Targeted Investments, Not Cuts, May Be Key to Budget Woes

Ann All

Misery loves company. You may be tired of reading about companies cutting their IT budgets. Well, believe me, I am tired of writing about it.

But I just read an excellent article in The McKinsey Quarterly (free, but registration required) that echoes the theme of a Computerworld piece I wrote about in March: Companies that slash their IT budgets to the bonerisk losing long-term competitive edge.

That doesn't mean companies should blithely ignore the slowing economy and go ahead and sign that contract for a new ERP system anyway. Not at all. The key, as three McKinsey consultants point out, is to make careful investments in areas likely to yield the near-term revenue and efficiency gains so important in a slumping economy. The four examples they offer:

  • managing sales and pricing
  • optimizing sourcing and production
  • enhancing support processes
  • optimizing overhead and performance management

While new systems may be required, opine the authors, "modest enhancements or targeted work-arounds often suffice." Focus on improving workflows that will quickly produce obvious benefits. A retail bank, for example, made a few key investments to reduce its reliance on manual, paper-based processes of identifying and distributing sales leads. Portions of its existing lead-management system were automated and integrated with its CRM platform. The result: a big boost in the number of sales calls, improved conversion rates and productivity increases.


Breaking down information silos is another recommendation. The article mentions a telecommunications company that created "high-value but inexpensive" links between its contracts databases, sales funnels, compensation systems, CRM data warehouses and other siloed systems. The authors wrote:

Just centralizing this information in one accessible repository was a big step forward: it facilitated analyses that uncovered opportunities to improve revenues by controlling unnecessary discounts and by harmonizing inconsistent pricing policies across different products and regions. The value came from integrating information flows at key points, not from creating new systems.

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Add Comment      Leave a comment on this blog post
Sep 18, 2008 6:12 PM Frits Bos PMP Frits Bos PMP  says:
Companies should be careful not to drain intellectual capital in their quest to cut costs, whether by layoff due to economic strain or perceived savings in outsourcing. It is one thing to manage capital investment, another to zigzag business strategy like a captain eluding a U-Boat. A slowdown is an opportunity to see what alternatives a company can pursue to get results: perhaps a slowdown provides breathing space to develop simple solutions as an alternative to an expensive procurement initiative. In one example, for a major Canadian Bank, I found a good alternative that lowered the cost of a project from what originally was budgeted at $3,000,000 to a $350,000 investment that provided superior results. The savings generated could be applied to future investment in the more elaborate solution, although I never found out if they decided that bigger was better after all. Strategy is based on where the business is going, but to implement strategy you need the resources that make it so, that are lost when short-term cost-cutting is the only solution a company can think of to appease its shareholders. Reply

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