This document discusses approaches to reducing costs from an IT perspective. It identifies three dimensions for cost savings: people, process, and technology. For people, it recommends multi-skilling employees, improving training, and investing in knowledge management tools. For process, it suggests automating redundant tasks to boost efficiency. For technology, it advises portfolio optimization, cloud migration, and data center consolidation. The document provides examples of how organizations have successfully reduced costs through initiatives in these three areas. It emphasizes establishing clear objectives and accountability for cost reduction programs.

1. AUTHORS: Ashish Sakarkar | Utsav Bhatt
Cost Reduction Approach
... IT Perspective
Abstract
The economic unbalance in recent times; be it the Eurozone crises, lack of consumer
confidence in the market or rising cost of compliance; has forced financial institutions across
the globe to be laser-focused on cost reduction initiatives. Information Technology, which has
been a transformational factor in the success of major financial organizations, is facing the
heat as IT budgets are getting skewed and there is a strong mandate to achieve more with
less.
As IT cost reduction makes it to the top of the CIO priorities, this article intends to highlight
the people, process & technology aspects of cost reduction. For instance improving the
employee life cycle management – the People aspect; using automation techniques for
redundant & routine tasks – the Process aspect; or using innovative technology as a backbone
to drive business – the Technology aspect can help organisations achieve cost supremacy.
Overview
The current economic situation has caused organizations of all scales to rigorously test their
cost structures. While organizations in some industries are impacted more than others, all are
actively pursuing cost containment as a priority. The stalling economy in the UK amidst a
continuing Euro crisis, lack of consumer confidence in the market, and increasing cost of
regulation is fuelling cost pressures on businesses across the globe. The building society sector
is not immune to it.
Over a period of time, building societies have taken steps to sustain cost pressures by
investing in new technologies, developing new products/services and growing their customer
base. The cost initiatives undertaken by building societies has been fragmented in nature,
and as a result the full benefits of the initiatives are yet to be realized. With the advent of
technologies like cloud, mobility, analytics and virtualisation, there exist opportunities like
never before to save costs. There have been plenty of cases where major banks have moved
legacy applications, tried various sourcing models (resource augmentation, managed services,
fixed deliverable), rationalised mammoth application landscape and tried other initiatives to
contain costs. The banks are moving fast to repair their balance sheets and are taking
innovative sourcing decisions. The mutual sector needs to act fast if it is to compete in the
new post crisis competitive landscape.
In this article we consider People, Process & Technology as three dimensions of cost reduction
& highlight the opportunities in subsequent segments.
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2. Cost Reduction Approach
... IT Perspective
Dimensions for Cost Savings
(People, Process & Technology)
There are two ways by which IT can help save cost.
1. Cost reduction through
IT to enable business
processes - IT needs to
continuously find areas
of improvement in
business processes and
strive to deliver optimum
business value. For instance, to meet its energy efficiency targets, a building society
implemented Smart Meters into its sites across the UK, and used analytics software to
evaluate its energy consumption and identify areas to improve efficiency, thus avoiding
unnecessary cost.
2. IT cost reduction through programs like IT Portfolio optimisation, cloud migration,
adopting different sourcing models, data centre consolidation and automation.
CIOs take on IT Cost reduction
IT Cost reduction is now forced to the top of the CIO agenda in many businesses. Based on
interaction with CIO level executives in different companies, here are a few pointers for cost
reduction programs:
• Establish a clear charter: This includes establishing & identifying project objectives,
expectations, success factors, ownership and management support
• Adopt the right approach: Based on the objectives type of approach which is best suited
for cost reduction is decided for instance, cost reduction program based on business
processes (finance, HR, operations etc.) or based on the types of IT applications (most
critical, least used, costliest, most underutilised etc.).
- For short-term objectives, organisations should re-prioritise their investments based
on immediate IT cost reduction goals
- For long-term objectives, businesses should invest in enterprise-wide portfolio
management
• Logical apportionment: Exact cost of the large IT landscape is difficult to assess,
therefore rounding up of cost with a variance of +/- 5% should be undertaken.
Alternatively, appropriate cost apportionment logic should be used to get a broad
understanding of the spend structure if specific information is not easily available
• Drive the implementation stage: Once the current state is assessed & its gaps from the
desired state are identified, the leadership should devise a strong governance structure by
defining ownership so that there is accountability & clarity on the initiatives that are
carried forward with strong benefit realisation
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3. Cost Reduction Approach
... IT Perspective
People
The people hired for specific roles and responsibilities are the cornerstone for any company’s
success. However, over a period of time, with the growth in size, the employees should be
trained to handle multiple tasks, which will also increase their flexibility. Post mergers &
acquisitions, there is an opportunity to relook at
the work functions and define a RACI matrix to Investing in an enterprise wide
determine who is Responsible, Accountable, Knowledge Management tool can enable
Consulted and Informed. Multi-skilling helps employees to efficiently search for
businesses to use the same resources for information, collaborate, get trained,
multiple tasks thereby reducing the need for mobilise ideal resources on the bench
unwanted recruitment. Organisations should also for projects and enable seamless flow of
have a clear training strategy for each information across the organisation. This
organisational level and job type. For support also reduces redundancy, since
focused work, you need employees to be trained employees do not invest time in
in their respective areas only; for functions activities already assigned to or
supporting business an organisation needs to completed by other colleague
invest in automating processes, boosting
productivity and equipping staff to improve the decision making process. At a strategic level,
investment needs to be done in identified leaders who can take the organisation to the next
level. By investing the right amount of money for the right employee in the right area helps
an organisation to plan effectively and ensure correct succession planning.
