market capitalization.
In short, the industry is at an inflection point, and incumbents will need to respond quickly and aggressively if
they hope to emerge in a strong competitive position.
Acting aggressively, in this case, means nothing short of
transforming the entire company, starting with the business model and spanning all aspects of operations—
including, critically, IT capabilities. Indeed, as the role of

IT capabilities in new telecom products and delivery continues to expand, IT will increasingly become a competitive differentiator, just as it has in financial services.
In fact, IT capabilities may prove to be the differentiator
in the industry going forward. Hence, it is essential that
incumbents manage the overhaul of their IT capabilities
with particular care as they transform the other aspects
of their business. Doing so could mean the difference between surviving the industry’s pending shakeout and
emerging a leader—or being pushed to the periphery.
Aligning Transformation with the
Company’s Business Model
For an incumbent to essentially reinvent itself, as most
will have to do to survive, it will need to begin with a
clear vision of its future business model. To develop this
vision, the company will need to ask itself several strategic questions and ultimately make a fundamental determination: What does it want its business to look like going forward? Does the company want to be the lowest-cost
provider of commodity-like services? Does it want to focus exclusively on providing access to end users? Does it
want to provide a full suite of services?
We believe that there are ultimately only three viable
business models for incumbents—and for challengers, for
that matter: flat- or smart-pipe wholesaler, connectivity
provider, and full-service player.
◊ Flat- or smart-pipe providers will provide network and a
varying range of enabling services to retailers. These
companies will focus on their core competency as backbone wholesalers. Their overriding objective is to escape the commodity trap by providing smart services.
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◊ Connectivity providers will provide pure network and
access services, including corresponding customer service, to end users—along with limited network-centric
enabling as required.
◊ Full-service providers will provide network, access, enabling platforms, services, and content aggregation offers (for example, Deutsche Telekom’s T-Home Entertain product line) to end users, as well as selective
device-soware customization (such as private numbering plans)—including fee-based and advertisingfinanced offers.
The choice of business model will be driven by the incumbent’s starting position and targeted market segment. Once an incumbent has made this choice, it must
transform itself in five key areas: the product portfolio,
the organizational structure, the business architecture,
the network architecture, and, critically, information technology. (See the exhibit “Successful Telco Transformation
Requires the Redesign and Mutual Alignment of Five
Layers of the Company.”) The product portfolio must be
not only aligned with future market trends and customer
preferences but also built on a limited number of product
and service modules in order to minimize complexity.
The organizational structure should be developed around
customer segments, such as consumer, business, and
wholesale units. The business architecture must have
end-to-end processes that have short cycle times and are
product independent, highly standardized, and automated. The network architecture in many instances will consist of an integrated all-IP network with multiservice and
multiaccess capability. Finally, IT must have a range of
attributes, foremost among them a modular architecture
that is highly flexible and completely aligned with the
business architecture.
Getting it “right” with each of the five areas is vital to the
transformation’s overall success. But the successful transformation of IT is particularly critical. Below we offer
thoughts on what a next-generation telco’s IT capabilities
should consist of. We also address some of the challenges
of implementation.
Aligning and Optimizing IT
For IT to maximize its contribution to the company, it
must be fully aligned with the firm’s business strategy.
Successful Telco Transformation Requires the Redesign and Mutual Alignment of Five
Layers of the Company
Product portfolio
Organizational structure
Must be aligned with future market trends and customer
preferences yet built on a limited number of product and
service modules to minimize complexity
Must be customer-centric and have dedicated consumer,
business, and wholesale units, along with an integrated
network/IT “factory” and shared-service and sharedcompetence centers
Business architecture
Must have end-to-end processes that have short cycle times
and are product independent, highly standardized, and
automated
Network architecture
Must have an integrated all-IP network with multiservice and
multiaccess capability
Information technology
Must have a modular architecture that is completely aligned
with the business architecture, is highly flexible, and can
provide a 360-degree view of the customer
Source: BCG analysis.
