When businesses look at IT, high costs often come to mind. However, reducing these costs and establishing proper metrics can turn what is often a large expenditure into a way to boost revenue, which opens a path to higher profit. Just a few small steps can mean all the difference to the bottom line.
According to Jennifer Perrier-Knox, senior research analyst at Info-Tech Research Group, where companies allocate resources will vary according to their strategic objectives. “The organization needs to decide if its practice of IT gives it a competitive advantage in the market or if the department has core competencies that it needs to retain,” she said. Any practice or process that doesn’t fit this description could be a way to cut costs.
The typical IT costs a business incurs can vary depending on company type. For example, IT costs for a low-tech businesses may be relatively low, but they can still greatly outweigh other costs. As Perrier-Knox explained, “One thing about IT is that the capital expenditure tends to be much higher than for other departments. In terms of overall budget, IT can easily take the larger share of spend.” The number becomes smaller when only looking at operational spend.
The question becomes how to reduce IT costs while keeping the company running smoothly and not impacting customers. Outsourcing is one way to do so, but Perrier-Knox provided many additional examples such as buying refurbished IT gear (reduced capital spend), reducing the application portfolio (fewer licenses and simplified management), consolidating the printer fleet (reduced operational costs), and virtualizing servers (lowered energy consumption and future capital spend avoidance).
“But at the end of the day as far as operational spend goes, IT writes checks to two groups: staff and vendors,” she said. “Any cost reduction actions taken must, and will, result in changes in one or both of these areas. For staff, we’re talking about layoffs. For vendors, we’re talking about reducing software licensing costs, finding less expensive vendors and aggressively renegotiating product and service contracts.”
While measuring the impact of IT costs on revenue can be challenging, there are many ways to do so. Perrier-Knox explained that connecting the dots between operational cost control and impact on revenue is always a challenge since some benefits, like increased productivity, are hard to quantify. “Calculating ROI or Payback Period for an investment of any sort is an old standby, and can be done for both hard and soft benefits,” she said. “But ROI doesn’t factor in how much it costs for an investment to be supported and maintained over its life cycle.”
Perrier-Knox explained that for operational purposes, calculating Total Cost of Ownership [TCO] provides more fine-grained insight into discrete costs over the entire life cycle of the investment (as well as requires an ROI calculation to do the final math). “Typically, the majority of the cost to implement a new technology or service is tied up in the long-term management and maintenance, not in the initial acquisition of capital and resources,” she added.
Perrier-Knox said that establishing metrics is a way to directly link costs to increases in revenue. As she explained, “The most valuable metrics from a business perspective are those that show a direct impact on revenue.” These may be web site success metrics. For example, the length of time a potential customer spends on the web page (because it’s easy to use and reliable) is directly proportional to their likelihood of becoming a paying customer. “IT would want to track this metric and take actions to improve it since it has a positive impact on revenue,” she said.
Peter Ryan and Daniel Hong, lead analysts at Datamonitor, noted that reporting and monitoring capabilities in the contact center have become more advanced, which helps establish metrics. For example, some companies will know if a customer tried to obtain information via the web before calling into a contact center. Ryan and Hong said that tighter integrations with databases and new business logic will help companies more efficiently upsell and cross-sell products and services that are relevant to customers’ individual needs (based on customer behavior). “Overall, we are noticing the trend towards personalization across all channels – the next trend we may see is more humanization of agents and touch points,” Ryan and Hong added.
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About the Author: David Cotriss is a business/tech and new media writer, having published 500+ news and feature articles to date worldwide in magazines ranging from PC Magazine to The Industry Standard.