COST REDUCTION AREAS

Stop Low Business Value

MANAGE DEMAND Reduce Apps Maintenance Manage Apps Portfolio Reduce Service Level
Project

DEMAND
Manage Apps Spec.
SHIFT TO
Financial Engineering (Mandatory, Useful, Nice
VARIABLE COST
to have)

REDUCE LABOR
COST

IT COST SUPPLY Manage Technology

Lean IT
CONTAINMENT Portfolio
REDUCE
TECHNOLOGY COST

CHANGE IT Retire non-use

Grouped Maintenance Reduce Project Length Adopt Layered Model
OPERATING MODEL Code/Module in Apps

CONTROL
IMPROVE IT
Improve IT Financial Increase Span of Control in
BUSINESS Fiscal Optimization
Knowledge IT Org.
PRACTICES
 COST REDUCTION BENEFIT MATRIX

Financial Benefit Time Organizational Risk Technical Risk Investment Required

Stratification of desktop user types Low Low Low Low Low

Automated software distribution Low Low Low Low Low

Desktop printer rationalization Moderate Low Moderate Low Moderate

Standardized desktop products Moderate Moderate Low Low Low

OPPORTUNIT

Cell phone audits High Low Moderate Moderate High

Centralize portal management

Y

Low Low Low Low Low

Telecommunications line audits Moderate Low Low Low Low

Consolidation of IT infrastructure Low High High High High

Server virtualization Low High Moderate Moderate Moderate

Storage migration Low Moderate Moderate Moderate Moderate

Reduce business continuity capability Moderate Low Low Low Low

 COST CATEGORIZATION

Not Required
“Lights-On”
• Non-essential capabilities
• Activities required to “Keep the lights on”/ operate (e.g. property)
• Challenges the need to have any cost at all
10% • Look for opportunities to increase efficiency.
• Increase efficiency or lower service levels for what you keep
30
% AIM FOR BEST IN CLASS COST LEVEL
ELIMINATE OR BE PARE DOWN

COST 30
%
BREAKDOWN
Differentiating Capabilities
“Can’t Avoid”
• 3-6 Differentiating capabilities that build sustainable advantage
• Activities required by to compete
• Streamline for effectiveness and efficiency
30% • Look for opportunities to increase efficiency.
• Invest in critical activities to reach best-in-class service levels

MAY SPEND MORE THAN COMPETITORS

AIM FOR BEST IN CLASS COST LEVEL
 COST SAVING INITIATIVES

High Effort Medium Effort Low Effort

Improved

Streamline new product

Outsource selected quality
development
assurance functions

Align staff roles and

responsibilities across chain
EFFECTIVENESS

Standardize supplier contracts

Remove underperforming and
complex items

Reorganize field organization to

fewer regions

Reformulate product
components/hardware

Reduce frequency of delivery (But also Use 30% less materials

Diminished

give up service quality) in products

Minor Cost Savings EFFICIENCY Major Cost Savings

 EFFECTIVENESS OF INITIATIVES

Initiative A Initiative B Initiative C

EFFECTIVENESS BUILDS TOP OF THE CURVE EFFECTIVENESS

DECLINE

Clear Wins Worth the Trade-off Last Resort

Initiatives that should be pursued under any Initiatives that should likely be pursued, given Initiatives that may be pursued, given strategic
scenario, as they improve both effectiveness and an acceptable trade-off of effectiveness for business objectives, but they come at the expense
efficiency efficiency gains of effectiveness
INCREASED EFFECTIVENESS

Example: Example: Example:

Create online self-service portals that eliminate Streamline marginally effective training and Reduce product or service quality
the need for call centers events

B
C

INCREASED EFFICIENCY (Operating Expense Saving)

 CONTROLLABLE EXPENSE MANAGEMENT

1
ESTABLISH
BASELINE

2
ANALYZE &
VALIDATE
EXPENSES
3
DEVELOP
RECOMMENDATION
S
4
IMPLEMENT
CHANGES

 Obtain data files and complete  Analyze and validate client’s  Develop recommendations on  Manage implementation
OBJECTIVE
initial review of controllable controllable expense categories savings opportunities and seek process of recommendations
OF STEP
expenses and amounts buy-in from client

 Client files, policies and  Client expense categories and  Client’s feedback &  Client’s feedback in terms of
interview findings spend amounts analysis ready buy-in scope, resources, etc. available
KEY INPUTS
for implementation

 Understanding of  Baseline value,  Recommendation  Communication plan, policies,

KEY
categories and spend hypotheses, and savings statements optimized incentive program,
OUTPUTS
amount opportunities etc.
 RECOMMENDATIONS FOR SAVINGS OPPORTUNITIES

Controllable Expense Categories Low High

($ millions) ($ millions)

Transportation 2.0 3.0

Facilities 1.0 2.0

Outsourcing services 1.0 3.0

Travel 0.5 1.5

Entertainment 0.5 1.5

Fringe benefits 0.5 1.5

Training 0.5 1.5

Total 6.0 14.0