Business process re-engineering (BPR) and downsizing were the key buzzwords of the early part of this decade.
In recent months both terms have rather fallen out of fashion. The advocates of BPR and downsizing have attempted to keep the issues alive by coming up with new terms that cover the same broad areas.
The Handbook of IBM Terminology, published by consultancy Xephon, gives an example of the genre. ?Re-hosting. The new and frightfully trendy name for downsizing, as people realise that downsizing is no longer the fashionable thing to be seen doing,? the book maintains. In addition to rehosting, there are other terms which convey more or less the same meaning, such as rightsizing.
Downsizing was always an over-simplified solution to users? problems. In essence, BPR and downsizing consultants, manufacturers and resellers all advocated the removal of large machines, usually a mainframe, and its replacement by smaller machines, most commonly a minicomputer. Later, the minicomputer itself became the victim of the downsizing trend as the PC-based local area network (Lan) became powerful enough to carry out tasks previously undertaken by the mini. If current predictions of the impact of the network computer (NC) are even halfway accurate, the PC itself could become the next victim.
In one sense, downsizing was always a misnomer. Consultancy Bloor Research tackles this issue in its report, New Computer Hardware: Options and Comparisons. ?The word downsizing was appropriate only in the sense that the physical size of the computers that the applications were moved to were smaller. In some instances, applications were being migrated to computers that were actually more powerful, even if they were desktop or small tower machines,? it says.
As long as two years ago, when the report was first published, Bloor Research was urging users to take a cautious approach to the ?allure of downsizing?. Mainframe Mips (millions of instructions per second) cost five times as much as mid-range Mips, which are in turn 20 times more expensive than PC Mips. Proprietary operating system Mips are five times more expensive than Unix Mips, according to the report. In such circumstances it is easy to see why companies, particularly when just coming out of a recession, would be financially attracted to the concept of downsizing.
But downsizing may not be as simple or as attractive as it first seems, the report warns. The target environment may not offer the performance it appears to; migration may require more hardware and software than was at first apparent; staff may need new skills which could require retraining; delays may occur in planned developments because of the burden of migration and not all applications may lend themselves to migration to a new platform leading to data fragmentation.
Some companies that adopted a policy of downsizing have actually reversed the process and remigrated applications back on to their larger systems, although few are willing to admit to doing so publicly.
There is a need for both a business and technological, as well as a financial, case to be established before a company decides to downsize ? in the past only the latter criterion has been used to justify the move.
BPR often goes hand in hand with downsizing. Ever since Michael Hammer and James Champy published Re-engineering the Corporation in 1993, BPR became a buzzword for change. Yet in 1995 Champy was forced to admit in another book, Re-engineering Management, that most re-engineering initiatives had failed. Hammer reached similar conclusions and confessed that he had allowed his engineering background to lead him to a lack of appreciation of other issues.
What drove both BPR and downsizing in many instances was the need to decentralise the business structure and distribute power to departments in order to cut overheads during the recession. Breaking up the monolith of the corporation was deemed to be the business model of the late 80s and early 90s. The advocates of BPR argued that by using IT staff, numbers could be reduced and the business made more efficient. ?The old joke about BPR is that it stood for Big Personnel Reduction,? says Rob Wirszycz, director general of the Computing Services & Software Association (CSSA).
John Willmott, a consultant with analyst Input, believes the process of downsizing has been largely completed. ?If you go back 10 years, a lot of people decided to downsize from their mainframes to an AS/400. More recently they have downsized to a Lan-based system. A lot of those moves were to decentralise the organisation. That intense activity of restructuring has finished. What most people are trying to do now is get more connectivity into their Lans,? he says.
Input conducted a survey of major users last year and found that a large number of companies were planning to install even more PCs. ?What people are doing now is upgrading their Lans. The first wave of Lans are now totally inadequate now that you have email and the intranets. Email is the killer on a lot of these Lans,? Willmott says.
He believes that email and intranets will create a demand for more powerful servers, probably NT-based and ?some of which will be very powerful indeed?. Wirszycz argues that re-engineering of businesses is still taking place but in a different environment. Cost cutting is no longer the prime motivating factor, the efficiency of the business is now the driving force, he says.
It is easy to see why IT vendors were such passionate advocates of BPR and downsizing. For the suppliers, business devolution inevitably meant that more departmental hardware and software systems were required. At a world economic conference held in February, both Bill Gates of Microsoft and Intel?s Andy Grove castigated European companies for not spending more on IT and lambasted them for not following the US model.
According to Gates, there is an increasing gap between the use that US business makes of IT and that of their European counterparts.