IT A

INDUSTRY SPOTLIGHT: TELECOM
Next-generation telcos will be striving to improve cusNote, though, that while all next-generation telcos’ IT will
tomer experiences, bundle products and services in creshare these attributes, specific IT capabilities and designs
ative and appealing ways, and quickly introduce new,
may vary considerably by company. Indeed, there is no
innovative offerings—and IT must be able to support
such thing as an “ideal” IT structure for a telco. Each comthese efforts. This will necessitate having a range of IT
pany’s underlying business model will determine the top
capabilities, among them a high degree of automation,
requirements of a state-of-the-art IT framework. Theresophisticated tracking and problem-solving tools, flexible
fore, different design principles must be applied.
pricing tools, the ability to configure and
reconfigure services quickly, the ability to
Flat- or smart-pipe providers will need a
Connectivity providers
gather and synthesize comprehensive
service-maximizing architecture, which redata, and multichannel support.
quires flexible service-enabling features
will need a costthat allow for differentiating services yet
minimizing
architecture
An optimized IT architecture will therefore
also keep costs under control. Interoperaneed the following elements as its cornerbility will be a key requirement, since most
with no frills.
stones:
telcos will have to build interfaces to the
services offered by the provider. Thus, an
◊ One companywide and overarching product strucopen architecture is essential. Connectivity providers will
ture and a product configurator that is focused on
need a cost-minimizing architecture, one that is superproduct creation. Telecom providers such as O2 (a sublean and highly scalable, with no bells and whistles. It
sidiary of Telefónica) that are focused on innovation
should be run with a rigorous focus.
are fighting to develop powerful solutions in this area.
Full-service providers will need IT to be able to support a
◊ A holistic customer-relationship-management (CRM)
modular approach to product definition—one that, for
system that can provide a single, 360-degree view
example, uses an automated product engine to create
of the customer with a high degree of data integrity
products that combine unique and standardized elements.
and “closed loop,” or end-to-end, campaign manageThese companies will also require that IT enable the efment. Successful attackers, such as 3 (the Hutchison
ficient and consistent mapping of product elements onto
Whampoa subsidiary), have demonstrated the ability
network operations—for example, the real-time provisionto penetrate their customer base deeply with such a
ing and billing of innovative products—because this will
system.
be a key differentiator for these firms going forward.
◊ An order-management and next-generation billing
system that includes real-time and content-billing
capabilities.
◊ A high degree of scalability, flexibility, and standardization, with a limited number of interfaces. France’s
Neuf Cegetel (owned by SFR), which has been growing through acquisitions, has a simple yet powerful IT
landscape that allows the company to integrate every
acquisition very quickly.
◊ A workflow engine that controls end-to-end processes.
◊ One master data file for each customer that includes
contracts, products purchased, demographic data, and
other relevant information necessary to provide a holistic view of the customer.

Implementation
Putting in place the necessary IT capabilities is a challenge, one that many telcos ultimately do not meet. One
company, for example, had decided to launch a new CRM
system centered on commercial off-the-shelf (COTS) soware. (See the sidebar “COTS Soware: A Paradigm Shi
for Incumbent Telcos” for thoughts on the advantages
that such soware can provide.) The IT organization
seemingly had everything in place: it had developed a
well-defined strategy, it had selected a powerful COTS
system, it had engaged a credible systems provider, and it
had mapped out a robust two-year implementation plan.
Nevertheless, the implementation ultimately took five
years; the budget proved to be four times the original
plan; and the project was finally abandoned, creating
more complexity and higher costs for the company than
before the project was launched.
T B C G
What did the IT organization do wrong? It made two basic errors:
◊ It was overly focused on helping the business—it felt it
had to provide the business a powerful solution—and
failed to challenge the business to make necessary decisions about prioritization and focus.
◊ It chose a greenfield, all-in-one approach to implementation—not only for going live but also for resolving all
of the company’s CRM issues through the system. Attempting to simultaneously resolve process issues and
clarify business priorities proved to be too difficult.
Knowing and staying focused on what is important and
determining the right pace of implementation are obviously critical. Regarding the latter, there are essentially
two choices: an evolutionary, phased-in approach or a
greenfield, “big bang” approach. An evolutionary approach can take several shapes, each of which has inherent advantages and disadvantages:
◊ A tweaking systems approach is a reactive optimization
of the company’s current IT architecture. It is mainly
driven by business requirements and aims at adding
new functionalities to legacy systems only when necessary. The approach allows for incremental changes and
iterations. The downside is that system performance is
constantly decreasing while maintenance costs are
rapidly increasing.
◊ A parallel streaming approach entails establishing new
IT platforms to support new products while gradually
retiring legacy systems. The approach has relatively
low risk but can bring high redundancy costs. There is
also the risk that companies will lose discipline in actually retiring systems.
