In 2018, the South Korean software industry achieved revenues of KRW 88.5 trillion, with IT services accounting for the largest share. As a key segment of IT services, the system integration (SI) industry plays a critical role. The client, a leading provider of SI services for display factory automation solutions, has achieved significant growth through its MES (Manufacturing Execution System) projects for major Chinese display companies, securing the top market share in China’s MES sector. In response to slowing growth in the domestic display market, the client has expanded its business opportunities into semiconductor and general manufacturing sectors while extending its system layers from MES to include analytics and EAS.
Despite the high-value nature of the IT solutions industry, the heavy reliance on fixed personnel costs makes workforce management crucial. The SI industry’s project-based nature causes fluctuations in utilization rates, which significantly impact business performance. Furthermore, display MES projects typically involve 1–2 years of development, from pre-construction to commissioning. Effective utilization management and financial visibility of ongoing projects are essential for sound decision-making.
The client, experiencing rapid revenue growth but declining operating margins, partnered with Looxent to undertake a value-up project. This initiative focused on improving operational efficiency through process enhancements and cost reductions.
Implementing Project Progress Tracking for Efficient Workforce Management
One of the primary causes of cost overruns was project delays, which extended beyond planned timelines and incurred additional expenses. With 20–30 concurrent projects, the client struggled to manage overall progress effectively. Looxent introduced a project management framework, alongside plans to implement a Project Management System, to improve monitoring and tracking.
- Integrated Tracking Metrics: Progress tracking was aligned with WBS (Work Breakdown Structure) milestones and compared against man-month (MM) inputs. This approach ensured alignment between work progress and resource allocation, preventing last-minute resource spikes and enabling swift corrective actions.
- Utilization Monitoring Tools: Previously, utilization rates were managed separately by teams, resulting in imbalances. Looxent developed tools for company-wide management, enabling HR to oversee and balance workforce utilization. Additionally, a simulation model linked to the order pipeline forecasted monthly utilization rates, supporting proactive decision-making.
Cost Efficiency through Indirect Cost Benchmarks
The client’s operating profit halved year-over-year, driven by increased personnel expenses, travel costs, service fees, and outsourcing costs. Looxent addressed this through targeted improvements in direct costs, indirect labor, and overheads.
- Direct Cost Optimization: Rising direct costs were attributed to declining order prices, wage inflation, and increased project resources. Looxent revised pricing rules to ensure a minimum profit margin and adjusted quotes to reflect higher labor costs.
- Indirect Labor Management: Indirect labor costs increased due to dispersed R&D efforts and underutilized personnel. Looxent proposed an integrated R&D framework and restructured the organization into larger teams to address utilization imbalances.
- Overhead Reductions: Overhead costs of KRW 26.5 billion were concentrated in travel, service fees, and outsourcing. Looxent implemented revised travel policies and strengthened procurement processes for goods and services.
Key Takeaways and Strategic Framework
The SI business’s operational focus can be divided into order management and project execution.
- Order Management: Strategies focused on future workforce utilization forecasts and maintaining minimum profit margins.
- Execution Management: Efforts prioritized project progress tracking and cost regulation.
By addressing underdeveloped management practices and realigning organizational structures around utilization optimization, the client has established a robust framework for sustainable growth. Looxent’s interventions have enabled the client to navigate rapid growth effectively and position itself for future success.
In 2018, the South Korean software industry achieved revenues of KRW 88.5 trillion, with IT services accounting for the largest share. As a key segment of IT services, the system integration (SI) industry plays a critical role. The client, a leading provider of SI services for display factory automation solutions, has achieved significant growth through its MES (Manufacturing Execution System) projects for major Chinese display companies, securing the top market share in China’s MES sector. In response to slowing growth in the domestic display market, the client has expanded its business opportunities into semiconductor and general manufacturing sectors while extending its system layers from MES to include analytics and EAS.
Despite the high-value nature of the IT solutions industry, the heavy reliance on fixed personnel costs makes workforce management crucial. The SI industry’s project-based nature causes fluctuations in utilization rates, which significantly impact business performance. Furthermore, display MES projects typically involve 1–2 years of development, from pre-construction to commissioning. Effective utilization management and financial visibility of ongoing projects are essential for sound decision-making.
The client, experiencing rapid revenue growth but declining operating margins, partnered with Looxent to undertake a value-up project. This initiative focused on improving operational efficiency through process enhancements and cost reductions.
Implementing Project Progress Tracking for Efficient Workforce Management
One of the primary causes of cost overruns was project delays, which extended beyond planned timelines and incurred additional expenses. With 20–30 concurrent projects, the client struggled to manage overall progress effectively. Looxent introduced a project management framework, alongside plans to implement a Project Management System, to improve monitoring and tracking.
Cost Efficiency through Indirect Cost Benchmarks
The client’s operating profit halved year-over-year, driven by increased personnel expenses, travel costs, service fees, and outsourcing costs. Looxent addressed this through targeted improvements in direct costs, indirect labor, and overheads.
Key Takeaways and Strategic Framework
The SI business’s operational focus can be divided into order management and project execution.
By addressing underdeveloped management practices and realigning organizational structures around utilization optimization, the client has established a robust framework for sustainable growth. Looxent’s interventions have enabled the client to navigate rapid growth effectively and position itself for future success.