Given how dramatically digital technologies have changed many aspects of the way people work and live, it may seem counterintuitive to say that digital is the new frontier in business. But for many, digital transformation has been a slow-moving, evolutionary process focused on ERP system implementation and back-office automation.
The fact is, digital advancements far outstrip the ability of many corporations to develop justifiable business cases for adopting them. And the driver of that dynamic is IT's long history of hidden costs, including the value those dollars represent.
"Digital is the next post-industrial revolution that is happening as we speak, but to make that affordable we must address ‘black box’ costs to free up space for investment," said Gopalan Natarajan, Unilever's IT Finance VP.
Digital is the next post-industrial revolution that is happening as we speak, but to make that affordable we must address ‘black box’ costs to free up space for investment. Gopalan Natarajan VP IT Finance, Unilever
As a provider of fast-moving consumer goods (FMCG) to most of the planet, there are three main components to Unilever's digital challenge. The first is omnichannel, where consumers are interacting with the company and its products via e-commerce and social platforms but also physically at hundreds of thousands of retail locations. The duality of these interactions has a major impact on how they market and sell their products.
This leads directly to the second component of Unilever's digital challenge: selling more "intelligently." For example, how do you market to someone online if they prefer to buy at a physical location and vice versa?
And, finally, the third challenge: how do you reimagine your supply chain and fulfillment operations to meet all of these varied needs—without blowing up IT's budget?
"The entire line between digital and physical is increasingly getting blurred," said Gopalan. "We are heavily focused on the impact of e-commerce in our sales efforts and the way we work backward, in terms of our intelligent and analytics-based selling. So, our second component is a wider use of predictive and machine learning-based analytics in the organization. This is an absolute imperative.
"And then finally, the third leg is the end-to-end operations—supply chain, finance, manufacturing, all the way down to logistics and selling. How do we break down silos and look at operations end-to-end, to automate and outsource where relevant? That's where Unilever Enterprise Technology & Solutions (ETS) looks at both process and technology hand-in-hand, so we can tie up process changes with automation or with IT."
And of course, this all comes at a cost. Managing the cost of technology today is no longer just a matter of making sure that IT's budget doesn’t exceed a certain percentage of revenue. Technology is so fast moving, pervasive, and connected that it is no longer merely tactical, deployed primarily to streamline processes or save costs. It is very strategic, impacting the company’s entire operations from cradle to grave.
Using run-the-business dollars to fund transformation
According to Gopalan, prior to adopting TBM and Apptio in 2016, 80% of Unilever's IT costs were a black box. By the middle of 2017, they had flipped those numbers using TBM practices. In 2018, with the cost transparency provided by Apptio, Unilever had pulled 10% out of ITs run budget and increased their change-the-business budget by 11%. "What we have been able to do with the introduction of TBM and the use of Apptio Cost Transparency is to drive the right conversations with our business about the true cost of the services they are consuming. This was the process that we started in 2017 and have now adopted globally."
"Bringing TBM on board, and particularly cost transparency, was an absolute game-changer for us," said Damian Zannelli, former European CIO who is currently leading the Office of the CIO at Unilever. "Just to bring this to life in terms of the costs to Unilever Europe—and you can extrapolate this to the other clusters as well—roughly 25% of the costs were directly attributable to us locally, while the remaining 75% were global costs, which were originally landing in the local P&L after fiscal allocation based on turnover.
"That was the black box. Cost transparency allowed us to open it up and clearly define for each of the services what we are providing to the business and what the TCO is for that service. The consequence of that was we could now have a proper discussion with our business counterparts, with the European president, with the European CFO, to say, 'Look, these are all the services that you have. Are we getting the right value from a business perspective and, if not, what are the levers we can change?'"
TBM has revolutionized the way the technology team is managing the dialogue and has moved from reducing costs to driving value. Using TBM and cost transparency to drive chargeback not only enables local clusters to optimize infrastructure and rationalize applications and services based on business need, actual usage, and justifiable outcomes, it gives them the decision-making authority to pick the innovation projects that are right for their regions.
“Our journey to increase the dollars for change the business further came from our business alignment where we implemented the ZBI (Zero Based Innovation) process,” said Zannelli. “This brought together the owner of demand and the owner of the budget. As a consequence of the implementation of ZBI, our innovation budget increased by 23%.
"What is so good about ZBI is that the business is taking so much ownership, not only in prioritizing IT, but also in terms of defining the benefits and checking them."
Using Cloud Cost Management to guide the journey to cloud
Unilever is embarking on a set of transformation programs that will accelerate the journey to the cloud, unlocking benefits in terms of cost, agility, and new capability. Even though it's still early days, with Apptio Cloud Cost Management (CCM), Unilever will be able to see the all-in costs of public cloud, allowing the Infrastructure teams to make true apples-to-apples cost comparisons with on-premises solutions.
"We have a preference to go to the cloud because we are trying to move out of the data center," said Denise Padayachy, Unilever's IT Finance Director. "While it might be cheaper to be on-premises, in the longer term, it's often going to cost us more. So, we make that decision every time we evaluate a new project or when a new application comes online. In the future, CCM will help us evaluate if we are optimizing our cloud licenses, if we're optimizing our cloud spend, and how to manage our vendors."
Improving planning and perception
Prior to TBM, forecasting and planning were primarily finance activities. Today, using the IT Planning module from Apptio, Unilever has redesigned the process to give budget owners control of all their IT targets and forecasts. This means local organizations have more ownership and are now more directly accountable for hitting their targets.
"Since we implemented the TBM discipline around transparency in planning and governance, alongside the engagement framework that we've also put in place, we've been able to drive the right conversations between IT and the business," said Rachel Carson, Unilever's TBM Office Manager. "The IT organization is able to add value, assessing the risk and opportunities, rather than just putting the numbers together from a huge collection of different spreadsheets."
The feedback that Unilever's technology team has received regarding this change has been incredibly positive from users at all levels of the business, helping improve the business' perception of IT as an enabler of change versus an innovation roadblock.
"People now feel Enterprise Technology & Solutions (ETS), which covers a number of shared services, in finance and in technology, is an integral part of the business," said Gopalan. "And that is the big change that this has achieved in the last few years. If I look back three years to when I entered my current role, IT was a closed box, a silo. Technology was seen as a high-cost organization. There was immense pressure from the Unilever executive team to reduce that cost.
"Today, the dialogue is much different. We have taken huge amounts of cost out, but at the same time, we can talk about both cost reduction and technological innovation in the same breath. And that, to me, is the best outcome that we have achieved using TBM and Apptio."
»Read next on Emerge:
- Industry 4.0: What the fourth industrial revolution means for IT, an interview with Rhonda Gass, CIO, Stanley Black & Decker
- Great-West Life embraces TBM to recover costs, fund innovation, and reinvent IT
- TBM facilitates Asurion's move to the cloud, unleashing innovation