◊ A structural optimization approach is based on clear priorities and actions leading toward the target architecture. It is a function-specific or selective improvement
of the current IT systems. The approach entails only
moderate risks and investments but will always entail
some compromises in terms of architecture, data integration, and performance.
◊ A fast replacement cycles approach is characterized by a
continuously enforced migration from old to new systems and a short system lifetime to keep pace with
IT A
COTS Software: A Paradigm Shift
for Incumbent Telcos
Commercial off-the-shelf (COTS) soware can play a
decisive role in incumbent telcos’ IT transformation
efforts. Indeed, we believe that packaged soware
should constitute 80 percent or more of an incumbent’s
IT architecture. Knowing when and where not to employ it, however, is crucial. A telco must determine
where its competitive advantage lies and use proprietary, customized soware solely in those areas. For everything else, COTS soware should be the default.
Making the leap to commercial soware will be a
sharp break from common practice for incumbent
telcos, most of which operate hundreds of self-developed applications. Although those applications may
have served well in the past, they are not the optimal
choice going forward from the perspectives of flexibility and cost. Proprietary applications require considerable maintenance and upgrades, and the ability
to quickly develop and launch new products and services can be greatly compromised. And the investment necessary to keep those applications up-to-date
and task-ready stands to become materially greater
as competition grows and business requirements
continue to change.
And the cost angle cannot be overemphasized. A typical telecommunications operator spends between
6 and 8 percent of its revenue on IT costs. Our benchmarks show that aer a successful transformation,
operators should be spending no more than 4 percent
of revenue on IT.
market dynamics. The approach keeps redundancies
relatively low but entails a higher risk of customer loss
owing to the introduction of new billing or customercare platforms. (Any event that causes a customer to
reflect on his or her current price plan or quality of
service brings an intrinsic risk of losing that customer
to another provider.)
In contrast to these incremental approaches, a “big bang”
approach consists of building a completely new IT architecture in an effort to significantly reduce IT and business
complexity. Replacing huge parts of the current IT architecture with standard soware packages can deliver stateof-the-art IT capabilities and minimize redundancy costs.
The downside, however, is that there can be enormous
implementation risk. In fact, few telcos have successfully

INDUSTRY SPOTLIGHT: TELECOM
managed the transition. (BT, which spent €12 billion to
completely overhaul its aging networks and corresponding IT, is a notable exception.)
Melanie Bockemühl is a partner and managing director in the Düs-
There is obviously no one-size-fits-all approach to migrating to a new IT architecture. And the state of a company’s legacy systems, as well as the size of the overall
transformation effort, will have a huge influence on the
choice of approach. We believe, though, that because
multiple IT systems will be affected by the transformation, a phased-in migration is typically best. The structural-optimization approach, in particular, is a superior
choice for many telcos.
Frank Felden is a partner and managing director in the firm’s Cologne
seldorf office of The Boston Consulting Group. You may contact her
by e-mail at [email protected].
office. You may contact him by e-mail at [email protected].
Juliane Kronen is a partner and managing director in BCG’s Cologne
office. You may contact her by e-mail at [email protected].
Claudia van Laak is a topic specialist in the firm’s Düsseldorf office.
You may contact her by e-mail at [email protected].
T
he telecommunications industry is undergoing a
massive shakeup, and the threat to incumbents
from a host of new competitors is very real. To
survive, incumbents will need to successfully recast
themselves and transform virtually all aspects of their
business. Transforming IT is a linchpin of that effort
and one to which incumbents must devote particular
care and attention.

T B C G
VIEWPOINT
From Crystal Ball
to Strategic Evaluation
How to Optimize Bets on Technology Trends
by Frank Felden, Thomas Krüger, and Marc Papritz
C
loud computing is hot.
Gartner Research expects it to grow by 21
percent in 2009, with
global revenues passing
$56 billion. Does that mean that every
CIO must reroute his or her technology investments and switch to a cloudbased architecture to stay competitive? Certainly not. We all remember
the buzz surrounding earlier technology trends, such as head-mounted displays, massive parallel processing, and
artificial intelligenceeach of which
was going to change the world. Yet
their impact was ultimately limited.
Some trends, however, did deliver.
