Sunday, June 16, 2024

Not Just Another Audit

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One of the steps more and more companies are taking is to conduct “optimization audits.” Great…just what we need: Another audit, another acronym (OA), and another question to answer when someone higher in the organization than you asks about how optimization audits work — and if they’re required by some government agency.

They’re not required, and they’re not part of anyone’s formal compliance agenda. But they do make a whole lot of sense. Several companies I work with have requested them because they’ve made some major technology investments and they’d like to know if they’re getting the bang for the buck they expected (and were told to expect by the vendors who provided the hardware and software, as well as the consultants who assisted in the implementation of the monster applications or rejuvenated infrastructure).

Optimization audits look at existing computing and communications infrastructures and applications and assess their potential value to sales, marketing, growth and profitability.

These audits are different from the more conventional total-cost-of-ownership (TCO) or return-on-investment (ROI) assessments that companies often make before they approve business cases for new technology projects. Optimization audits focus on unexploited business value from investments already made. Put another way, they’re designed to answer the question: “What the hell did we get for the $100 million we just spent? And you better not tell me that all we got for all that cash was a zero latency network.”

The greatest need for OAs is in companies that have made major investments in enterprise resource planning (ERP), customer relationship management (CRM), and network and systems management (NSM) applications. The price tag for these investments easily can exceed $100 million. But there’s a life-cycle problem with these mega applications: Implementations tend to consume so much time, money and effort, that payback tends to be tactical and operational for way too long — and to the relative neglect of strategic payback.

For example, let’s assume that a company implements an ERP system to integrate disparate financial reporting systems. Most of the effort is devoted to the consolidation of financial data and the standardization of financial reporting.

Long-Term Strategic Impact

While operational efficiency is obviously valuable, the existence of a common transaction processing platform enables much more than standardized reporting of financial data. An ERP application, for example, can integrate back-office, front-office and virtual office (Internet) applications. If the databases are also standardized across these applications, then cross-selling and up-selling may be possible, along with supply-chain integration and even dynamic pricing.

CRM applications can help define “whole customer” models with long-term life cycles that can be monetized year after year. These are the kinds of dividends that enterprise applications can yield if they’re pushed to their full capacity — capacities that even the vendors themselves often fail to stress. In their desire to sell operational solutions they sometimes fail to sell the longer-term strategic impact of their technology.

Optimization Audits are designed to answer the following kinds of questions:

  • Now that we have a standardized (ERP, CRM, NSM) platform, what are the quantitative tactical and operational returns on the investment we’re seeing?
  • What are the potential tactical and operational benefits we’re not seeing?
  • What strategic benefits are we seeing?
  • What strategic benefits are we not seeing?
  • How can the business be transformed by the efficiency of the platform and its possible extensions?

Optimization Audits take a top-down approach to holistically model the company’s information, product and service processes and their relationship to the standardized platform they’ve implemented. The top-down profile is informed by the existence of the enterprise platform (which, more often than not, is implemented from a set of bottom-up priorities). The last step is the connection to business value metrics, like sales, growth and profitability.

Optimization Audits should be conducted by companies who have implemented large enterprise applications or massive infrastructure platforms for primarily tactical or operational reasons.

While these reasons are solid, they’re incomplete. Additional strategic payoff should be defined — and pursued — as vigorously as they pursued tactical and operational payoffs. But remember that strategic payoff is only meaningful when it’s defined around business — not technology — metrics.

The days are long gone when a CIO can authorize a $100M project to make some applications talk to one another or manage technology assets more cost-effectively. It’s no longer about just cost management: it’s now — and forever — about growth and profitability. Optimization audits are all about finding the optimal path from technology to profitable growth.

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