The road toward successful streamlining

Several of my recent columns have touched on the importance of lowering operational costs. Most recently, I discussed the crushing operational overhead that many telephone companies endure (60% to 70% of service costs are because of operational overhead).

The challenge isn’t limited to service providers. A majority of companies we surveyed for an upcoming report on Web services indicate that reducing overhead is a critical challenge for them. “Mission No.1 is efficiency – driving the unit cost of support down. Everything we do is focused on that,” says the CTO of a large financial services firm.

Strategically deploying technology can help a company achieve this, but it’s not the whole story. Successful operational streamlining also requires effective benchmarking and a supportive culture. Let’s look at each in turn.

Strategic technology deployment. A significant percentage of companies surveyed told us that Web services are an effective way to lower operational costs. By centralizing accounting or customer service via Web services, a company can get away with fewer accountants or customer support personnel. One organization cost-justified a multimillion-dollar rollout of Web services on the grounds that it let them reduce the accounting department by 500 positions.

However, there’s a catch: If the cost-savings are outside the IT budget, ensuring that they actually accrue requires effective benchmarking and a companywide alignment of goals. That brings us to the next two points.

Effective benchmarking. Once a potential cost savings has been identified, an organization needs to have the processes in place to measure the savings. This is a lot harder than it sounds because it might be considerably out of the traditional scope of IT departments.

If a new technology has been deployed with the goal of reducing headcount in, say, accounting, someone has to validate that the head-count reduction occurred and that it didn’t result in unintended costs. Most organizations don’t perform this kind of benchmarking regularly. Worse, most aren’t even sure who should be doing it.

Goal alignment. Regardless of who performs the benchmarking, there has to be companywide agreement that an initiative is worth the effort. That means ensuring that everyone – lines of business, IT and non-IT centralized services – commit to realizing the promised results. “If the business unit really wants something to be done, they’re going to have to belly up to the bar. If they claim that it’s going to save them a million dollars, the money disappears from their budgets. If they aren’t willing to sign up for it, it doesn’t get done,” says the CIO of one manufacturing company.

Most organizations are only about 33% of the way there. They’ve mastered the art of deploying strategic technologies but are wrestling with effective benchmarking and goal alignment. For more tips on how they’re coping, stay tuned.