Most organizations have the same problems, just at different times and on different scales. But the one constant is that there isn’t enough money to fund every priority. Even in an environment where investment dollars are being added, the full list of programs can never be funded. That why it’s incumbent on all of us to save money. Maybe it gets added back to the investment pool, maybe it goes into the investors pockets. But saving money is always a good thing.
The most common problem I’ve faced in my career in relation to cost savings is how to get buy in from the application leads. How do I get them to think like owners? Refer to the most basic economic principle, “incentives drive behavior”. How are you incentivizing your people? I’m sure you pay them well and you have some sort of bonus program to recognize their efforts. I’m here to tell you that isn’t enough. You need to place a bounty on savings.
It’s not as easy as putting up a poster from the old west and waiting for the results to roll in. Let’s talk about how to do this in the most successful way.
First, you need to fully understand your application TCO. You may recall from my other posts that I consider this the holy grail of TBM. With a solid understanding of your application cost profile, including manpower and infrastructure, you’ll have a solid starting point. Ideally you will have a couple years of data to use as a baseline.
Next, you need to lock in the incentive program. My view is that you pay out 15% of the first year run rate savings. This needs to be put in a separate pot from your bonus pool.
Now you need to lay out your expectations for your app owners. Let’s use an example. You have a legacy application that costs $3m per year to run. You can prove this with solid application TCO data. You tell the application owner that they will receive 15% of the savings and it will certainly attract their attention. Give them a target. It’s perfectly acceptable to say that a bounty will only be paid on savings over 5%. If they save $300k (10%) off the run rate, that will mean $45k in their pocket. But what do you expect from them in order to collect this generous prize?
First they need to attack run costs. I’m sure you would argue that this is part of their job anyway. However, with this incentive they look at every cost and every hire like an owner. You will go from every potential hire being at the top of your salary band to more modest cost resources. You will see your team drive a harder bargain with vendors and be passionate about negotiations. More importantly, they will come to you more often with ideas rather than waiting for direction.
The next focus is the change budget. I’ve heard some CIOs say change budget is out of their control and is driven by the business. I think that’s bullshit. The business has a wish list, but it’s on the app owner to help the business prioritize those requests. The app owner should help them decide where they get the most bang for the buck. They can also serve the vital function of keeping the business demands in check. Again, your app owners go from “yes” men/women to owners. The app owner can also work with the team to extract more productivity. A team may be willing to work longer days for a period of time if the payoff is more dollars in their pocket at the end. You will certainly have fewer requests for incremental hires. You’ll probably have more demand for cheaper grad hires as backfills.
Now you have to measure the savings. Only direct cost savings will be considered. You can’t eat allocation savings. Teams should have to demonstrate how the run rate reduction is achieved. Trust me, they will have no problem demonstrating savings when there is money at the end. Formats can vary by company, but make sure you have a handle on how the dollars left the org.
Now is the fun part, the payment. You need to pay people in a very public way. You want to show people that the program works and it can be lucrative. For the first one, I’m not above a comically large check for a photo op. This is the way you market the program. Include it on your news letter, put it on the company chat. Be creative and deferential to the team. Give them the respect they deserve as an owner. Do this happily knowing you just empowered your people and impressed your management at the same time. A rare win-win.
A few caveats. The bounty only applies to run rate savings. No one is allowed to cut back on travel or training to pocket the dollars. Also, folks can’t unreasonably sweat hardware assets to hit their number. All that does is push cost down the road. I would allow for recruitment dollars to be included. This encourages teams with less turnover and makes the app owners more price sensitive in this space. However I would give out this portion on a lagging schedule. Finally, the bounty can only apply to “impactable” costs. If your price of real estate goes down (and they didn’t drive that decision), it gets excluded. Be very specific with your team about what’s in or out.