Sources of Productivity: Accenture cuts the waste from clients' IT budgets

U.S. productivity grew 8.1% in the third quarter, the Labor Department told us last week. In the short term, that's great news for company profitability, but bad news for workers. In the medium term, though, higher productivity is good for both companies and workers, because if demand starts to grow, companies will still need to hire more workers to meet that demand. But where does increased productivity come from? The second post of this three-part series focuses on another company that shows its clients how to be more efficient.

As I explained in my first installment of this series, application portfolio management (APM) is a consulting process that helps companies get more out of their information technology spending. Accenture (ACN) calls its APM process Application Portfolio Optimization and Renewal. I spoke with Adam Burden, global managing director at Accenture, who said that APOR's theme is simple: "Companies have bloated application portfolios that collect debris from years of investment."

Burden suggested that companies spend about 5% of sales on average for IT -- but there is a wide range depending on the industry -- from 15% for financial services firms to 2% for mining firms. But most companies spend 40% of their IT budgets on applications. APOR cuts application-development costs by as much as 40% while shifting the way the remaining amount is spent.

Specifically, APOR helps companies reduce the 80% of their application budgets spent on maintaining existing applications to 20% -- freeing those resources to help support applications that can help the company compete more effectively. APOR does that by following three principles:

  • "Don't Boil the Ocean": Burden told me that companies have as many as 3,000 to 5,000 applications. In his view, this is too many to examine. To solve this problem, Accenture has a process called Portfolio Optimization Potential (POP), which takes a couple of weeks to complete. POP identifies the key potential opportunities for companies to consolidate overlapping applications and reduce costs.
  • Vertical business portfolio consolidation: Accenture finds opportunities to decommission systems supporting business units that companies plan to close or reduce.
  • Horizontal platform efficiencies: Accenture also identifies ways to cut costs by moving applications from mainframes or minicomputers to less costly platforms.

Ultimately, by following these principles, POP highlights a few areas with the greatest potential for cost-cutting. As Burden explained, Accenture then presents the client with a range of opportunities that can generally reduce the company's application costs by between 33% and 66%.

To achieve this, Accenture will examine a vertical business unit and interview people who work there in order to map out processes and identify overlapping applications. According to Burden, one particularly egregious example was when Accenture found 12 invoicing applications within a single business unit.

Although it did not make its clients available for interviews to discuss their experiences using APOR, Burden presents a compelling case that Accenture provides clients with significant benefits.

Peter Cohan is a management consultant, Babson professor and author of nine books, includingCapital Rising (due in June 2010). Follow him on Twitter. He has no financial interest in the securities mentioned.

Meet Peter Cohan at The World Money Show Orlando, Feb. 3-6, 2010, at The Gaylord Palms Resort.

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