Bayer Corp., the drug and chemical maker, is wrapping up a massive deployment of SAP ERP applications that started in 1999 with its consumer-care unit and has been extended to the company's pharmaceutical, biological, animal-health, polymers and services businesses. To offset the hefty investment, which the company would not disclose, Bayer has moved aggressively to consolidate a swarm of data centers into two, helpdesks into one and desktop support into one outsourced operation. This allows the IT budget to remain flat going into 2004, at about 2 percent of revenue, says CIO Greg Babe.
Because the SAP rollout has coincided with business-process re-engineering and restructuring--particularly within the IT organization, which now operates as a standalone service contractor to other units, with its own profit and loss--it's difficult to measure the impact of the SAP apps, Babe observes. "It's all cumulative," he says. "Businesses aren't static. You can say, 'This is where we were, this is where we are now, and things are improving,' and you can point to several concurrent projects."
Researcher Kelly acknowledges that many IT shops overspent on large ERP deployments in recent years. He advises a more surgical approach to cutting administrative costs using ERP apps, especially for companies with smaller budgets than Bayer's.
Bayer's consolidation mantra is being repeated in IT shops of all sizes as they try to organize the chaos created during the boom, when business leaders snapped up all the new technology they could find for fear of losing a competitive edge. The problem was compounded during the soft years.
"Because formal IT was given project requests and wasn't getting them done due to budget constraints, business lines got more savvy about wrapping IT projects into their own business projects," Kelly says. Such "shadow projects" used to account for about 5 percent of all IT expenses; now they account for more than 10 percent, he says. One financial services company he studied recently was spending about twice as much on IT than the formal IT budget suggested.
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