The financial disruption caused by COVID means that marginal savings no longer cuts it for competitive organisations. The priority of CIOs today is to reduce IT costs and optimise the value of IT through strategic cost-saving initiatives. A strategic IT cost optimisation strategy must enable businesses to innovate and support long-term sustainable practices while reducing technologically related costs. Short term cost reductions have short term benefits. But for building a competitive business in a volatile environment, strategic cost optimisation programs can support organisational frameworks efficiently through not just cost-cutting but also in terms of risk management, time management, required investment, and impact on the consumer.
Strategic IT cost optimisation can be an unpopular choice and face resistance within the organization. It requires upfront investment and a long term perspective to succeed. Most cost optimisation programs are a mix of technology and business development strategy that ensures business continuity in the face of challenges and disruptions. You can expect to see results of the upfront investment as time progresses. In an ideal scenario, strategic cost optimisation initiatives are a continuous program within organisations that are more proactive measures rather than a reactive response to economic and technological disturbance. Strategic cost reduction programs should be regularly reviewed and updated in the same way as your company assesses the relevance of its strategy and the business opportunities ahead.
When undertaking cost optimisation initiatives, CIOs and business leaders must consider the following:
- Time and resources needed to complete the initiative.
- Technical and organisational risks involved.
- Upfront investment required to achieve downstream cost savings.
They must also consider the impact, negative or positive, on the following operations:
- Business process.
- IT delivery time.
Some common cost-saving initiatives that are widely implemented are shared services, business process outsourcing (BPO), automation of IT operations. Enterprise-level cost optimisation priorities are to preserve revenue, continue to innovate and keep up the competitive advantage with the least disruption to the current operations.
Levels of strategic cost optimisation:
There are four levels of strategic cost optimisation framework-
- Reduce cost and prioritise spend– While most companies tend to focus on immediate cost savings to achieve short-term goals, this method is ineffective for long-term sustainability. Short-term goals do not consider unanticipated risks or problems. Hence, as a business leader, you must think of organisational and technical risks as well as the impact of these risks on the end-user when considering cost optimisation.
- Optimise processes and increase efficiency– The focus should be on reducing waste and increasing the efficiency of all operations. Metrics such as the speed of development and implementation, reduction in transaction time for users, and integration of valuable IT assets become important assets to measure as they allow your company to comprehend the performance of the entire IT operation.
- Rationalize through business agility and flexibility– The IT initiatives must be aligned with overall business objectives to achieve strategic cost optimisation. Businesses’ ability to innovate must not be impacted by cost optimisation. Even with strategic organizational changes, a company must be able to acquire new customers, meet the current and future needs of customers, and reduce the time of delivery of new products and services. Companies must build agility and flexibility to ensure those cost reductions of IT operations must not deflate the quality of overall business.
- Transform the business– Companies can focus their cost optimisation efforts to implement long term business goals and technical improvements. Digital and business transformation can trigger growth, but that would require some percentage of IT investments directed towards it, and subsequently the spending on business sustenance remains the same or reduces to maintain optimal operational efficiency.
The right approach to creating a robust cost optimisation plan:
- Lay down the cost optimisation guidelines and ensure that the strategy and what it entails is implicitly understood by every department within the organisation to reduce miscommunication and capture every business opportunity.
- Align cost with business strategy by differentiating good cost from bad cost to ensure continued deliverance of services and meeting customer expectations.
- Create a corporate culture that leans towards and incentivises constant improvements and innovation with a focus on identifying waste, optimising processes, and enhancing efficiencies.
- Set direction and aim for higher strategic ambition. Critical strategies like cost optimisation initiatives require central governance and leadership to deliver desired results.
- Use data analytics to gain insights and improve business efficiency especially in areas of customer service, customer experience, churn rate, and equipment and employee safety.
- Leverage technologies such as AI, IoT, and robotics to enhance the efficiency of production and delivery systems. These technologies can give you better insights and provide real-time information to enable on-the-go optimisation.
- Optimise supply chains to reduce cost, increase sales, and improve revenue.
- Proper data management across the entire organisation is very important to ensure the relevant data is being collected, analysed, and shared with relevant departments; thereby allowing business leaders to make faster and more effective decisions.
- Invest in improving inventory management as it’s a working capital asset that has a direct correlation with the company’s revenue stream.
Strategic cost optimization programs require constant engagement and must be a priority for organisations to ensure that it continues to grow even in the event of external uncertainty. The key goal here is to reduce cost without compromising on the quality of the products, business continuity, or long-term growth.