Edition 52, Finance

Digital Strategy for Reducing Costs and Maximizing the IT Area

By: Fabio Irino

When one starts talking about “digital strategy,” a cloud of ideas and concepts –often erroneous– is generated about what the organization must do to have a significant advance in the field of business.

The first line executive team must understand that a digital strategy is a method that uses the elements from the last generation to boost the business model and for the company to “do better,” either to do more business or do something more for the customers.

The technology component is definitely the master key of the world leaders of the moment. But you must first understand its impact and its benefits if you want to implement the strategy successfully. Primarily, technology should help the organization in a digital strategy to reduce costs.

According to a study by Accenture, nearly 90% of the companies in Mexico already have access to digital technologies, from social networks and blogs to cloud servers. The reality is that 60% of executives believe that they are not taking advantage of these technologies due to the lack of a comprehensive strategy.

Therefore, each day the IT director’s agenda becomes more important in the corporate boards for planning the executive strategy of the organization, which is responsible for the approach to the digital strategy toward the company objectives.

Businesses are entities that live in an ecosystem characterized by constant pressures and risks that must be closely monitored to measure emerging opportunities:

  • Slowing demand
  • Shortage of capital
  • New regulations
  • Erosion of assets
  • Volatile prices

The pressures and unforeseen risks have an impact on the organization, causing a deterioration that is commonly expressed in two ways:

  • CEOs eager to significantly reduce the cost of information technologies in order to ensure the efficiency of the area.
  • IT staff fatigued by the cost-reduction initiatives and the impact of resolving contingencies, because generally they operate by reaction and will only deal with effects.

The challenge of high-performance organizations is to transform the pressures into opportunities by consolidating a cost reduction strategy based on technology in a sustainable way, while minimizing the associated risks.

Thus, among the first opportunities offered by new digital technologies are the following:

  • Cost reduction in technological operation
  • Cost reduction in the business operation

CURRENT CHALLENGES
From the start of the digital cost reduction strategy, the pressures of the company will begin to decrease through the alignment of all the units, but the changing market conditions must be taken into account. The technological area of the company is taken as the main objective of efficiency.

It is necessary to get the answer to certain considerations, which will begin to give a more comprehensive overview of the requirements:

  • How is the total IT spending, both discretional and non-discretional, distributed?
  • How does the IT spending contribute to the performance of the company?

Upon completion of this balance, we will begin to direct the actions toward cost reductions tailored to generate the greatest impact in the lowest number of moves possible.

ACTIONS WITHOUT STRATEGY
In the following three cases we see the most common actions undertaken by companies that do not have a digital cost reduction strategy:

  • Case 1. Arbitrary cost reductions in the areas. For example, 10% cut in all IT budgets.
  • Case 2. Exclusive consideration of projects of discretionary spending. For example, the cancellation or suspension of projects of significant investment.
  • Case 3. Secondary cost reductions. For example, the elimination of suppliers.

When you do not have a strategic approach to cost reduction, there are no sustained and long-lasting benefits, but involuntary results that in many cases frustrate the achievement of the business objective, as set out below.

COLLATERAL DAMAGES TO THE ORGANIZATION
In these cases, it is common that collateral damages occur, which may include the following:

  • Short-term savings, which are unsustainable over time, with new cost reduction initiatives without vision.
  • Cost reductions that involve several consequences:
    • Reduce IT’s ability to sustain the business strategies.
    • Increase the gap of IT capabilities at the expense of future business expectations.
    • Undertake isolated efforts to reduce costs that do not translate into the desired cost reductions.

PROPOSAL FOR CHANGE
An approach based on the global experience of Accenture divides the reduction of costs into two large integrated perspectives:

  • Reduction in IT costs from the internal IT perspective, which involves the costs directly associated with the operation of the technology and infrastructure.
  • Reduction in IT costs from the external IT perspective, through continuous improvement of the business, maximizing efficiency and optimizing resources and processes.

The transformation of the manual processes of business to adopt digitized office initiatives, mobility and management of digital contents is found in this second part of the strategic vision.

MYTHS OF THE DIGITAL STRATEGY
It is understood that a digital mobility strategy does not consist in the following:

  • Renting servers in a data center on your own.
  • Establishing an integrated system that handles day-to-day operations.
  • Making isolated applications in the companies.
  • Being limited to publications on social networks, which is far from being a digital strategy.

The approach of organizations should focus on converting the problem of reducing the cost of technology into a pragmatic solution in the short and long term that has challenges from the beginning to the end when viewed from two perspectives of returns – the internal perspective of technological advances that favor agility and flexibility of the organization and the external additional reductions in the IT costs required by the business to maintain its competitiveness in the market.

At Accenture, we established a structural approach that helps to create a digital strategy for reducing IT costs significantly and sustainably. This strategy begins when you identify the key investments to obtain the savings that will bring productivity and gains.

In a scenario such as this, the main objective is not only to lower the cost, but also to change the nature of the expenditure to increasingly become dispatches of a “discretional” type, as they are now strategic, sustainable and of great benefits. A panorama is opened through discretionary spending that will create within the company an element that maximizes value in the context of the strategic vision.

NEW TECHNOLOGICAL TRENDS
Technological trends can also generate important cost reductions in the company. The most important thing is that all digital implementation is strategically aligned with the business model and the IT area. Let’s look at these trends.

  • Social networks. Between 60% and 70% of the information that is generated in the company is unstructured data and is very valuable. The aim is to adequately exploit the interactions of social media to make better products, to provide more support to customers, to be closer to them and to win sales contracts. What was once seen as a game and entertainment, today companies exploit fully.
  • Cloud. Another trend is an integrated vision of the use of technology through the cloud, such as collection and use anywhere for the whole team.
  • Mobility. Mobility is everything in the future strategy. It is to take the company to any corner – not only an employee, a customer, a partner or a prospectus that is accessed at the moment you want and in real time.
  • Massive and analytical data. The evolution of what was known before as business intelligence is the smart output of reports of data from transactional systems. In both cases, large volumes of information that is constantly moving are analyzed, and a scientific analysis that generates hypotheses about the behavior of information to generate predictions with very high precision is conducted.

With this methodology, the intention is to transmit the vision of the business to a multi-annual program of cost reductions, with elements of precise measurement to get the added value and true impact that must come from the IT area.

The short-term opportunities can generate reductions of up to 10%, but in the long term it could reach 60%, as shown in the graph.

The Accenture initiative is an end-to-end process that begins with workshops with strategic leaders of the digital business in an initial phase of diagnosis, which is then consolidated with the implantation and with a constant measurement.

The essence of Accenture’s digital strategy for the reduction of costs generates innovations in the business through unique experiences for the customer that include the new, intensive combinations of information, business resources and technology.

The success of digital business requires strategic decisions that recognize the pre-eminence of the customers in the business model and determine the difference between what is possible and profitable. The strategies generate a new value for the customer in ways that produce increasing incomes and high-performance results.

The concept referred to as digital technology makes information intensive and connected at the same time. To be a digital company, it is necessary to transform technology into business.

Post a Comment

Your email is never published nor shared. Required fields are marked *

*
*

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>