Many companies have built up complex application environments with ongoing support requirements and, unfortunately, companies rarely reach internal agreements on business priorities for information technology. Still, some companies nowadays have to improve their cash positions merely as a survival technique. Selling non-current assets, including IT, is a solution that companies needing to generate cash have already started to take.
Companies not yet confronting with critical cash generation strategies could use their current IT status to increase revenues and reduce operational costs. For instance, they can use data more effectively and optimize processes through technology. IT could improve supply chain management by enhancing logistics and inventory management. Similarly, better data can sharpen insights into customer segments, pinpointing opportunities to change prices or focus sales efforts.
James Kaplan and Johnson Sikes concluded, in one of the latest McKinsey Quarterly, that over 12 to 18 months, these kinds of projects may return up to ten times the bottom-line impact of simple IT cost reductions. In many areas, IT functions can realize further efficiencies by changing management practices and models and promoting more interaction with the rest of the business.
Let’s further look into four considerations while planning IT cost cutting:
1. Use technology investments that can have a substantial impact to develop insights into customer segments and increase revenues without increasing prices, to optimise supply chain processes and improve delivery scheduling and/or inventory management;
2. Use experienced IT specialists to find efficiency opportunities by combining a detailed understanding of business processes with straightforward analyses of consolidated data;
3. Optimise processes: Pareto’s 80/20 approach can highlight a fairly small number of activities that, once you correct them, you may deliver a substantial amount of value;
4. Use targeted technology investments to increase productivity as in many areas they generate revenue growth exceeding the savings from a traditional cost-cutting.
You may see above that a fresh perspective of your company’s activities and targets helps you focus on technology investments that can actually increase productivity proving an intelligent, business-driven cost optimisation process as your IT crisis strategy.