Cost optimisation is always somewhere on the boardroom agenda, but over the past 18-24 months it has shot right to the top. The high inflation environment, rising costs, squeezed consumers and general economic uncertainty have meant that almost every organisation, across sectors, has sharpened its focus on the cost base.
For that reason, it was extremely timely to hold our latest ‘Future of’ webinar for the TMT sector in which we were joined by a number of expert panellists to give their perspectives on the cost and value agenda.
One of the key themes to emerge from the session was that this really is about optimisation of costs – not simply ‘cost cutting’. A blunt reduction approach won’t yield improvements that are sustainable. To help create a sustainable approach, Ed Boulton, Strategy Partner at KPMG and co-lead of the Cost Transformation practice, set out five key principles:
- Cost transformation must be aligned to the strategic agenda. Cost rebasing must meet the strategic priorities of the business. This may mean reducing spend in one area to fund increased investment elsewhere – and so also helping meet the growth agenda. This is very relevant to TMT due to the level of change that’s getting driven through the sector.
Certainly, this resonated with Chris Taylor, COO at the Telegraph Media Group. Chris outlined the Telegraph’s strategy of very carefully cost optimising the production of the flagship newspaper and the supply chain involved with that, in order to fund investment in growth areas such as digital publishing, digital subscriptions and advanced data technologies. “We run our cost base and our investment plans in close alignment, and this helps us position for the future,” Chris said. - Establish an accurate ‘fact base’. This means quantifying current costs across the business – from operations to people to the supply base – and also benchmarking externally to create meaningful comparators. It’s important, however, to avoid ‘analysis paralysis’ – treat it as directional, giving a sense of where the business stands.
- Challenge yourself on what you do and how you do it. Is all spend necessary? What could be reduced? Often, as Ed commented, organisations get caught up in the ‘how’ aspect here – but the first area of focus should be the ‘what’. It often transpires that there is duplication of activity either internally between teams or externally with suppliers. As for the ‘how’ – automation and AI are increasingly powerful levers for doing things more efficiently and at lower cost. This is especially the case for low value, repeatable activities – which may also be able to be outsourced to a lower cost location.
- Work back to establish what it would take to make the change happen. It’s all very well having the vision – and it’s relatively easy to identify cost optimisation opportunities – but how are you actually going to make it happen? Plans have to be grounded, granular and practical. You need to think about the performance measurement and management tools to put in place, and the skills and capabilities internally that will be needed. Otherwise, cost improvements may not last – but could simply boomerang back again.
- This is an emotive human issue – strong leadership is essential. This is probably the most important point of all. “There needs to be a united coalition for change at the top,” Ed said. “You’re dealing with very emotive and sometimes difficult changes and decisions, that affect people’s jobs. Overlook the human dimension at your peril. That’s why the leadership team must be 100% committed and engaged. If they’re not, the layers below won’t buy in either. You’ve got to understand the employee journey and perspective, show empathy and understanding. The way that boards manage and lead a cost transformation is critical to the whole undertaking.”
Addressing technology costs
The cultural issues of cost transformation were echoed in other parts of the discussion. Technology costs are an obvious area of focus for many businesses, particularly in the TMT sector, but as Su Crighton, Director in Technology at KPMG, observed, achieving sustainable technology cost improvements means really understanding what the business uses different tools and applications for. Only if you have that insight can you embed a culture of cost awareness and make it a part of everybody’s job – which is the secret of sustainable cost improvement.
Having this understanding applies in a customer context too. Greg Holmes, EMEA VP for Solutions at Apptio, part of IBM, discussed how technology businesses providing shared platforms need to develop a real understanding of how different customers are using them, for which products or services, and at what pricing or margin. “It’s only by knowing this that you can focus on the business needs of your customers to identify where you can reduce investment without impacting delivery, and where you need to invest more,” Greg said.
While it’s far from just a ‘numbers game’, inevitably cost optimisation does revolve significantly around the numbers – and as Dom Fuccillo, SVP Financial Planning & Analysis at SailPoint commented, it’s essential to be able to quantify your optimisation decisions through data and key metrics. An example he gave was technology license costs. “It’s not just a question of how much your licenses cost you – but how many users are you paying for within those agreements? We often find that businesses are paying for more users than actually use it. That’s a wasted expense and an immediate area of savings.”
Another aspect is addressing tech debt which as Su Crighton observed is “an underlying cause of increased cost”. This can’t happen overnight – it’s a case of keeping on coming back to it to manage it down over time. For example, Chris Taylor shared the fascinating insight that every software development team within the Telegraph Media Group has one sprint per quarter dedicated to addressing tech debt.
Winning combinations
Cost is a complex subject that has implications and ramifications right through the layers of an enterprise. With costs likely to remain high for the foreseeable future, it’s an area no business can afford to overlook. For those that pull the right levers, the benefits can be transformational – a lean and efficient cost base that is aligned to strategy and to the organisation’s key commercial priorities: a winning formula for growth.
