To support growing business demand while keeping IT costs flat, LyondellBasell continuously optimizes IT resources for value by showing the business its consumption, cost, and choice while promoting a cost-conscious culture across IT. Among the many outcomes of its TBM program are retirement and migration of applications and harvesting of software licenses.
LyondellBasell (NYSE: LYB) is one of the world’s largest plastics, chemical, and refining companies and a member of the S&P 500. LyondellBasell (www.lyb.com) manufactures products at 56 sites in 19 countries. LyondellBasell products and technologies are used to make items that improve the quality of life for people around the world including packaging, electronics, automotive parts, home furnishings, construction materials, and biofuels.
Lyondell Chemical and Basell Polyolefins had just merged a year earlier when the global financial crisis of 2008 hit the petrochemical industry. The new company, LyondellBasell, filed for Chapter 11 protection in 2009. More than a third of the IT budget was slashed. When LyondellBasell emerged from bankruptcy in 2010, it was set on a path for growth. IT was not.
“The previous CEO made it clear that he would exercise cost discipline across the organization and, particularly with shared services departments like IT,” said Joe May, service delivery manager for LyondellBasell, “His expectation was that, as the company started making money and began ramping up hiring, IT would have to meet that rising demand creatively—meaning we could not ask for more money, we would need to get better about how we spent it.
The remaining IT staff worked longer hours under the ‘do more with less’ mantra. At times, it was a bit disheartening. The IT leadership team cautioned the CEO and executive leadership team about the risks of under-funding IT. “We were running very lean. There were no other cuts that we could make that would not have a noticeable impact on the business. At that point, we looked at pulling IT personnel out of the field as well as shutting down applications. My concern was that we would ultimately hurt the business by losing key talent and with it, the ability to continue operating critical IT-supported business services.”
According to May, “The business responded by asking IT to itemize expenditures so that senior leadership could make more informed decisions about how to spend scarce dollars. This is how we began our TBM program.”
Identifying opportunities to redirect dollars while meeting the businesses’ growing demand for IT services was not easy. The low-hanging fruit had long been picked. Staff was downsized. Spend with vendors was already consolidated and renegotiated. There were no big ticket innovation projects in process to pause or cancel.
“We are in a business with tight margins,” May explains. “We are not a technology company. We support a largely blue collar workforce. IT is here to help individuals do their jobs more effectively—this includes using IT applications to help increase safety while producing chemicals, helping procurement keep track of track of orders and ship product, etc. It was clear that IT needed to be diligent in becoming a low-cost provider.”
May had approximately eight weeks to identify opportunities to redirect dollars because the annual planning process was beginning. During this process, the organization would determine how much funding would be allocated to IT, based on each business unit’s projected profitability for the next fiscal year. This made IT’s job particularly challenging because many business leaders did not understand how their profits were being allocated to IT. “We had to explain to business leaders that some of their business units have employees that rarely use IT services, while others used every IT service imaginable,” May said.
Initially, May turned to the general ledger. However, he soon realized that the general ledger was not granular enough to show relationships between singular and shared costs—like costs for one application versus costs associated with installing enterprisewide applications. As a result, it was especially challenging to relate costs to IT services in a way that allowed business units to provide effective feedback about how they used IT services. It also seemed impossible to use the general ledger to identify new cost savings opportunities that did not risk business health.
After hearing about TBM and seeing a demo of Apptio, May believed it would meet the organization’s top three requirements: 1) translate costs into services the business units could give feedback on; 2) provide granularity to make information actionable; and 3) automate the process starting with raw IT and financial data to get fast results.
Providing transparency in data quality costs
May and the TBM team at LyondellBasell didn’t have the luxury of considering whether they should wait for data to improve. They only had eight weeks until the next budget cycle and meetings with the business about their IT allocations. Fortunately, cost transparency was a priority for the CIO as well, so IT managers made a point of sharing whatever data they had very quickly.
