The Penny route to Pounds

In times like these, when the world economy is struggling to recover from a long economic downturn and top line growth is either marginal or just not possible, cost reduction becomes a favoured means for a company to stay afloat. It is in these times that every function within the company needs to be an active participant in financial matters, and the CIO needs to also look at things from the perspective of a Cheap Innovation Officer.

One might wonder how the IT function, which seldom accounts for more than single digit of the overall expenditure, really helps reduce costs. But in these times, a penny saved is indeed a penny earned. In fact, the IT function can play the catalyst in enterprise-wide productivity measures. Let me share with you how I have done this at VST, one of the leading companies in the tobacco space.

Be clear on ROI, TCO
One of the primary functions of the IT team is to work out the planned investment for upcoming projects and keep Total Cost of Operation (TCO) within reasonable limits. To accomplish this, you need to align your IT needs with the company plan, as lack of business can spell failure for projects.

Initiatives causing time inefficiency and impacting strategic business should be identified and scrapped, even if they are already part of the projects portfolio. The first thing that I did after taking over as IT function head at VST was to identify the kind of investments that were being made in IT and the precise return on investment (ROI) that they fetched. Such evaluation always helps a firm plug any leakage in the process.

For instance, on detailed examination we found out that Total Outsourcing of Services (TOS) well suited to VST needs since it offered twin benefitscontemporary technology and better technical expertise. In fact, VST was among the pioneers in the country to go in for long-term outsourcing in April 2004. This pulled down our costs significantly.

Re-examine current systems
One of the important things that an IT manager can do in these trying times is to re-valuate the existing infrastructure and try to pinch a penny here and a penny there. A simple first step would be to avoid use of multiple packages with similar functionality. Besides, as an IT manager you can also explore options like e-learning to cut travel and accommodation costs for the HR department. Web conferences also benefit geographically distributed functional departments.

Pennies can also be saved by delaying investment in new IT infrastructure, like new PCs, by a year or more. The IT manager can think of alternatives instead of going in for basic technology upgrades. A simple example can be virtualisation of desktops or adoption of thin clients. This will not only offer benefits in capital expenses (Capex)but also reduce the operational expensees (Opex) by ensuring less power consumption and lower manpower requirement. Not to talk about enhanced security levels and the satisfaction of creating a greener IT environment.

Benchmark yourself
Finally, all this exercise will be in vain, if you do not really benchmark yourself. What is the percentage of IT spend vis--vis net turnover? Ensure that you check this ratio every year, benchmarking with the best companies. I would advise IT managers to look at ways and means to turn the IT function into a profit centre from a conventional cost centre. For instance, in case you have excess manpower, think of utilising their skills for outside projects instead of rendering them redundant. This will not only generate revenue but also enhance employees trust in the company. Externally too, the firm can gain prestige and credibility.

The list can be endless. But earning better profits through cost reduction should remain the eternal mantra for IT professionals within the organisation as they can lead the charge towards raising productivity levels even as costs are cut. After all, pennies make pounds!

The author is a cost accountant by qualification and an IT professional by choice. He is, currently, focussed on turning VST Industries IT division into a profit centre

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