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Entries in Strategy (2)

Tuesday
Nov102009

Doing the Right Thing

The new phone and voice mail systems were just being deployed. Everyone was thrilled…there were even posters up “Free Yourself from Telephone Tyranny” with a tie in to the July 4th implementation.
Everything was going smoothly until someone asked why the message waiting lights on the general purpose phones were not coming on.

When asked, the telecom manager replied, “We didn’t buy the circuit packs to light the (message waiting) lights except for the executive phones. On all other phones, you’ll have to listen for a stutter dial tone. We did this to save money.”

Quickly, the inconvenience for a couple thousand people was dollarized, and the message sent to those same people by the blissfully unaware hundred or so Executives (whose voice mail was rarely used as the administrative assistants answered all calls) was hypothesized. While saving capital dollars is always desirable, impacting many people daily over such a minute cost was shortsighted.

Within a week, the message waiting lamps were lit, with negligible project cost impact. When they wrote the history of the company, the message waiting light faux pax wasn’t even a footnote.

In this case, a willing vendor made the correction relatively simple albeit at a modest cost. Not all suppliers are as willing, and the costs could become relatively unreasonable.

Doing the right thing means sometimes sucking it up, acknowledging the issue, and correcting it. Be up front about it; don’t try to hide the error or omission.

It would be simpler to know about the tradeoffs before the orders are placed. How do you do that when some vendors’ orders are actually parts lists in some unintelligible logistics language? While suppliers may argue they have unbundled pricing allowing unique responses, often we find the pricing models are intended to obfuscate the actual costs and this can lead to functionality/pricing surprises later.

Insist on a line by line review with the supplier. It may be painful, and it is up to the vendor to make it intelligible. Like buying a car, sometimes options packages create opportunities (i.e. the wood grain steering wheel you like is included in the luxury package.)

You’ve received references from the vendor. Meet with the references and review your order (without sharing pricing.) Of course, vendors won’t give unhappy referrals. At the same time, these companies may have learned the hard way options to get or avoid.

Require a lab set up where you can use the systems in practice. In the example from this article, “testers” needed to understand the requirements and assure the solutions meet the needs (not simply that the system works…it needs to meet the need. Therefore, testers need to be willing to say something works and doesn’t meet the need.)

Ask your staff and the supplier what tradeoffs were made, and are there any glaring omissions. In every case, these articulations can be used to determine whether something ‘critical’ has gone missing.

Oftentimes technicians will try to “hit a budget number” rather than taking a step back and laying out the wisdom of expenditure. Budgets are put together months before the actual numbers for a project come in. And if suppliers gave you a “budgetary number,” rest assured there’s room to negotiate on scope as well as price! Doing the right thing means providing the right functionality at the lowest possible overall costs…even if that produces a budgetary impact.

It often comes back to having clarity around the assumptions and requirements. External firms can be brought to bear to help review requirements and identify shortcomings. This is often money well spent on major projects and initiatives.

George H. W. Bush put forward an idea in 1988, based on the phrase “a thousand points of light,” encouraging individual contribution to society. Lighting a thousand message waiting lamps may pale by comparison unless you are one of those impacted. Be bold and always do the right thing.

Thursday
Oct292009

Cutting the IT Budget

We need to cut the budget,” the CFO pronounced. “Things are tough out there, and we need to trim now to fight another day.”

The truth is most budgets have been tightened for a long time, and all CFOs are playing it conservatively.

“We used to be lean and mean,” grumbles an IT Director. “Now we’re just mean.”

It doesn’t need to be that way.

You can make a budgetary exercise a bit of a game, and rather than make it a loser sport, make it fun. Award the group or person with the largest budgetary percentage savings. The “award” can be a simple certificate (as opposed to an all expenses paid trip!)

Assuming you’ve already trimmed subscriptions, office supplies and other line items representing a small overall percentage, you’re probably looking at four major areas for further cuts.


