[SOUND] If you want to meet your objectives, whether we're talking about the master plan, three years from now, or the budget for this year, you'd better understand how your IT costs evolve over time. What's interesting about IT is that you can observe some mechanical inflation of the IT costs. And it's not because people don't take care about their costs. It's just because by nature, the IT costs tend to grow. When you look at IT costs, actually you can break it down into two main categories. One bucket you will call the change costs. It's between 20 and 40% of the total IT budget. The change cost is the cost of the projects that you will do with the business to change the company, new application, for example. This is why it's called change cost, because it changes the company. And then you have the run costs, to run the company, which are basically between 60 and 80% of the total IT cost. To run the company, you need network, you need servers, you need bug fixing, you need user support, that kind of thing. Looking at how your costs are going to evolve from one year to another, for change costs, it's rather easy, sort of, because it very much depends on the amount of money you decide to spend on the change projects. Of course, everybody will ask you for that many requirements. But it's a governance decision to put the threshold. The run costs is another story. What will be my run costs for next year? Actually next year, I will have to pay for the run cost for this year, because I have inherited the servers, the network, this from this year, I will have them next year, nothing's changing. Then, I have new needs, because I have more users, meaning more laptops, more phones, more network bandwidths, more data storage. So it grows. And it grows along the company growth. But you also have what I tend to call the mechanical run inflation because an application that I develop this year with my change budget that will go live next year, I will have to pay for run cost for this application to be able to support it. I will need more people at the help desk to support the users. I will need to pay more software licenses. So every project I do today within my change budget will cost me some run costs in the future. If you do not do enough productivity each year to be able to compensate this increase, this mechanical increase In the run costs, then your IT costs are either likely to explode, or, if you want to keep them stable, the only solution you have will be to squeeze the change cost. And at some point it's not productive, because, of course, your business, they need change budget, they need change projects. If you want to get a more detailed understanding of the underlying math in this modeling, you can refer to a PDF file that will be attached to this lecture. In a nutshell, just to give you a sense of the order of magnitude, we have modeled that for a large company with a large IT budget, they want to be able to afford 30% of this IT budget in change costs. It means that they will have to work on the run productivity to get 10 to 15% productivity savings on the run each year to be able to absorb the new run that will come from the change projects. This is a lot. So, how do you do that? Can you do 10%, 15% productivity each year? You can do cost cutting, you can squeeze your providers, but that's not something you can do every year without jeopardizing the run operations. And also, when we look at organizations, organizations tend to lose in productivity every year. More processes, more structure, more control. Our belief is if you want to be able to achieve that amount of productivity, meaning 10 to 15% per year, the best way to go would be to start a transformation every three to five years to do a 20 to 30% cost reduction. This is a good way to sit down, rethink about your organization, about what to deliver. Start some kind of fitness program. And then you are fit to start a new period.
