Executive Summary

In response to the down cycle in which the global economy finds itself, businesses are doing everything they can to reduce expenses, conserve cash, and shore up their stock prices. Historically, one of the first expenses to get reduced in difficult times is IT spend, as we saw after the 2000/2001 dot-com bust. However, I have found this is a critical strategic mistake that extends the recovery period and can even cause companies to go out of business.

IT has a direct impact on a company’s growth, productivity and ability to adapt to dynamic market conditions. If your company is following the old approach of cutting IT spend to save expenses, then read on to see why you should immediately push for a change. Now is the time for great companies and leaders to follow a different path which will result in great rewards in the future. With the right strategy and careful use of IT spend, your company can grow market share and come out the other side of this recession stronger.

If you haven't read Part 1 of this article by Rich Murphy yet, make sure you take advantage of advice on steps one through three: Attacking RTB with passion, focusing on growth, and using innovation to create competitive advantage .

Step 4. Cost Reduction Is Good – Cost Elimination Is GREAT

Expense reduction in good times is important for business; in difficult times it is required. Entire industries like consulting, outsourcing, and reengineering have specialized in cost reductions. In most companies, managers are evaluated and rewarded on their ability to run their factory, store or organization at a certain level of cost – most often reduced from the previous period’s level.

In my view, this is old-school thinking. In today’s world, we need to stop thinking about how to perform tasks more efficiently and start thinking about how to automate work, which eliminates the task and therefore its cost. Automation, work flow improvement, and work elimination via smart technology is the answer.

Take a typical transaction of opening up a new customer account. I recently moved and had to establish gas, electrical, cable and Internet services. Companies with whom I could open my account online or via automated phone system were able to process my information correctly and very efficiently. Companies that required me to fill out paperwork or speak to someone who in turn filled out paperwork resulted in some type of error. Which of these two scenarios represents the lower cost to set up a new customer?

Another example is online banking. I do all my banking online or via ATMs. Consider the cost that is eliminated for the banks (tellers, data input, less errors handling cash, more float) and for me (fewer trips to the bank, no stamps, greater control over my cash flow). The relationship I have established with my bank also makes me a more loyal customer. I like the way their processes work; I have set up all my electronic transactions and I find them very easy use – a loyal customer who is less likely to change and more likely to take advantage of more services, thus driving revenue.

Plus the bank can now handle scale increase with little marginal cost. In the past, for commercial banks to really increase their customer base and deposit size, they needed more infrastructure like branches, tellers, managers and other staff, which were very expensive. Now, banks can handle increased customers and transactions by adding ATMs, additional online features or more IT hardware. While there is some cost, it is much, much lower than the old way of adding infrastructure.

All this automation and continuous elimination of work requires CTB that is devoted to process improvement and elimination of work task. If you can invest money one time that results in elimination of on-going cost, the ROI should be very appealing.

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