Horizontal, common, off-the-shelf soware (such as SAP) replaced billions of
lines of custom-developed code. Digitalization of music nearly killed the
major record labels and built a highly
profitable business for Apple and others. The Internet has irreversibly
moved classified ads, dictionaries, encyclopedias, and much more out of
the hands of offline providers and into
those of online players.
What will be the next big thing?
Which technology trend will turn out
to be just hype? When will we see another technology-enabled disruption
shape an entire industry? These are
easy questions for CIOs whose offices
IT A
come equipped with a functioning
crystal ball. For the rest of us, though,
divining the answers will take a more
systematic process. The three-step approach presented here can help. (See
Exhibit 1.)
One of the key characteristics of our
approach is that it does not attempt to
gauge the value of a given technology
trend by extrapolating from historical
data, as this tends to yield estimates
that are far too optimistic. Instead, the
methodology is based on a sound
analysis of the impact that a technology trend could have on a particular
company in the context of that company’s specific market environment.
Step 1: Trend Analysis
Many companies reflexively follow
the actions of their industry peers.
They view this as a low-risk strategy,
because it guarantees results that are
no worse than those of the competition. However, the next Google or
Facebook will not be created through
imitation. Following the pack also
comes with an opportunity cost because it wastes resources that could
be used for bigger and better bets.
Companies need to systematically
analyze all the possibilities available
to them. The first step is to get an
overview of trends that are relevant
to their particular industry. To speed
this process, BCG has screened the
trends emerging in today’s market
and consolidated them into 11 clusters. (See Exhibit 2.) The impact of
each on a given industry or business
model will vary significantly. (Convergence, for example, offers little to
industrial goods and health care companies but is revolutionizing the telecommunications industry. )
To get a first indication of whether a
particular trend will be relevant, a
company needs to understand its past
IT investment patterns and the extent
to which they differ from those of
competitors. Which trends has the
company already invested in, and
which ones has it ignored? In which
trends are competitors investing, and
have those investments paid off—either by allowing for improvements in
their operating model or by building a
new value proposition in the market?
This analysis will result in a list of
trends that the company should analyze further for their potential to contribute value.
Step 2: Strategic Evaluation
Which trends will deliver the highest
returns for a particular company?

VIEWPOINT
Exhibit 1. A Three-Step Approach Can Help Companies Make the Right Bets on New
Technologies
Trend analysis
Which trends has the
company already invested in?
Core
questions
to ask
Which trends has it not
invested in?
How have competitors
benefited from investments
in those trends?
A list of trends to be
analyzed
Deliverables
Strategic evaluation
Which trends will deliver
the highest individual
returns?
A comparison of the
company’s benefits
received versus those of
competitors
What is the economic value
of the investment?
When will it pay off?
Which trends could enable
new business models?
What is the implementation risk?
Which trends could
generate quantum
improvements in
operational effectiveness?
A list of prioritized trends
A comparison of the
company’s investments
versus those of competitors
Value assessment
A strategic case for
investment resizing or
reallocation
A financial case for
investment resizing or
reallocation
An analysis of the trend
value contribution
An analysis of the
company’s current
investment pattern
Source: BCG analysis.
Which trends will enable new business models and tap new sources of
revenue? And which trends can generate quantum improvements in
operations—allowing the company
to reach a dramatically lower cost
level, for example?
Attempting to gauge a trend’s impact in this manner oen puts the
CIO in a very unfamiliar role: instead of reacting to the business’s
needs, he or she must proactively
offer insights into how technology
can shape the company’s market
and operations. At one insurance
company, for example, the CIO
suggested that leveraging the trend
toward mobility (for example, the
increased use of navigation systems) would allow the business to
better measure policyholders’ indi
vidual risks. This proved to be the
starting point for products such as
usage-based, or “pay as you drive,”
vehicle insurance.
Similarly, a bank’s CIO proposed
leveraging the Web-as-a-platform
trend to create a new product—a
bank-owned platform that could
substitute for a corporate customer’s in-house treasury system. The
ultimate result was a whole new
product line.
Conducting this kind of assessment
allows a company to create a short
list of trends prioritized according to
strategic rationale. When viewed
alongside the company’s current investments, the list will reveal potential gaps and the need for reallocated or resized investments.
Step 3: Value Assessment
A value assessment is oen needed
to get the finance group on board.
The objective here is to develop a
sound financial case for each of the
trends selected in the strategic evaluation—a case that quantifies both
the opportunity and the necessary
investment. The questions to be
asked include the following: What is
the investment’s economic impact
(for example, its net present value)?
