By Gil IrwinGiridhar Rao and Growing complexity in information systems poses a significant challenge to senior managers. Mergers and acquisitions, changing markets, and customer demands have encouraged piecemeal investments in new functionality. The resulting patchwork of systems often fails to provide adequate support for key business objectives, such as: Quality decision making: Current systems provide vast amounts of data, but sometimes yield little valuable information Speed to market: New products and services must reach the market before an opportunity passes, but companies are unable to facilitate a quick new product launch because their systems don't share common capabilities Cost containment: Efficient, low-cost delivery of products and services is critical to success, but an overly complex portfolio of offerings leaves little opportunity for scale advantages Complex and poorly integrated IT systems impede performance, and they are expensive. Yet, as businesses grow more intricate, the demand will only become more pressing for robust systems that can support business objectives cost effectively. Instead of realizing economies of scale and therefore improved cost effectiveness, companies are experiencing unit cost increases due to the effects of complexity. However, before pointing to complicated, expensive IT systems as a root cause of poor performance or escalating costs, senior managers need to step back and take a hard look at how their systems became so complicated. The answer may surprise them. Understanding ComplexityExcessive organizational and business-process complexity is the root cause of many IT problems. Complexity is sometimes driven by misalignment between business needs and IT goals. In other instances, IT goals are aligned with an ill-defined business model. For example, in service-based businesses such as insurance, a poorly planned product architecture drives fragmentation, complexity, and high cost in the systems required to support the business model. Complexity should be eliminated when it provides no clear benefits, but managed when justified by enhanced business value. Offering meaningful customer value, variety, and differentiation at the lowest cost requires a certain amount of business complexity, and that inevitably leads to some IT complexity. To minimize complexity, management should structure the full spectrum of products, services, and business processes in an organized component-based architecture. As a result, there is a need for companies to understand the key business and IT complexity drivers to be able to manage complexity:Key Complexity Drivers: An explosion in the variety of products and services due to an increasing need to customize offerings for individual customersOverly standardized or customized processesLack of strong governance mechanisms-especially in IT-leading to decision making in silos, system proliferation, and a fragmented architecturePoor business understanding of customer needs due to a lack of decision-making tools that can provide business insight given available data and a fragmented technical infrastructureOnce an organization understands its unique mix of complexity drivers, it can begin to address IT complexity as part of a larger business focus on optimizing overall corporate complexity. There are four components in any successful complexity optimization plan. 1. Creating Efficient Product and Service Architectures Scale advantage typically occurs when overhead and other indirect costs are spread across high volumes. However, the perceived need for unique products, coupled with the lack of an agreed-upon way of how to "componentize" these features, often drives unnecessary complexity into a business, and results in a tangled network of inefficient IT systems. Ideally, a portfolio of products and services should be managed to balance the value of variety relative to the cost of complexity. It is essential to take a customer-focused view to determine the value and necessity for product differentiation. Companies that do this successfully can then create a product and\/or service architecture made up of a manageable number of basic frameworks around which they align their business processes. This unleashes efficiencies of scale and isolates sources of variety and complexity. Technology can play a pivotal role in adjusting the product and service architecture. For example, product configurators are rules- or constraint-based platforms that enable defined relationships between products\/components and their workflow implications. Streamlining the product and service architectures enables IT to build comparably aligned IT architectures and reduce overall complexity.Exhibit 1 provides an example of improved product management. In this case, a financial services company thoroughly examined its product offerings to determine what customers valued. The company then reduced the number of its product offerings from 150,000 to 1,500 and cut 30% of its operations and technology costs in the process. By taking the product-management approach outlined in Exhibit 1, the company achieved its objectives quickly and avoided a typical multimillion-dollar, multiyear IT system overhaul. 2. Process Alignment Manufacturing productivity has outpaced that of the service industries over the last few decades. Concepts such as lean manufacturing and its most recent form, tailored business streams (TBS), can help identify areas of commonality and complexity, and can limit cost. TBS simplify businesses by aligning major components of infrastructure and processes to the product\/service management strategy (see Exhibit 2). They assist management in determining when to implement basic and repeatable processes, predefined customer options, or custom solutions. These concepts apply equally to processes within manufacturing and service industries. As tailored business streams are adopted, information systems can be aligned more easily to the revised business processes. TBS frequently result in reduced IT costs because they allow these systems to be streamlined. They also tend to reduce ongoing maintenance efforts, and intricate elements into unique components TBS concepts can also be applied to systems and IT architectures. Emerging technologies provide for component-based architectures, isolating and reducing complexity. Integration platforms such as Enterprise Application Integration (EAI) and new technologies such as Web Services are enabling simplification of IT infrastructures with minimum recoding\/redesign. For example, one firm was able to consolidate eleven administration systems into only two by isolating its complex system components from its base systems with the use of object and integration technologies. 3. Organizational Alignment and Governance Effective IT governance requires the alignment of IT strategy with business strategy. But how do organizations achieve that alignment? Streamlined decision making is the key. Businesses that first attend to creating proper organizational alignment find that this approach drives simplification. Organizational alignment involves three key issues: Who decides what (boundaries, decision rights, and so on)? What do they need to know (performance measures, decision support, and so on)? What is in it for them (promotions, bonuses, perks, and so on)? Effective demand management, well-defined decision rights, and economic transparency are essential to IT governance. Economic transparency is especially critical, as it leads to well-defined budgets and a clear understanding of the total cost of ownership, including the costs of complexity, data migration, and system retirement. When people have clear authority, the right information, and incentives to act in the best interest of the organization as a whole, rather than for any individual business unit, complexity is minimized. For example, a corporate-wide product development oversight board could drive and maintain the product architecture; an IT governance board could optimize resource deployment across different business units. 4. Focused Information Technology Wholesale IT renewal programs have typically been considered a prerequisite to effecting process change, but they have actually become a roadblock and often a distraction. Such renewal programs have generated three challenges: Oversimplification and minimal process change results in automation to deal with process complexity (i.e., addressing the symptom and not the root cause). Too much internal focus on the re-engineering process itself diminishes focus on the customer or the market. One-size-fits-all IT approaches make the scope of system renewals too broad, leading to very costly and time-consuming implementations. As a result, too much of the process change is dependent on the "killer application" being right, which becomes an excuse for capturing the benefits. An integrated and focused IT approach can be a catalyst for complexity reduction when IT and business issues are integrated and customer and market perspectives are incorporated into the mix. Key enabling applications such as decision analytics, rules engines, product configuration models, and workflow and business-process management strategies can offer many benefits, including: Isolating complexity in front-end applications without introducing complexity in the back end Reducing complexity through the automated application of predefined business rules Decreasing the time required to reconfigure supporting business technology For example, a leading pharmacy benefits manager estimates a 10% increase in annual revenues through successful implementation of a product configuration application (see Exhibit 3). Getting Results Before proceeding with an IT complexity optimization plan, organizations should leverage the lessons learned by others pursuing similar programs (see Exhibit 4): Businesses can achieve significant improvements in their capabilities as well as sizable cost savings through a rationalized business portfolio and a new IT focus aimed at leveraging architectures to manage complexity. However, simplification efforts are ideally driven from business transformations, and there are many paths to optimally managing complexity. When embarking on a complexity optimization program, a company should search for quick hits to help fund the program. In the end, a well-executed plan will pay for itself many times over and will unlock the many lasting benefits of a simplified state.Find the full .pdf version of this report on www.boozallen.com.