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
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?
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
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:
We believe that the principal steps a services organization must take to ensure a successful cost containment program are to:
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 firstname.lastname@example.org.
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