The Case For Cost Containment: Making Real World Choices

(Originally published in the July 2004 issue of Astea International's Business Drivers e-newsletter)

By William K. Pollock

A Little Background
The events of 9/11 and the poor economy over the past few years are too easily blamed for the rush toward cost containment - we were already headed in that direction as an industry. There are several reasons for why this is the case. First, the services industry has shifted from an internal focus to a customer focus - and change costs money. Second, enterprises are now seeking systemwide, rather than departmental, solutions, and bigger solutions cost more than smaller ones. As beneficial as the outcomes of these trends may ultimately be to the industry, the fact remains that change costs money - and costs must be contained to protect the bottom line.

But, there are still other underlying reasons that have both driven - and facilitated - the movement toward cost containment for many in our industry. For example, as Services Management Systems (SMS) and Customer Relationship Management (CRM) software companies continue to step up to the need to provide "total" solutions to their customers, the marketplace is becoming increasingly aware that there are better, more comprehensive, solutions available to them today than the historical, somewhat disjointed, software modules of yesterday. Again, since more costs more - the need to contain costs becomes even more critical.

Further, advances in technology now enable users to collect, distribute and share data that they couldn't even dream of acquiring just a few short years ago, and real-time operations continue to be empowered by the Internet - but real time also costs real dollars. As CRM, ERP and Supply Chain Management (SCM) solutions continue to evolve and proliferate, so does the cost of integrating them into your organization's operations - and each of these costs must also be contained to protect the bottom line.

As a result, the services industry now finds itself in a classic scenario where spending money today will only result in saving money tomorrow if it is planned effectively, and implemented with the aid of a realistic strategic business and IT plan.

Cost Containment - But, At What Cost?
Gartner believes that spending on IT services "will increase in mid-to-late 2004 to early 2005, depending on the region", and that this increase will be precipitated by a "growing need for users to maintain a competitive infrastructure, while also managing costs". Basically, what this analyst organization is saying is that there will always be the need to maintain a successful competitive posture - but this can only be accomplished while effectively containing costs all along the way.

AMR Research concurs by stating that "cost savings is the bottom line", but goes on to say that "companies can realize 10 times the benefits from IT cost savings projects by combining them with business process improvements". Again, while cost containment is key, it can only be accomplished successfully when accompanied by an effective business process improvement initiative.

The Meta Group further suggests that "companies that have become agile by shedding or adding IT costs on an as-needed basis will be better positioned to take advantage of growth opportunities as the … economy starts to rebound". In otherwords, whether you have spent too much - or too little - since the economy hit the skids, you're going to be in a good position to spend more - to save more - in the next year or so.

The critical lesson to be learned from each of these analyst firms is that you may have to spend more efficiently today - to contain your costs tomorrow.

The Rationale Behind Cost Containment
The main rationale behind cost containment - and its ultimate impact on your services organization - is neatly tied together through the concept of Services Life-Cycle Management (SLM). Zack Bergreen, CEO of Astea International, explains it all so succinctly by suggesting that "Most companies view their service automation objectives and return on investment strictly in terms of cost containment and operational efficiencies [but] a CRM solution that fully integrates equipment service lifecycle processes enables a company to not only improve management visibility and contain costs, but also increase cash flow, revenue and profit.

Gartner supports Zack's claim by refuting the "myth" that "successful CIOs focus on cost containment". The analyst firm agrees that cost containment is "a necessary and important task", but that it is "not a sufficient activity for CIO success" in and of itself - that something else is needed, and that "something else" is the need to focus on "the value contribution of IT, as well as cost containment" in order to attain the optimal impact on the bottom line.

At its March 2003 Itxpo, Gartner identified "budget reduction/cost containment" (or, "doing more with less") as being one of the "Top Ten Tech Issues" facing the industry today. We agree, and our own research has shown that a growing number of key industry players have already taken steps in moving toward cost containment by:

  • Embracing new wireless and mobility technologies;
  • Automating their services to increase revenue, profits and market share;
  • Embedding Internet technology to empower users;
  • Focusing equally on cost containment and operational efficiencies;
  • Using cost containment successes to fuel further IT spending; and
  • Incorporating Service Life-Cycle Management (SLM) in their business operations.
The Road to Failure? Or to Cost Containment Success?
We believe that the principal steps a services organization must take to ensure a successful cost containment program are to:
  • First, build a realistic Strategic Business Plan (i.e., know where you're going - and plan accordingly for how to get there);
  • Gain total management and end user "buy-in";
  • Work in behalf of all departments/functions (don't rob Peter to pay Paul);
  • Select the most appropriate software, platform and functionality to attain your goals;
  • Establish realistic metrics - and continually track your performance; and
  • Manage expectations at all levels (i.e., by articulating and communicating the value).
However, cost cutting simply for the sake of cost cutting suggests that an organization is unable to see the "big picture". You need to have a plan - and a vision - before putting any cost cutting measures in place, otherwise you run the risk of creating an unwanted "ripple effect" that may ultimately result in a negative impact on your customer service and support performance, and corresponding levels of customer satisfaction. The failure to set - and meet - realistic ROI goals, coupled with the absence of a formal plan for reinvesting present cost savings into future spending, will also reduce the prospects of any long-term cost containment success.

Path Forward
Cost containment may have gotten your organization this far - but, operational efficiency will take you the rest of the way. However, operational efficiency without cost containment - well, you probably can't afford it! We believe that Service Life-Cycle Management is the only way to go - and that you will ultimately need to use it to manage the entire business process.

It is our belief that the cost containment initiatives an organization takes today will be instrumental in its ability to manage growth - and profitability - in the future. Simply cutting costs alone won't get the job done - but, containing costs through a well-defined and implemented Service Life-Cycle Management program will. Cost containment will work best for your organization if you have a strong enough business plan in place to ensure that what you invest today will pave the way for containing your costs tomorrow.



William K. Pollock is president of Strategies For GrowthSM (SFGSM), the Westtown, Pennsylvania-based services consulting firm specializing in strategic business planning, services marketing, CRM consulting, market/survey research, and customer satisfaction measurement and tracking programs. Bill may be reached at 610-399-9717 or via e-mail at wkp@s4growth.com.


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