“The message came from the CIO down that TBM was an urgent priority,” remembered Peggy Cantu, senior implementation engineer at LyondellBasell. A group of managers were sent to Apptio training held on-site and came away understanding what data they needed from what sources in order to get the reporting they were looking for. “We had 100% buy-in from the managers, so we got all of the basic data we needed very quickly.”
“We jumped in with both feet. We pulled the data, started pumping it into the model, configuring rules to build up the model. As planned, we were live in eight weeks and showing our first cost transparency dashboards to IT and business leaders.”
– Joe May, Service Delivery Manager
“Showing Apptio reports to people that want to use them drove conversations on specific ways to fix or enhance or expand data, often in ways we couldn’t have anticipated,” said Samir Banker, senior implementation engineer. “We’ve been continuously improving and enhancing data since we started.”
Rather than getting defensive about criticism of their hard work, the TBM team was quick to admit shortcomings in their data, model and reports. This invoked a collaborative spirit with stakeholders.
“That first model was rough. I mean, there were things in there that were way off, and we knew that. And when people would say ‘Wait, that doesn’t make sense’ we’d say, ‘Hey, you know what? You’re right. We were looking at it the wrong way.’ And we’d fix it. Everyone felt that just the fact that we were attempting to do this correctly and gave everybody their fair shake of their portion of IT spend, it just really made everybody feel a lot better about the whole process.”
The TBM team was able to quickly meet their first goal of showing what percentage of IT spend was driven by each of its 5 business segments and 18 business units. And they were able to show them much more.
“It was a bit of an eye-opener for a lot of our business leaders in two big ways,” May remembered. “One, they realized that they were using a whole lot more IT than they imagined. Maybe in the back of their minds they just thought everybody got a computer and a phone and just went about their business. Second, they realized that there was a whole lot more to what they were consuming. They had no idea there were so many incremental costs to running an application.”
Cantu says that most business units can ultimately control 60% to 75% of their cost, even if some of it takes some longer range planning and execution. Giving the business greater clarity into the cost/quality levers they can pull to control those costs is a continuous improvement process.
Putting facts about cost on the table has allowed the IT-business relationship to evolve from questioning and defending the numbers to what to do about them. “Now every conversation we have with our business client to right-size cost ends up being a conversation about where to improve efficiency and service.”
Making reports actionable
While engaging people to improve the data, the TBM team was also careful to configure and show reports that were meaningful to their audience in both content and form. The TBM team shares some of what they learned about what works to spark engagement and action on the data:
Make it visual. “We learned quickly that we can’t come at BUs with spreadsheets of numbers in columns. It’s really hard to guide a conversation when your audience is trying to do arithmetic in their head,” May said. He advises clear, simple charts and graphs to illustrate the information you want to discuss.
Make it relative. “A quarter of a million dollars spent in a quarter is pretty meaningless unless you compare it to something else,” said May. Was it the same the last two quarters or did it change and by how much?
Make it actionable. “We structured information around actionable items,” May said. “So we don’t just say here’s the cost of your workstations. We say you have 1000 workstations, here’s the list of them, and here are employees that have more than one.”
Make it interactive. “Apptio reports are more actionable than spreadsheets or standard reports because they can have drilldowns into multiple levels of detail,” Cantu explained. “Our newest reports on IT consumption go down to the individual user level. They’re able to filter and slice and dice exactly how they want, and go to very detailed levels on their costs.”
Make it competitive. “We configured reports that let users do a side-by-side comparison with another business unit or location,” said Banker. “They can use slicers to compare themselves in a lot of different ways. It’s helped tap into the competitive spirit to get creative in ways to be more efficient.”
After a series of mergers and acquisitions, LyondellBasell had accumulated a large portfolio of applications with significant overlap. Whether infrastructure was rightsized was beside the point. The application portfolio itself needed to be rationalized. “We had been expending great cost to support applications that offer relatively little business value,” May said.
While the business is the ultimate arbiter of the benefit it derives from its applications, it can only assess value by considering whether the benefit is worth the cost. With chargebacks now calculated according to each BU’s consumption – especially the applications they use -- the TBM team began providing the business with highly granular transparency into the total cost for each of its 1800 applications, and their cost drivers.
