IT: Beyond the cost savings


Alexander Shubin, managing partner, Alexei Kovalenko, manager of IT projects, Partner Business Consulting.

Are you looking for opportunities to trim your IT investments? Consider the possibility of targeted IT investments aimed at generating revenue and cost savings in key business processes, the effects of which can be much more than the simple cost reduction in IT.

 

Global economy is in recession, and companies are looking for ways to reduce costs and improve financial results. Despite the fact that often the information technology costs make up a small share of total corporate costs, executives inevitably turn their attention to IT budgets, as well as any other component costs. However, in some cases, IT investments bring a lot of value in improving the efficiency of critical business processes and increase revenue than simply reducing the cost of information technology.
Information technology has come a long way in the last decade. Budgets have grown steadily in the era of e-business boom and the problems in 2000, and then dramatically decreased. Over the last decade, IT directors, working together with the heads of business units, improve the efficiency of IT departments by integrating applications, reduce infrastructure costs, improve manageability, consolidation of suppliers to outsource many functions.
So much has changed in the business landscape. Now the technology is closely intertwined with the operating activities in ways that ten years ago were impossible. For example, a shoe manufacturer Li & Fung uses IT to manage the supply chain, which includes a network of more than 7,500 different suppliers. At the same time, e-business, once emerged as a buzzword, now he forms the flow of the business. IT capabilities have stimulated the emergence of new sales channels, defined new customer segments, and even helped create a new business model.

 

 

 

These factors make the cut technology spending more challenging than ever before. The simplistic approach to reduce the applied universally, could endanger critical business tasks of sales support and customer service. This, for obvious today information, should be considered by all the leaders, preoccupied with finding ways to quickly reduce costs.
CIOs, of course, should continue to perform routine tasks, trying to do it more efficiently, reducing costs, especially in those areas that show signs of excess. Reducing "zanachek" and unproductive expenditures will provide cost savings and help to meet the requirements of enterprise-wide cost-cutting.
However, except in the worst of circumstances (when the company is in the process of bankruptcy), the complete cessation of technology investments during a recession is a move that could lead to the opposite effect. When business is going to come to life, your company may lose critical skills and key success factors. In addition, many technology investments during a recession can improve profitability, both in the short and medium term.
If the owners and top management with IT leaders will analyze the business from the point of view of cross-business processes, the results of IT investments can yield a result, ten times better, compared with the traditional efforts to reduce costs on IT. (Fig. 1). "Focus" is to "crawl" under-used features, such as improved customer service, reduce unnecessary loss of revenue, improved operating leverage.

 

 

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INCREASE OF EFFICIENCY THROUGH TECHNOLOGY

Activities aiming at increasing the efficiency begin  with an analysis of operations in the areas that are directly related to the generation of revenue and efficiency. According to a study by McKinsey are several ways in which investments in technology can have a significant effect (Fig. 2):

  • To manage sales and pricing. The development of internal capacity of the existing customer segments, improving pricing discipline to increase revenue without raising prices.
  • Optimize the supply and production chain. Rethinking the supply chain and logistics to improve delivery times and inventory management.
  • Reinforce support processes. Improve the management and use of the "field" employees (such as installers, technicians, working with clients), and customer support centers.
  • Optimize overheads and effectiveness of management. Focus on the risks of potential losses, improve decision-making and performance management.
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To retrieve the values ​​of the above features, the company must make improvements in management in two areas: the development of endogenous capacities and process optimization. 
 

The development of new domestic capacity

Few companies are now able to benefit from the rapid growth of data volumes. Often the information contained in the individual IT systems, spreadsheets, among the various business units, has not been considered as the potential for more value. Small teams of business and IT professionals can find and realize previously untapped opportunities by combining a detailed understanding of the business processes of the business, with authority for direct analysis of consolidated data sets of the IT professionals. For example, when these commands use the data to compare best practices across regions or to identify "profitable" and "unprofitable" customers they can define the "problem" point  of  revenue reduction.

Process optimization

Considering that in the modern IT companies are deeply integrated into business processes, gaps in workflows often are built into information systems and reduce the performance of these processes. An integrated view of business processes and technology allows good light and see the problems in this area, which are often associated with outdated processes, manual operations, redundancy and lack of resources. Approach 80/20 may determine 20% moderate activities that lead to 80% results, provided that the correct action. Companies typically can quickly apply these solutions. May require new software tools, but in most cases it may be sufficient expansion of existing, to achieve a specific goal. For example, spending extra checks for errors in the application automates the lending process, and removing them can reduce labor costs for subsequent adjustment entries. Or, for example, adjusting the flow of work in the sales process can ensure better compliance with corporate policies and pricing discounts.
  