When will it pay off ? What is the
implementation risk?
In many instances, answering these
questions and developing the case
for a given investment becomes a
complex task. Deep insight into a
company’s industry and its specific
business model is required to estiT B C G
Exhibit 2. BCG Has Consolidated Current Technology Trends into 11 Clusters
Mobility
y
Web as a p
platform
Convergence
g
G
ee IT
Green
ata management
a age e t
Data
Secu
ty
Security
Se
ce flexibility
e b ty
Service
Standardization
Automation/
IT industrialization
Flexible sourcing
Digitalization
Source: BCG analysis.
mate the potential changes in revenues, costs, and cash flows and to assess the associated risks. But the
exercise is worthwhile, both to validate the conclusions of the strategic
evaluation and to ensure that scarce
resources are allocated appropriately
within the company.
The CIO can and should take the next
step and do the math for different
combinations of investments—trying
to identify potential synergies and
overlapping benefits, for example—
because IT may not be able to secure
sufficient funds to invest simultaneously in all the trends identified in
the strategic assessment. By attaching hard numbers to various combinations, the CIO will have a solid
basis for making a choice among options, if necessary.
IT A
The importance of the value assessment cannot be overestimated. BCG
has developed a proprietary measure,
the trend value contribution, which estimates the potential value delivered
to a business from investments in
technology. A typical outcome of the
analysis described above is for IT to
redirect 20 to 30 percent of its planned
investment—and thereby more than
double the trend value contribution.
A crystal ball would be very nice to
have—but until it becomes standard
issue, CIOs should rely on sound analysis to deal with the challenge of vetting new technologies. The business
implications are far too great to risk
anything less.
Frank Felden is a partner and managing
director in the Cologne office of The Boston
Consulting Group. You may contact him by
e-mail at [email protected].
T
rend analysis and investment
modeling concepts are particularly valuable in the current
environment because they can help
maximize the investment return on
scarce funds. They can also help position a company for longer-term success
once the economy finally rebounds.
Thomas Krüger is a project leader in the
firm’s Düsseldorf office. You may contact him
by e-mail at [email protected].
Marc Papritz is a project leader in BCG’s
Düsseldorf office. You may contact him by
e-mail at [email protected].

OUTLOOK
Gaining Momentum
An Update on the Innovation Value Institute’s
IT Capability Maturity Framework
by Andrew Agerbak, Stefan Deutscher, and Ralf Dreischmeier
W
e introduced the
IT Capability
Maturity Framework (IT-CMF),
developed by
the Innovation Value Institute (IVI),
in our first IT Advantage publication.1 In this article, we provide an
update on the IT-CMF and present
an example of how companies are
starting to use it to better understand and improve their IT capabilities—and, in the process, deliver
greater value to the business.
tion—of practices and processes,
and thereby improve business value
creation. The framework also provides an effective communication
tool in discussions with senior executives, including the CEO and
CFO, for outlining how the IT organization is performing currently and
what it aims to achieve.
A Global Gold Standard
for IT Management
◊ Takes a holistic approach and incorporates all activities of an IT
function into a single framework
The IVI is a global consortium of
more than 40 leading organizations
from industry, academia, and the
public sector. Its members include
AXA, BP, Chevron, Google, Intel, Microso , and SAP. (The Boston Consulting Group is also a member and
one of the IVI’s steering patrons.)
The IVI’s objective is to develop an
industry standard for managing IT
for business value.
The IT-CMF is a key element of that
endeavor. The framework enables
CIOs to determine where to focus
within the IT organization in order
to improve IT maturity levels—that
is, the robustness and sophistica
The IT-CMF builds on and aims to
integrate other existing IT frameworks.2 But it is unique in that it
does the following:
◊ Works on the principle of open
innovation—with members from
all parts of the IT ecosystem sharing knowledge and insights to
develop an industry standard
based on proven best practices
◊ Encompasses the fundamental
objective of improving business
value
◊ Uses a consistent methodology to
assess and establish maturity levels for all IT activities
◊ Provides a clear road map and
communication tool for improv-
ing IT’s performance and determining how much business value
will be delivered by doing so
Thus far, more than 120 companies
from around the world have participated in the development of the
IT-CMF.