Examples of what the business can explore in interactive dashboards for each one of its 1,800 applications:
- Breakdowns for Hosting, Support and Contracts (with contract numbers to quickly find detail outside of Apptio)
- License and renewal costs
- Task-level detail for support cost (for larger applications, an application field was added to its time-tracking tool)
- Application usage statistics
- Last known update
- Vendor’s end of life date (when the software will no longer be supported)
In addition to deep dives into each application, the portfolio itself was categorized by business purpose and other attributes to help the business see and quantify the cost of overlaps in functionality and candidates for consolidation.
Several new insights emerged from the analysis. For example, many enterprise applications that were discontinued in 2010-2011 were still running in production in 2014, a possible indicator that the application could be rarely used (and therefore a candidate for retirement or migration to archive), or if used frequently, a potential operational or cost risk.
Apptio also helped the team prove that there is no such thing as “free” for IT. “We’ve got a CAD (computer aided drawing) viewing tool for our engineering folks. There’s no license fee, it’s just “freeware” viewer. But it sits on 500 workstations and generates an enormous amount of support calls. So for a free application, it’s very expensive from a support labor perspective,” said May. To support a business request, May’s team also distributes and supports RealPlayer, racking up previously unseen labor costs to gather requirements, package it for deployment, schedule, manage changes and handle incidents.
Another interesting finding is that a lack of incidents can be an easy way to spot a potentially under-utilized application. As May explained, “If it’s been running in the environment for so long without an upgrade or maintenance or any support calls, maybe it’s not providing any value. Is it even being used? It’s not something you see with applications people depend on. While Apptio doesn’t contain all the information to make a decision, it often tells you where to look further.”
The result of the application rationalization effort so far includes 120 applications decommissioned (mostly in manufacturing, their initial rationalization focus), 170 targeted for migration, and many desktop software applications retired.
Software license reclamation
Employees frequently move between different job positions at LyondellBasell. The TBM team discovered that even after employees had changed roles, they were still assigned expensive software licenses they no longer needed, particularly for their ERP system.
The team now provides business managers with reports on ERP application usage that includes employee names, the type of license they are assigned, and the cost of that license type. Managers were then able to un-assign licenses for employee that no longer required access, and to reassign users who did not require the “Professional” user license, which is 14 times more expensive than the “Standard” user license.
By avoiding the purchase of renewals and additional user capacity across its various plants, the company freed millions of dollars for other uses.
Operationalizing for adoption and action
The TBM team doesn’t wait for decision-makers come to the data. They take the data to decision-makers, with regular meetings and operationalized processes to continuously optimize costs. This includes 19 quarterly IT Cost Review meetings with senior IT leaders, plant managers, and local site IT managers for 29 sites worldwide.
To engrain TBM methodologies into everyday operating rhythms, TBM analysts trained local IT Management in locations across the United States, South America, Europe, and Asia to facilitate their own TBM meetings and to report back their findings.
IT is encouraged to be proactive with its business partners in suggesting ways to optimize cost. Components of performance reviews and bonuses for some IT employees are determined by their ability to present a case to the business for retiring or migrating a certain number of applications.
“Although Finance controllers tend to focus on numbers bigger than $10 million, when it comes to operating cost, the Executive Leadership Team sees potential for any cost that can ultimately be influenced,” May said. “Apptio helps bring details to light that may be materially insignificant for public financial reporting, but irresponsible to ignore when striving for a more efficient operating model.”
To encourage behavior change in IT consumption across the company, the TBM team created a website called “Opportunity Tracker” that engages managers across the entire company in IT cost optimization. “Anyone can go in and log their goal to reduce costs. And then we track it quarterly to see how they’re doing and publish the results.” In 2014 there were 20 opportunities that proved successful, totaling $260,000 in annual savings.