  • Staffing – often, staffing is the first metric CFOs look at because they relate well to it and for years we’ve been saying the other line items are not able to be cut! Nobody likes to cut staffing, and as a reality you may have to do so. Some methods you may want to use include releasing marginal contributors (who in many cases know they are marginal and welcome the “package,”) and bringing in outside contractors.
    Bringing in contractors? This seems counterintuitive. The truth is there’s pressure on rates, and flexible staffing models allow you to turn up and turn down the spend rate. Some companies furlough contractors the last couple weeks of each year, rather than paying contractors to be around during a lighter work period (other companies use the contractors as a way to give permanent staff a year end break.)

    While often a challenge in larger companies, cutting base pay or bonuses (if bonuses are still given) is often something many employees would prefer to laying off their friends. You’ll have to explore this with Human Resources, and be crystal clear on communicating to the staff.

  • Software Licensing / Equipment licensing – Do your homework and make sure you are current and up to date on your inventories. Often companies find they’ve exceeded a license agreement, and some suppliers are willing to package an adjustment in with a purchase (while others resort to sales by extortion remediation!) In some cases, companies oversubscribe to particular software, and may be able to reduce license counts commensurately. Don’t fall into the trap of signing long term agreements to address…what feels good today will bite you in a couple years.

  • Maintenance – This is suppliers most protected line item! Major suppliers invest heavily in protecting their installed “annuity” revenue base. It is often well worth time exploring the maintenance agreements on major vendors, and dissecting them into component parts.
    Often there’s an upcharge for 24x7 service. Do you really need it?

    For example, a modest branch office may not need 24x7 hardware support for a router, especially if redundancy is in place. In fact, one financial services firm has procured (older generation) replacement routers for branch offices and has the desktop support area do “swaps”. The branch office ultimately gets better service, and the failed equipment is repaired on a time and materials basis.

    The same holds true on personal computers or phone devices. Why have a support contract at all? The machines continue falling in price, and a replacement is often able to be installed for a fraction of the cost (overall) of a maintenance program. We’d suggest the phone switch get premium service, and not the phone device.

    We’re not suggesting dropping maintenance across the board. Look at each item of maintenance and determine if there are other creative ways of dealing with it.

  • Communications - voice and data charges are another large line item in most budgets worthy of inspection. Many steer clear of this as they believe they really don’t control it (i.e. I don’t make all those calls) and the contracts already in place have a commitment period.
    Start with an accurate inventory, making sure all the line items are still in use (this is a tedious task, and some consulting firms will do this work for a percentage of the savings.)

    Are you making the most of the technology you have in place? For example, a call to a branch office “on net” is often cheaper if routed over the data network (especially if you have global offices.) This requires your telephony and data communications teams to work together, making sure the data network and phone systems are configured to eliminate dropped calls/ echo/ busies and the like. Note: while a coordinated dialing plan is a huge convenience, it is not needed to make this cost savings leap.

    Is your company still paying for cell phones? It’s not uncommon for companies to install the infrastructure for email access (like a BlackBerry Enterprise Server) and have staff fund their own devices.

    Issue an RFP for the remaining services. Communications contracts are often for multiple years, and existing suppliers will be reticent to adjust pricing if they feel you are locked in. Look at your contract – many have modest minimums, so you can actually switch vendors without violating your existing contract! Your incumbent suppliers need to believe their business with you is at risk for you to get breakthrough pricing. This requires a bit of hardball, and staff need to be echoing the same message to the vendors.

Then again, there is another less “in your face” approach we saw successfully used as a major financial service firm. Each (major) vendor was contacted and told a 7% reduction was requested. While there was some hesitation, every vendor came through with a 7% reduction. One might argue a larger reduction percentage would have yielded greater savings overall, and we’d counter vendors understood the need for a modest cut and they were willing to participate rather than risk their business. In many cases, the vendors ultimately appreciated the soft approach rather than the stick.

One last word on the subject of cutting budgets. Please keep your training budgets intact. Sending staff to training is like changing the oil on the car….it must be done or you’ll have problems later. Cut travel budgets, encourage more cost effective hotels, explore online courses….and keep your staff knowledgeable, up to data and engaged!