PRACTICE OF METHODS APPLICATIONS

The application of these methods can make a contribution not only to increase profits in the short term, but also to create a basis for further efficiency gains. The following two examples illustrate the practice of this approach.

 

Revenue and pricing discipline

 

 

Maximization of annual revenue is always an important task, but in a recession, it is even more important, especially in cases where the revenue should be increased without raising prices. For many companies, particularly those with complex pricing transactions "business-to-business", characterized by weak pricing discipline. Since most of the rules depends on the pricing of information systems, processes and workflow built into them, such systems can play a key role in reducing the loss of revenue.
One telecommunications company launched an attack on these problems by creating a highly efficient but not expensive communication between a plurality of different data repositories. There database of contracts, these "funnel" of sales, compensation system, the data warehouse CRM, and other storage media that cover only a line of products targeted at business users. Simple centralization of this information in a single repository access was a big step forward. This facilitated the further analysis, which revealed the possibility to increase revenue by controlling unreasonable discounts and agreement previously disparate pricing rules for different products and regions. In this case, the value lies in the integration of information flow in the key decision points, rather than creating a new system. Creating a level of transparency has also increased the team's confidence to the sales managers.
Telecommunications company in the first place, beginning with the elimination of gaps in pricing by developing and testing new procedures, and then gradually began to introduce new metrics and scorecards and compensation. It brought together all sorts of new procedures and methods of pricing from the ordinary sales managers to sales director.
Technology played a key role. The project team has consolidated information from various systems into a unified data warehouse and developed a simple pricing system performance, enabling you to visualize and make clear critical information. Created instruments put together a system of compensation of sales managers with their pricing efficiency through comparison of their prices and discounts with similar averages. Simple dashboards allow effective control of sales managers at every level, consolidating the figures to the Director of Sales.
The introduction of such a policy and a change in the information technology, telecommunications company that has helped reduce losses from improper pricing and increase revenue on new contracts from 3% to 5%, leading to an increase in gross margin from 15% to 20% and more.

 

 

Increase employee productivity

 

Another critical objective in times of recession is to get the most out of employees, for example, by increasing the scale of operations, creating a more efficient business processes, precluding a repeat performance, as well as through the automation of manual operations. Information technology is an important tool in the implementation of the above-mentioned areas of improvement.
Targeted investments in technology helped one retail bank to increase the productivity of sales in its branches. The Bank was necessary to introduce a more systematic approach to win new customers and improve cross-selling to existing customers. Technology has helped to increase the success rate of clues received from marketing, to create a clearer and more "industrial" way of managing potential customers coming from bank employees. These improvements allowed the bank to more quickly convert a potential customer interest in the transaction and, thus, to increase its revenue per employee.
Prior to that bank, following tradition, relied on manual procedures, the paper process to identify, evaluate, promote leads, preparing proposals and closing. There were islands of automation at certain points of the sales process, but it was not through visions, as all the work is done, and how technology can improve the job.
The team consisting of employees of the business departments and IT professionals analyzed the operations of departments and quickly discovered areas where targeted actions could lead to significant results. As a result, automated processes bring clues to the sales staff, and a large number of them was directly exposed to specific managers with greater speed than previous campaigns. Tracking efforts to develop client and preservation of the history of interaction has also been automated, resulting in improved sales efficiency and help avoid situations of overlapping proposals profitable customers. In order to allow the sales manager to get all the information about the relationship with the client, one "click", have been integrated into the control system hooks and corporate CRM system. This system allows to provide each customer the best offer, and special schemes of telephone conversations helped managers to promote new products. Available data after the close of each transaction systematized, and the information that could be used to simulate the strategy of future sales, fixed more completely and efficiently.
As a result of these investments in IT, the bank noted a doubling of the average number of calls related to sales, improve the conversion rate of potential opportunities in all branches of the transaction, which led to an increase in productivity of sales.
Thus, in times of recession targeted investments in many areas of operations are able to generate effects that can significantly exceed the savings from reducing the direct costs of information technology.
We are grateful for their help in preparing this article Eugene Ogo, Director of Corporate Development of "Formula Holding", Maxim Romanovsky, director of Drive Business Solutions.

 

 

 *Written up on the basis of Managing IT in a downturn: Beyond cost cutting, James M. Kaplan, Roger P. Roberts, and Johnson Sikes, McKinsey Quarterly, Sep. 2008