The 'R' word: a catalyst for real change

The ‘R’ word – recession - is back in boardroom discussions in a big way. The UK is not immune from its threat, but surely some lessons have been learned since last time?

This question also came to mind when I heard a recent news item about public sector efficiency. The news referred to Sir Peter Gershon’s report* of July 2004, commissioned earlier by the prime minister and chancellor of that time. His independent review identified efficiency steps that by 2008 would produce annual savings of some £21 billion within many areas of the public sector.

According to the report, this could be done in a number of ways – through smarter procurement, the simplification and standardisation of transactional services, restructuring processes to reduce paper handling, improvements to finance, IT systems and other business areas. Whether any of those conclusions have been taken on-board is open to debate but it is also a process considered with the threat of recession.

In comparison and in theory, the private sector needs little in the way of motivation and guidance on efficiency. Driven by global market forces and mandatory issues like increased compliance and regulation, the more visionary companies have been streamlining their structures, processes and resources and seeking better, added-value outcomes.

For others, cutting costs is the first reaction to any threat, especially recessionary but is that a commercially optimal response? What about short and long term value to the business? What about the major risk attached to this knee jerk tactic: the loss of projects potentially vital to forward momentum, plus key benefits such as maintaining competitive edge, achieving higher productivity or improving customer service?

In this context, if you want a practical insight into maximising value for money and return on investment read a relevant book, ‘Value-driven IT Management’ by Iain Aitken**, especially his chapter on optimising cost efficiency. It is aimed at the ‘C’ suite, particularly the chief financial officer and despite being published in 2003, the theme and content perfectly relates to today’s issues and how to survive whatever comes next.

Clearly this is not the time to tell the chief executive officer that major investments in a replacement enterprise resource planning (ERP) system or a customer relationship management (CRM) system must go ahead. The factory extension and those new high-tech machine tools may have to wait too. Instead, it’s a case of looking carefully at a different kind of project, an ‘intelligent cost reduction’ approach, based on consolidation, lean thinking, cutting waste – and adding value to the business.

In relation to IT ‘cost domains’, Aitken explains there are four important ways of performing intelligent cost reduction and gaining efficiencies.

1) Sourcing and purchasing: meaning optimise the sourcing of IT services and optimise purchasing efficiency, the supplier mix and related contracts. For example, outsource inefficient non-core services, such as PC and laptop maintenance, network provision and management, helpdesk and disaster recovery. But he indicates, outsourcing is a contentious area and needs careful cost/benefit/value analysis.

2) Technology and infrastructure: here, optimise the efficient use of hardware, software and related office facilities (data centres, for example, that have proliferated in dispersed locations and are costly to run). Due to the fast pace of technology there is much to consider, such as rationalising servers, software and data storage assets, improving network use, reducing PC support costs through electronic software distribution and delaying new software rollouts.

3) Organisation and people: make better use of staff resources with regard to projects and teams. Is it necessary for support staff to remain in ‘silos’, could they not work across the IT function? Instead of maintaining high staff levels to meet periodic peaks, bring in temporary and appropriate resources as and when needed. Look at the use of costly external contractors, especially towards the end of a system’s development life-cycle when most of the main work has been done.

4) Activities & services: rationalising and making IT activities and services more efficient. This is another area where there are many opportunities to review policies, merge similar services, and streamline processes. Bespoke versus off-the-shelf software should be scrutinised and vice versa. Examine discretionary activities, but make sure not to damage staff morale and where possible, automate activities.

To make all this happen requires knowledge and experience of critical success factors. For example, make sure you and your board actively demonstrate full support for projects and programmes; ensure clarity about the budget baseline from which savings will be estimated and make the IT management team directly responsible for identifying and delivering the savings.

Spurred on by the ‘R’ word, there is much potential to analyse, develop and introduce new and cost-saving projects and programmes. The point is to never lose sight of adding value to the business. Cutting costs is a natural reaction, but done without strategic purpose it risks damaging the value you offer customers, or that which differentiates you from competitors or the relationship that keeps your workforce loyal.

* HM Treasury: ['The Gershon report'] Releasing Resources to the Front Line - Independent Review of Public Sector Efficiency’, published 14 July, 2004
See - http://www.hm-treasury.gov.uk/spending_review/spend_sr04/associated_documents/spending_sr04_efficiency.cfm

** ‘Value-driven IT Management’, by Iain Aitken. Published by Butterworth-Heinemann, Oxford UK, 2003.