Even though Newport News Shipbuilding is the only builder of nuclear-powered aircraft carriers for the US Navy, this does not mean the company can just sit back and wait for the next order. Like all industries, shipbuilders must innovate to keep their primary customer coming back. There are other shipyards, after all. And, if companies, even ones as specialized as Newport News, stop improving, they will be overtaken by rivals that do.
To guard against such an outcome, Newport News wants to build today's aircraft carriers using tomorrow's technology. For as far back as anyone can remember, 3D ships have been built using 2D blueprints. Today, Newport News is embracing cutting-edge technologies to not only build better ships, but to successfully cut the cost of building those ships. In order to achieve its goals, the company is embracing digital technologies. This requires company management to trust that these investments will provide a significant ROI.
In order to achieve trust, the company must have faith in IT—that IT can be trusted to manage the complex, company-wide initiatives and to do so without going over budget. Since implementing TBM and cost transparency two and a half years ago, Newport News IT has done just that.
"This is about building trust," said Bharat Amin, CIO of Newport News. "In order to get funding for digital transformation, and we're talking multi-millions of dollars, we had to go to the Board and show how we're managing our technology cost. We were able to essentially have a seat at the table for the board discussion through the data we provided in the TBM report that justified how we're managing our total technology budget.”
Part of what that report shows is that transformation spend accounted for just five percent of Newport News' IT spend in 2016. Because of TBM, in 2017, that number was 10 percent. Now, in 2018, that number is 24 percent.
How cost optimization funds innovation
One of the earliest examples of cost transparency paying off for Newport News IT is the same-day business approval of a multi-million dollar CapEx investment in Integrated Digital Shipbuilding (IDS)—the largest transformation initiative, digital or otherwise, Newport News has embarked upon since switching from diesel to nuclear-powered aircraft carriers in the early 1960s.
“This was a milestone win for IT”, said Josh Koziel, Newport News’ TBM Manager. "While we have a pretty stable base of OpEx funding, we have to compete every year for CapEx funding. The shipyard has immense amounts of equipment outside of IT. To get the capital we have today is something we've never seen before. Ultimately, to have the trust of the business to get the capital funding that this project entails is significant."
We have to compete every year for CapEx funding. To have the trust of the business to get the capital funding that this [digital transformation] project entails is significant." Josh Koziel TBM Manager, Newport News Shipbuilding
The successes are being driven by everyday cost savings activities that TBM enables. The top of that list is application rationalization. Like any large, complex enterprise, Newport News has a lot of applications and a lot of places where those applications can live–from mainframe to client/server to the cloud. In the past, trying to get that under control was an exercise in futility.
"Before we had the TBM taxonomy, we went through rationalization efforts where we struggled to show what the total cost of any application was," said Koziel. "Since we've stood this up, we're looking to eliminate not only versions of applications but titles as well. This year we've already eliminated 70 versions. The goal is to eliminate 40 different titles to save on the cost of the software and the labor to support so many redundant applications."
Even though some in the organization felt it would be impossible, the mainframe also will be retired soon and replaced by the cloud. This frees up significant budget and allows IT to push back on requests for new applications.
"We talked about the 30 percent cost increase to support this digital initiative," added John Ord, Newport News’ TBM Director. "The business is looking to us to offset a portion of that cost by becoming more efficient. This is helping us do that."
Efforts around end-user devices have netted similar results. Now, whenever someone needs a new PC, they no longer get a workstation. They get laptops, which provide more value by giving users the flexibility they need to work from anywhere.
"That's a big part of our digital transformation," said Amin. "When we laid out our vision we said 'We want to go more mobile and put information in people's hands wherever they are so they don't have to be sitting in offices.' We couldn't have done that without having some details around total cost of ownership between a desktop versus a laptop versus a tablet."
Re-orientating IT around service
Prior to the adoption of TBM, Newport News IT did not have a defined service portfolio. TBM allowed IT to tailor the business application services portion of its portfolio to mirror the business process architecture used throughout the company.
This enabled direct alignment of application total cost of ownership (TCO) to the consuming business units, giving the senior staff the ability to rationalize their application portfolio and look for areas of improvement.
One example where this was particularly useful was managing Newport News’ business demand for Splunk (software for searching, monitoring, and analyzing machine-generated big data). With the potential for quickly escalating storage costs and licensing, TBM cost transparency allowed Newport News IT to develop a Splunk service based on total cost, unit rate, and forecasted consumption.
"Anybody with access to the Cost Transparency tool can see that, 'Okay, this application cost a million dollars a year,' but now you can see how much of it is storage, how much of it is servers, how much of it is projects, and how much of it is just a direct purchase—even down to the service desk ticket. They can see in any given month how much is in that application TCO even for service desk tickets," said Doug Copeland, Newport News’ TBM office lead.
Some Business Units within Newport News have been able to reduce their end-user device counts by as much as 10 percent. Additionally, IT has shown that only 10 percent of the costs traditionally allocated to IT were actually under the direct control of IT. Without this ability to show actual costs down to the service desk ticket, having meaningful conversations with the business about why they can and cannot impact cost was difficult at best.
"Unless people see total cost and what it's costing them and what value they're getting for it, they think it's free," said Amin. "When we do a showback and show that bill, it really opens their eyes. They say, ‘Oh, I thought PCs cost a thousand dollars, not seven or eight thousand per year."
Improving IT's credibility with the business
Even though cost transparency, application rationalization, and cost savings are all important, what TBM has really done for Newport News’ IT department is change perceptions. The business now sees IT as a business and finally understands the value they are getting from the division. This has opened up a new dialogue and provides them with an avenue to make decisions that could shape their IT costs.
Before TBM, IT did not feel they could impact the company's financial health through technology consumption. With the help of the service owners and the TBM office, line of business leaders are more accountable for their costs because they can see the consumption and value in a way that makes sense to them.
"If today’s CIO isn’t bringing change to the business or driving change through digital transformation, then they're going to be left behind," said Amin. "If you really want to drive change, you need to establish trust. To establish trust, you need to provide full transparency on IT cost."
"It's the business' money," added Amin. "If you show it to them as their money, how you're spending it, and the value you're creating with it, you're going to build trust. And once you build trust, the discussion will be about the value and change you can create, instead of just reducing cost. When the Business and Technology are aligned by design, the only thing possible is Business Transformation."