Content Development
The IT-CMF is structured on the basis of four key dimensions and 36
core processes. These 36 processes,
each of which is categorized under
one of the four key dimensions, describe all major activities of an IT
function. (See Exhibit 1.)
Any process will consist of a number of capability-building blocks.
For technical infrastructure management, for example, those building
blocks include server and storage
management. For each block, the
IT-CMF defines five maturity levels,
from “initial” to “optimizing.” This
1. See IT Advantage: Putting Technology at
the Core of Business, BCG report, February
2009.
2. These are frameworks such as Capability Maturity Model Integration (CMMI),
Control Objectives for Information and
Related Technology (COBIT), and Information Technology Infrastructure Library
(ITIL), among others.
T B C G
Exhibit 1. The IT-CMF Framework Covers All Major IT Capabilities
Managing IT like a
business
IT leadership and governance
Business process management
BP Business planning
SP Strategic planning
DSM Demand and supply
management
ITG
BPM
CFP
RM
AA
Capacity forecasting and
planning
Risk management
Accounting and allocation
Organization design and
planning
SRC Sourcing
REM Resource management
ODP
IM
Innovation management
PQM
Performance and quality
management
Service analytics and
intelligence
SAI
Managing the
IT budget
FF
Funding and financing
BGM
Budget management
PPP
Portfolio planning and
prioritization
BOP
Budget oversight and
performance analysis
Managing IT for
business value
Managing the
IT capability
EAM
TIM
PAM
Enterprise architecture
management
Technical infrastructure
management
People asset management
Intellectual-capital
management
RAM Relationship asset
management
RDE Research, development, and
engineering
ICM
SD
TCO
Total cost of
ownership
BAR
Benefits assessment
and realization
Portfolio management
PM
IAP
Investment analysis
and performance
Solutions delivery
Service provisioning
User management and training
UED User experience design
PPM Program and project
management
SUM Supplier management
SRP
UMT
VCM
Value chain management
CAM
Capability assessment and
management
Source: The Innovation Value Institute.
assessment helps the IT organization understand its current state of
maturity, make comparisons with
benchmarks and peer companies,
and define a target maturity level
that will generate the most value for
the business.
The IVI continues to expand the
number of IT processes that the ITCMF addresses. It has recently developed models for innovation management, enterprise architecture
management, and benefits assessment and realization, and has tested
them in pilots with companies from
several industries. The IVI is also in
the final stages of pilot assessments
for technical infrastructure management and service analytics and intelligence.
IT A
Building on these early successes,
the IVI has completed the development of models for an additional 8
processes that are now ready to be
piloted. It has also begun developing models for 14 more processes
and will soon begin work on the remaining 9.
Results from Pilot
Assessments
As mentioned, the processes already
finalized by the IVI have been scrutinized in a number of pilot assessments. These assessments have
helped the participating companies
gain deep insights into their current
IT maturity levels. They have also
given the companies a road map for
making improvements and translat-
ing them into greater value for the
business.
An example of one such assessment—of the enterprise architecture
management (EAM) of a mobile
telecommunications operator—
sheds light on the value that an ITCMF assessment can provide. Serving tens of millions of customers,
the telecom operator spends more
than €1 billion each year on technology that is operated by about 2,000
staff. Historically, IT had allowed the
business to give higher priority to
short-term business benefits than to
architecture simplification. Over the
years, however, this led to a rather
complex IT landscape comprising
multiple billing platforms, about 80
customer-service applications, and

OUTLOOK
duplicate retail systems. Not surprisingly, the cost to run and change IT
was constantly increasing, as were
the already-long lead times for the
development of new capabilities.
With the company’s core business
vulnerable to accelerating commoditization, tension was mounting.
There was pressure on the IT function to dramatically simplify the systems landscape to drive down
costs—while simultaneously building a flexible platform that could
accommodate new lines of business.
And there was pressure on the business to swallow the bitter pill of
giving up its long-standing practice
of getting just about anything it
wanted with regard to systems.
Realizing that a serious paradigm
shi could only be sustained with
strong architecture management
and supporting governance, the
company decided to use the IT-CMF
EAM model, which measures maturity against eight key capabilitybuilding blocks, to make a first assessment and to help shape its EAM
function’s future direction. (See Exhibit 2.) The initial assessment
placed the company’s EAM at maturity level 2 (“basic”), although some
of its capabilities were still at level 1
(“initial”). (See Exhibit 3.)
