The Case For Cost Containment: Spending Today for Savings
Tomorrow
The events of 9/11 and the struggling economy over the past several years are too easily blamed for the
rush toward cost containment - we were already headed in that direction as an industry. There are many
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. Read on to see how these factors are likely to impact your
organization.
There are many underlying reasons that have both driven - and facilitated - the movement toward cost
containment for organizations serving 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 Service Life-Cycle Management (SLM) 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 could not
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 continue to increase “depending on the region”, and
that these increases 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.
Gartner has also 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) into their business operations.
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 Road to Cost Containment Success
Accordingly, we believe that the principal steps a services organization must take to build and implement
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.
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! 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. Ultimately, 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.
Until next month, keep your customers satisfied!
Bill
William K. Pollock
President
Strategies For GrowthSM
P.O. Box 1024
Westtown, PA 19395
USA
Tel: (610) 399-9717
Fax: (610) 399-9718
E-Mail: mailto:wkp@s4growth.com
Website: http://www.s4growth.com