Throughout the early 90s, a large number of ?silver bullet? solutions were propounded by IT suppliers and IT management consultants. In addition to BPR and downsizing, outsourcing was also advocated as a panacea to the problems of reshaping a business to make it more competitive.
The IT industry has always been good at predicting the future, but it usually gets its sums wrong. The paperless office forecast in the 70s turned out to be a chimera; desktop publishing in the 80s failed to have the impact that its proselytisers suggested; the cashless society, also predicted in the 70s, is only now becoming a reality and even so there are still plenty of banknotes in circulation. Recently, Lloyds Bank, which acquired TSB in 1995, decided to end its outsourcing deal with software house Sema Group, a move that was foreshadowed by Midland Bank?s decision to terminate a contract with EDS. Many companies are looking again at the supposed advantages of BPR, downsizing and outsourcing.
One of the things that fuelled the demand for downsizing was the move to open systems. The beneficiaries of this demand were the companies that could supply Unix systems such as Sun, HP, ICL, and Digital. The PC suppliers also benefited as the demand for high-end servers proliferated.
?The issue of open systems enabled the balance of power to be shifted from the IT vendor to the IT buyer,? Wirszycz says. He claims that the issue of open systems is now largely over, but has shifted to a new plain. ?The point of the open systems debate in terms of the original debate has been won but beyond that we have people looking for standards. These may not be de jure standards but de facto standards.?
Richard Timberlake, enterprise marketing manager for Hewlett Packard, believes that the process of downsizing is still continuing, albeit in a different format, and no longer driven by the cost factor.
?In essence, what we are seeing is companies buying technology but not necessarily for cost cutting. The cost of hardware has fallen so much that price is less of an issue. Down-sizing is still key because people want information at any cost,? he says.
According to Timberlake, the rules governing BPR have changed. ?BPR is a different question from downsizing. In the past business has always driven technology. The internet and the impact that it can have in terms of disruption means that technology is now driving business.?
Businesses always have been under pressure to change, but in the past decade that pressure has increased enormously. Privatisation and deregulation have forced companies to sharpen their competitive edge and to harness technology to aid them. Supermarkets are now acting almost as high street banks, while building societies have become banks and banks pension, insurance and mortgage providers. The banking community has coined a term to describe this process, disintermediation, meaning that the new pattern of business is cutting out the middle man.
What drove the initial move toward downsizing was the increased power of emerging technologies and the expense of running larger systems.
There is a sense in which there is nothing new about downsizing. The trend first began with the introduction of the minicomputer and its increased use in the 70s. The mainframes which dominated the previous two decades were proprietary and expensive. Companies seeking to reduce costs simply off-loaded some applications on to these new machines. The introduction of the PC continued the trend as well as attracting a new generation of users to computing.
The difference between the mainframe-to-minicomputer downsizing and the present situation is the business philosophy behind downsizing ? BPR. Where earlier downsizing was dominated by the requirement to reduce overheads, the BPR/ downsizing trend reflected a move to business decentralisation. There is no doubt that the downsizing boom brought a sales bonanza for manufacturers and resellers and, initially at least, considerable cost savings to users.
But there is now a question mark over the long-term benefits that downsizing was supposed to bring. The Gartner Group has estimated that the cost over a five-year period of an individual PC in a mid-range, mainframe or corporate installation is between $25,000 and $40,000. Typically, it is this type of installation which choses to downsize its systems. Even companies such as Compaq, one of those to gain from the downsizing phenomena, admitted in a report last year that the actual support cost of a PC is four times the price of the initial purchase.
More importantly, the Compaq survey of 250 IT directors and managers found that 73 per cent saw the cost of PC support as an increasingly important issue. Of those that control the purse strings, 250 financial directors and managers, only four per cent estimated support costs at over 100 per cent of the initial purchase price.
Downsizing was superficially attractive to many financial and, it must be said, IT managers because of the cost savings of moving applications to smaller systems. What nobody had bothered to work out was the ongoing costs of support.
Trends come and go in the IT industry as fast as in the fashion business. The latest trends are for the internet and the NC. The latter may well herald the next wave of downsizing fever with the PC Lan as its target. The Compaq survey found that 56 per cent of IT directors and managers believe the NC will reduce desktop computing costs.
Downsizing is no longer regarded as the all-embracing cost-cutting solution. If the NC is the harbinger of a new wave of downsizing, then it is likely that before embarking on such a course IT managers will look more closely at long-term support costs. But for the moment, the downsizing book looks to be firmly closed.
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