The strengths identified included
the following:
◊ Depth and breadth of technical
skills
◊ Strong alignment between architecture and business needs in
some domains
◊ Significant improvement in technology and business alignment
over the past two years
Opportunities for improvement included the following:
◊ Target architecture and road
maps were defined for major domains, but gaps and inconsistent
business buy-in were the norm in
about half of the domains
◊ Architecture practices were loosely defined and heavily reliant on
individuals taking the initiative
◊ The value of architecture was not
communicated to the organization,
and metrics were not tracked
◊ Architecture skills were present,
but a fast-paced project focus had
Exhibit 2. The IT-CMF’s Assessment of Enterprise Architecture Management Considers
Eight Key Capabilities
Architecture planning
Defining a vision and road map for various IT domains by anticipating
business needs and trends and developing architecture components
Strategic IT planning
Using architecture principles and blueprints to align business needs with IT
capabilities, define portfolio strategy and direction, and allocate resources
Architecture
framework
Having a framework of standards, templates, and specifications for
organizing and presenting business and technical architecture components
Architecture
processes
Having a methodology for defining, developing, and maintaining
architecture components
Architecture
governance
Having principles, decision rights, rules, and methods for driving
architecture development and alignment in the organization
Architecture value
Defining, measuring, and communicating the value and impact of
architecture to the business
Organizational
structure and skills
Defining, planning, and managing roles, responsibilities, and skills for
architecture management
Communication and
stakeholder management
Managing communication to and the expectations of business and IT
stakeholders interested in or influenced by architecture management
Planning
Practices
People
Source: The Innovation Value Institute.

T B C G
led to a lack of architecture ownership and “big picture” thinking
Accepting the need for a paradigm
shi , and at the same time recognizing that most elements of enterprise architecture management
will be of pivotal importance to
the business going forward, the
company’s chief technology officer
(CTO) recommended that the company reach an overall target maturity level of 3 by the end of 2010
while pushing for more advanced
capabilities in the areas of communication and stakeholder management and architecture planning. Weighing resource and other
business constraints, the company
decided to concentrate its immediate focus on the highest-impact
areas and actionable improvements:
◊ Completing an overall target architecture that was aligned with
the company’s business strategy
(that is, linked to regionalization
and a likely increase in external
partners)
◊ Measuring architecture value,
communicating it to stakeholders, and gaining buy-in from the
finance department to track key
performance indicators for cost
and architecture, both overall
and by domain—in this case, the
IVI assessment helped the company identify four ways to identify and quantify opportunities:
• Review recent project shortcomings (such as duplicate development efforts) that could have
been avoided with a more mature architecture management
• Identify underutilized IT assets (for example, 60 percent
of the company’s servers were
being operated at less than 10
percent of their capacity) and
redundant data (for example,
the company generated as
many as 16 duplicate copies
of certain call-data records)
that were the consequence of
immature architecture processes or that could be transformed through more careful
architecture management
• Identify business objectives
that require greater architecture maturity—for example,
Pan-European service delivery
will save €7 million but will
require new cross-border architecture-governance processes
Exhibit 3. An EAM Assessment of a Mobile Telecom Operator Revealed Key Weaknesses
and Opportunities
1
Initial
2
Basic
3
Intermediate
4
Advanced
5
Optimizing
Targeted
maturity
increase
+2
Architecture planning
4
Planning
Strategic IT planning
+1
3
Architecture
framework
Architecture
processes
Practices
Architecture
governance
+1
2
+1
2
+1
3
+2
Architecture value
3
Organizational
structure and skills
People
+1
3
Communication and
stakeholder management
+2
4
IVI’s assessment of initial maturity level
IVI’s suggested one-year target
IVI’s suggested 2010 target
Source: The Innovation Value Institute.
