As organisations continue to struggle with a series of major shocks from a global pandemic, remote working and Brexit uncertainty, the ability to reduce enterprise costs is now firmly entrenched as the number one priority to re-position and invigorate today’s organisations for success in a new economic landscape.
In the current environment, I.T. is a critical catalyst for reducing enterprise costs. With this comes new challenges and tensions. The technology platform has to be flexible and agile, supporting reduced business costs while at the same time enabling the enterprise to emerge stronger, fitter and leaner for the challenges ahead.
Market trends indicate that the number of companies now cutting costs has climbed to over 50% of organisations, where the magnitude of cuts is often in excess of 20%.
With this comes the critical constraint of how to meet the demand for improved business performance, flexibility and agility while at the same time reducing costs?
In my experience this can only be achieved by seeking out significant and sustainable cost reductions through a process of:
- Cost Compression
- Re-architect and Re-platform
1. Cost Compression, aka Cost Take Out
The first step of the process focuses on the quick wins for dramatic cost compression. From renegotiating vendor contracts through to optimised processes to reduce enterprise technology expenses.
This is often achieved by focusing on reducing sales and servicing costs by introducing customer segmentation based on profitability and value, through to industrialising high touch processes through the introduction of self-service digital channels.
New levels of industrialisation can be achieved through the use of new technology, from standardising enterprise applications, such as CRM, through to redesigning IT processes to make use of commodity based SAAS (Software as a Service) and cloud based technology.
In one of the biggest examples of standardisation and virtualisation to date, BBVA, the Spanish bank, migrated all of its 110,000 employees across 26 counties onto Google Apps to drive increased efficiency and innovation for its global workforce.
These opportunities need to be prioritised according to their potential returns and risks and will typically enable organisation to realise savings in the range of 10% – 20%.
The second step is to Optimise – to make current process better, faster and cheaper. By making effective use of technology assets, through rationalisation, simplification and automation, organisations can be migrated to a lower cost base to dramatically improve their operating margins and overall profitability.
By reducing operating complexity, such as consolidating and rationalising infrastructure through to standardising and industrialising operating systems, organisations are better able to respond to new challenges and growth opportunities.
New tools such as a cloud first strategy enable organisation to drive greater levels of optimisation through a process of standardisation. By eliminating processes that add little value and outsourcing non-core services, organisation can reduce overall fragmentation, complexity and waste throughout the enterprise.
During the optimise stage, organisations can often achieve cost reductions in the range of 15- 30%, enabling the organisation to be successfully position itself for the third and final phase.
3. Re -Architect and Re-Platform
The third and final stage is to Re-architect and Re-platform the technology proposition. Only by addressing the legacy of aging technology can organisations truly drive strategic and structural cost reduction.
Ageing technology consumes a disproportionate amount of energy, effort and cost thereby depriving the organisation of the very ingredients it needs to flourish. Legacy technology should be reengineered for the future. End of life platforms should be retired and ageing core banking platforms should be replaced. In addition, enterprise wide processes such as CRM and document generation need to be restructured to drive new levels of integration, automation and efficiency.
Only by rewriting legacy platforms and restructuring enterprise wide technology can organisations be in a position to drive sustained strategic and structural cost reduction.
This new wave of IT enabled cost reduction will create organisations that are lean and adaptable. These organisations will be built on a platform of sustained strategic and structural costs reduction, driving new levels of competitiveness and benefits to the wider enterprise.
In today’s new world it will be the leaner, low cost organisations that will survive.
What are your thoughts ?
Email : ian@IanAlderton.com
This article was first published in Ian Alderton’s Technology Trends and Innovation in May 2013.