May credited automation with making cost transparency reporting repeatable and efficient enough to operationalize the TBM program across the company. “Maybe we shouldn’t be so reliant on a software product but frankly speaking, going through the Apptio processes, generating the reports within Apptio, doing the cost modeling in Apptio is what drives all of the TBM-related conversations that we’re having. We’ve all got things to do. Everyone’s very busy. So Apptio provides a medium for us to frame those conversations and then show the impact of the decisions that come out of them.”
Confessions of a TBM skeptic
As a self-described “IT guy,” Joe May may have seemed an unlikely choice to lead a financial transparency initiative. Yet his conversion from IT skeptic to TBM champion provide valuable insights into why traditional approaches to IT cost reduction and transparency can run into inertia and resistance within infrastructure and operations. Following are May’s comments, compiled from various interviews:
I was not happy to be volunteered for TBM. I’ve been an IT guy all my life. I do not have an accounting background. I don’t really like finance. I can’t even balance my checkbook.
I saw TBM as a finance role and just another form of cost reporting or accounting that our Finance organization was already doing. I figured that it was a fly-by-night thing, that we were just going to crank up and do some reports and no one would ever look at them again, right?
But as we started getting into the details, started marrying all that operational data to cost, it was the insight into the operational data that started getting me excited. You just don’t realize what people out there are using. And you think you know. It seems obvious. They’ve got a computer. They’ve got some software. We replace their computer every few years. Maybe they have a cell phone or something. But when you really start tearing it down and pulling all the layers back, the things that people use out there is quite shocking. And then the cost of what we have to spend as an organization to maintain it is even more shocking.
I had really never could have imagined that our executives would be as interested in how much we spend per year supporting a laptop versus a desktop. I didn’t think it was going to be that big of a deal. They would see workstation spend as workstation spend. We could chalk it up to a number of units. The differentiation between the two would be irrelevant or so minuscule that they wouldn’t matter. But they care immensely about that stuff. Even if the laptop cost is maybe 5% more or 10% more in the long run, that’s something they really care about.
The cost transparency reporting that we do, the reporting on operational consumption has taken up a lot of my time and been probably one of the more interesting aspects of my role over the past few years.
I’ve never cared for finance at all. But after a few years of doing TBM, I’ve gotten very interested in IT finance. Seeing and sharing how total cost is driven by consumption has been one of the more interesting aspects of my role at LyondellBasell.
Now after having Apptio the last few years, I really do not understand how anybody can be a responsible leader in IT without having a thorough understanding of how the business is driving IT cost, and sharing that with the business.
When I was younger, I considered IT a technology, that’s it. It’s a technology-driven field, we want to provide technology, and the more technology we can provide, the better off things willbe. Today, it’s clear to me that IT needs to run ourselves like a service provider. We have to provide business value and justification for our costs. And we certainly have to demonstrate that we are money well-spent. And that’s where the TBM comes in.
Advice for those starting out with TBM
The LyondellBasell TBM team offer this advice for those beginning or considering their own TBM journey.
Continuously optimize. “If your organization is running lean and plans to continue running lean, you need a TBM program,” advised May. “One-time big cost-cutting exercises are easy in the sense that the expectation is clear. But if you need to continue to run lean for the foreseeable future—despite the fact that the business will change, that their requirements and needs are going to be in flux—you must be able to monitor cost and consumption monthly to adjust IT spending.”
Start small and iterate. “Create a ‘services menu’ that breaks down the small number of core services that are provided,” May suggested. “As you begin to socialize this menu, business leaders will start asking questions like, What makes up that cost?, Why is that service so high? Why is the service price different for each department or business unit?’ This line of questioning drove initial modeling and reporting to build a more effective cost model.”
Engage to improve: Cantu added, “Start where you are, with the data you have and explain to business units that we will work with them over time to improve it. We knew, going into this process that the initial data we showed business unit leaders was incomplete and inaccurate but we needed to start somewhere. Eventually, after months of trial and error, our model evolved and our reporting allowed us to identify and prioritize key areas for continuous improvement.