Siemens to cut IT budget by $1 billion

German electronics and engineering conglomerate Siemens AG has embarked on a program to standardize business applications and consolidate computing infrastructure across its worldwide operations in a move to lower IT expenditure and increase efficiency.

The Munich-based equipment manufacturer plans to cut its current IT budget of around €3.7 billion ($4.7 billion) by €800 million ($1 billion) over the next three years, said Edmundo Ruiz, vice president of corporate information and operations groups at Siemens, in an interview this week on the sidelines of the Strategic IT Management conference in Neuss, Germany.

Under the program developed in part by The Boston Consulting Group, Siemens is studying which business applications and hardware devices have a level of “commonality” across the company and which still have a level of “uniqueness.” The aim is to achieve as high a level of commonality as possible in order to lower the number of different software applications and hardware devices used in the company and the vendors supplying both, according to Ruiz.

Wireless LAN (WLAN) systems, for instance, have a low level of uniqueness, Ruiz said, noting that these systems are standardized and available at commodity prices. Many business applications, on the other hand, have a high level of uniqueness, requiring ERP (enterprise resource planning) standardization, which takes time and costs money, he said.

“We aim to drive process standardization, especially in the areas of CRM (customer relationship management) and SCM (supply chain management),” Ruiz said. “At the same time, we intend to consolidate the number of enterprise applications.”

SAP AG, a key supplier of enterprise software to Siemens, will be a target of this consolidation, he added.

Outsourcing, too, will play an increasingly important role as Siemens moves to shift the distribution of its costs, according to Ruiz. “We want mostly variable costs, which give us greater flexibility, and fewer fixed costs,” he said.

The Strategic IT Management conference was sponsored by the German business newspaper Handelsblatt and The Wall Street Journal.