IT A

OUTLOOK
• Use IT-CMF EAM benchmarks
and best-practice case studies
to assess specific opportunities
◊ Putting in place a strong ownership model for architecture, with
an enterprise architect as the
overall owner and clearly defined
domain owners for specific building blocks of the architecture
(such as customer billing)
In its discussions with business
stakeholders, the results of the ITCMF assessment for EAM helped
IT leadership make a convincing
case for a single architecture
team—across IT, networks, and
data—with greater investment in
skills (including external recruitment) and a strong end-to-end
mandate, from strategy through ongoing operations. The assessment
helped create more than €50 million in tangible business value for
the company. This was achieved
with the aid of several levers:
◊ Completing the target architecture landscape and improving
architecture compliance reviews
to prevent costly duplicate projects, such as the company’s four
recent overlapping, €5 millionplus data-warehouse projects
◊ Improving architecture governance across countries, thus enabling the consolidated delivery
of geographically unconstrained
services—the company has identified an initial opportunity of
about €8 million and will quantify others in a follow-on phase

◊ Delivering an architecture-simplification agenda with the appropriate governance, including
a reduction of approximately 40
percent in customer service systems that will deliver an estimated €37 million in benefits
The company also expects to realize
further opportunities in the form of
reduced time to market and improved data quality. For the CTO,
leveraging the IT-CMF turned a bitter pill into icing on the cake for
both IT and the business.
For More Information
To learn more about the IVI,
including how to become a
member, participate in its
research program, use its emerging tools, or enroll in its executive
education, go to the IVI’s Web site
at http://ivi.nuim.ie.
Andrew Agerbak is a principal in the
London office of The Boston Consulting
Group. You may contact him by e-mail at
[email protected].
Going Forward
The IVI’s IT-CMF has already generated business value for companies and continues to gain momentum. Once all processes are
completed (likely by early 2010),
the framework will provide a comprehensive, structured assessment
capability—a true gold standard for
IT management. It will also serve
as a vehicle for CIOs and CTOs to
substantiate and communicate IT’s
value to their counterparts on the
business side.
Stefan Deutscher is a project leader in the
firm’s Berlin office. You may contact him by
e-mail at [email protected].
Ralf Dreischmeier is a partner and managing director in BCG’s London office and
a board member of the Innovation Value
Institute. You may contact him by e-mail at
[email protected].
Given the IT-CMF’s potential, it is
not surprising that both the U.S.
launch of the framework in February 2009 and the European launch
in June 2009 met with great interest
from both companies and analysts
alike. Some of those companies
have subsequently joined the IVI,
participated in a pilot, or asked for
an assessment. We invite you to do
the same.
T B C G
Note to the Reader
Acknowledgments
The authors thank their many
colleagues at The Boston Consulting
Group who contributed to this
publication, especially Astrid
Blumstengel, Oliver Heinen, Timothy
Mandefield, Vanessa Lyon, and
Stuart Scantlebury.
We also thank Gary Callahan, Angela
DiBattista, Kim Friedman, Gerry Hill,
Simon Targett, and Janice Willett for
their help in the writing, editing,
design, and production of this
publication.
For Further Contact
Wolfgang Thiel
Senior Partner and Managing Director
Global Leader, Information Technology
practice
BCG Cologne
+49 221 55 00 50
[email protected]
Andrew Agerbak
Principal
BCG London
+44 207 753 5353
[email protected]
Melanie Bockemühl
Partner and Managing Director
BCG Düsseldorf
+49 2 11 30 11 30
[email protected]
Stefan Deutscher
Project Leader
BCG Berlin
+49 30 28 87 10
[email protected]
IT A
Ralf Dreischmeier
Partner and Managing Director
BCG London
+44 207 753 5353
[email protected]
Thomas Krüger
Project Leader
BCG Düsseldorf
+49 2 11 30 11 30
[email protected]
Frank Felden
Partner and Managing Director
BCG Cologne
+49 221 55 00 50
[email protected]
Marc Papritz
Project Leader
BCG Düsseldorf
+49 2 11 30 11 30
[email protected]
Michael George
Researcher
BCG Düsseldorf
+49 2 11 30 11 30
[email protected]
James Platt
Partner and Managing Director
BCG London
+44 207 753 5353
[email protected]
Antoine Gourévitch
Partner and Managing Director
BCG Paris
+33 1 40 17 10 10
[email protected]
Claudia van Laak
Topic Specialist
BCG Düsseldorf
+49 2 11 30 11 30
[email protected]
Michael Grebe
Partner and Managing Director
BCG Munich
+49 89 231 740
[email protected]
Hanno Ketterer
Partner and Managing Director
BCG Amsterdam
+31 20 548 4000
[email protected]
Juliane Kronen
Partner and Managing Director
BCG Cologne
+49 221 55 00 50
[email protected]

© The Boston Consulting Group, Inc. 2009. All rights reserved.
For information or permission to reprint, please contact BCG at:
E-mail: [email protected]
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