Information Age (IA): Like other organisations, Intel talks about having made significant cost reduction in its IT operations in recent years while still creating huge value for the business through IT.
Can you scope out what the focuses of value-creation have been, and to what extent Intel has gone through the same pain that others went through over the past two or three years?
Stacy Smith (SS): As I talk to other CIOs, the problem statement is remarkably consistent across companies. And the problem is something like this: Under just about every scenario of business growth, the demand on IT is to increase capability. So when revenues are increasing, you are adding new sales offices, new factories, new employees. The demand for IT actually increases at a faster rate than the revenue grows.
At the same time, as the revenue flattens out or even declines, typically companies also start to replace other expenses with demands on IT. So if you stop employees from travelling, your telecommunications bill goes up; if you are trying to drive up productivity in the factories, one of the things you look to is IT as a possible way to automate.
We did an analysis that was really telling. We looked at the demand drivers on IT over the years 1998 to today. Over that period, our headcount increased by around 20%. But the growth in the requirements on information technology across just about every category was 10 times that.
So we looked at the amount of LAN we provisioned per employee over the same time period and it was up over 1000%; we looked at the number of voice minutes used in calls between employees, and it was up 500% or 600%; we looked at the number of remote users we support and it was up 500%. You go down the list, and every driver of IT is up some order of magnitude more than the 20% growth that we had in employees.
Over that time period, clearly, our budget didn't grow by 10 times. We are like every other IT shop on the planet: as we went into the downturn, we rationally made the decision to pull back some of the below-the-line spending. So we are having to deal with this increase in demand at the same time as budgets are staying flat.
In addition, two other things are going on at Intel. One is that the complexity of the company is growing very, very fast. Now we are supporting wireless and we are doing collaboration across sites, so our design engineers are working on part of the chip in Israel, a part in Oregon and the tests may be happening in Mexico. Somehow we have to enable that collaboration across those sites.
And then the second thing that is happening is that our executives have the expectation that we can bring new capabilities that can provide competitive advantage for the company. We want to be able to show to our executive officers that the money that they are investing in IT is giving a rate of return equal or greater than if they were investing those same dollars in a new factory or a new product line, an acquisition or whatever – we are all competing for the same dollars.
IA: So how do you solve that equation?
SS: It is really two things. One is you've got to drive cost reductions at a rate that is greater than the demand increases. So you have to do more than just incremental improvements from a cost structure standpoint.
And the other thing is you have to have a methodology that allows you to articulate the business value for the investments that you are making in new capabilities.
IA: What were the technologies and techniques you used to cut costs and deliver value from IT?
SS: On the cost reductions and efficiencies, over the last several years we have gone to a very modular, standards-based architecture. And we found that by reducing the diversity that we supported, we could save money.
We also found that by transitioning from proprietary architectures to open architectures we could save a significant amount of money; for example, on design engineering workstations. By transitioning these to Linux tools on Intel architectures, we have saved something like $100 million of capital costs over two to three years.
Those are the kinds of discontinuities in the cost curve that you have to find. The data centre is another great example. The cost of data centres – the heating, the cooling – continue to scale.
Desktop managability is another – we used to have 14 client images supported; we are now down to one. That saves us millions of dollars a year, and it also allows us to respond to security threats much more quickly.
IA: So over that time how has the IT budget changed?
SS: In the downturn of 2001 and 2002 we were down year over year, as almost every company was. My expectation is that we are going to be flat in 2005. The stated strategy of Intel is to grow the top line while trying to keep the expenses growing at a slower rate so that we can increase profitability, and I don't expect to be immune to that.
IA: And on the flip-side, to what extent are you able to quantify the value that IT creates for the company?
SS: Over 2002 and 2003, we believe we have contributed $1 billion in business value. In 2004 we are on track to contribute the second billion in business value. I'd be pretty pleased if we could say we are going to contribute $2 billion in 2005. But don't hold me to that one yet!
IA: Which areas have made the biggest contributed to that?
SS: The biggest contributor is some of the things we have done in supply line integration, connecting to the suppliers in doing web-based auctions and reverse auctions and those kinds of things. It is connecting the factory network with real-time demand signals so we can tune what we build and where we build it and run Intel with less inventory. Unless you put some strong ebusiness and analytics tools in place that doesn't work.
There are lots of other examples. We have moved over to notebook computers. Today the installed base is 70% notebooks; if you look at what I am purchasing today it is almost 90% notebook computers. Because we have driven down the total cost of supporting a notebook to the level of a desktop PC, the only difference is the upfront cost. But when you look at the improved productivity of allowing people to work on airplanes, in coffee shops, I think we get a very strong return on that investment.
IA: What kind of mechanisms do you use to draw information and feedback from the business to ensure that you are actually delivering to its needs?
SS: Intel happens to be a very centralised organisation, so the key is how do we get the scale of being centralised with the responsiveness that we want by being tied into the business.
The answer is to have two dimensions to our organisation: a solutions group that provides services across Intel with scale and deep competencies. We also have a production organisation that is running all the infrastructure, so we get the scale of being able to have the likes of single call centres and single operational support centres.
And then at the top part of the IT organisation are people that tie directly into Intel groups; they are the partners that work very closely with the business, understand its processes, the problems they are trying to solve, and develop the tools that will help them solve those business problems.
Then they work with the horizontal IT organisations to develop supporting solutions. So we are trying to get the best of both worlds.