With a systematic organisation plan backed by IT systems which manage and track employee
performance, skill sets etc. significant cost reduction opportunities can be identified.
Process
IT systems can play an important role in improving the business processes by reducing
turnaround-time, increasing efficiency and boosting productivity. Often there are costly
processes which do not involve many employees of the organization, yet have a lot of
opportunities for automation.
A leading building society was unable to
Let us take employee turnover as an example.
manage the customer service through its
Once an employee decides to leave the
existing contact centres because of
organisation, many departments like IT,
fluctuations in marketing activities and
Finance, HR, and other support functions get
limited size of the contact centres. It
engaged in completing the employee off-
then implemented a virtual contact
boarding formalities. Simultaneously, there are
centre solution that helped them realise
efforts made by the respective business group
immediate savings of more than £90,000
and recruitment HR in finding and interviewing
per annum
for replacements. Once replacement
candidates are shortlisted, based on the business policy, resources are spent in interviews,
medical check-ups, negotiations, background checks etc. On selection of a candidate many
departments get lined up to on-board the employee. A typical on-boarding process involves
handing over the organisation’s IT assets (like communication devices, laptop/desktop and
office space), imparting basic training and providing required security accesses. Additionally,
there is an average amount of time that a new recruit takes to be completely productive.
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4. Cost Reduction Approach
... IT Perspective
In certain client situations, we have seen turnover cost ranging from USD 5 million to
US 10 million annually, which is directly proportional to the revenue and attrition rate of the
organisation.
There are many areas where IT can play a role in streamlining employee turnover process,
namely:
• Off boarding employees and Summary of employee turnover cost (sample)
contractors: System with built-in
workflows, which provides
department approval to off-
board employees and take away
all the privileges and accesses
• Plan and attract new candidates:
Leveraging social media tools to
effectively identify the right
candidates and conducting video
interviews through internet can
help in reducing the search time
• Onboarding employees and
contractors: Once an employee
is selected, system should
inform all the concerned
departments about the joining date. This would help in necessary procurement,
generating user IDs and providing system access as soon as the employee joins the
company. To reduce the time for employee to become productive, Day In The Life (DITL)
videos of his predecessor (or equivalent role) should be made available along with videos
about the organisation, department and other duty related things. This would help the
new joinee understand the company, department and job details much more quickly than
traditional methods.
Technology
There is a growing focus for the IT organization to reduce ‘Run the business’ spend and focus
more on projects which would ‘Change the business’. The business keeps its focus on reducing
the IT spends and at the same time expects more value.
Apart from adopting efficient negotiation mechanisms with vendors, the IT organisation
should look at optimising the entire IT portfolio. This includes Application rationalisation,
Platform consolidation, Vendor consolidation, Spend structure optimisation, Server
consolidation/Virtualisation, Cloud adoption etc. One of the outcomes of IT portfolio exercise
helps define the application strategy namely; retiring, replacing, re-engineering or retaining
the application.
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5. Cost Reduction Approach
... IT Perspective
The above sample charts depict critical information about the application portfolio of the
client. Measurements of areas like business criticality, technology maturity, total cost of
ownership and IT operating model amongst various others help in identifying:
• Redundant applications which can be A leading building society needed a self-
retired, thus bringing in cost savings service portal for development
• Applications which can be replaced by an environments for its mortgage services
Off-the-shelf tool or other application division. Its IT shared service centre
which is more cost-effective and efficient
helped discover a solution that allowed
for the organisation
the building society to provision virtual
• Applications which are critical and further
investment in them could help in machines to keep pace with its agile
improving their performance and thereby development requirements. By deploying
improve efficiency of the process virtualisation technology it avoided more
supported by them than £40,000 expenditure on a proof of
• User education opportunities on concept and licenses from the incumbent
applications which are important, but vendor
have poor utilisation figures
Benefits
Often, cost reduction programs bring a pre-conceived notion of negativity & discomfort within
businesses. Job security, unfavourable work conditions etc. top the share of mind of
employees when they hear of such initiatives. However, this is not always true. Be it
utilisation of underperforming assets, upgrading the existing ones or retiring the non-
performing assets; a substantial benefit can be realised with a judicious cost reduction
initiative. The objectives of a good cost reduction program go beyond the concerns of job
risks and an unfavourable working environment. For example:
• Embracing automation can save millions of pounds and at the same time improve
efficiency & productivity
• Moving towards open source helps to realise huge cost savings by reducing license &
software procurement costs
• Migrating from legacy to cost efficient technologies or platforms like cloud and mobility
pose the potential to save cost and at the same time improve service delivery
• Eliminating unwanted processes can help reduce licensing costs and sun-setting low
performing applications
• Ensuring alignment of the initiatives can help prioritize the spend on critical IT or business
processes
About L&T Infotech
L&T Infotech is a wholly-owned subsidiary of the USD 13.5 billion Larsen & Toubro (ranked
9th by Forbes among World’s Most Innovative Companies in a 2012 study of global
corporations) which has a presence in construction, engineering, manufacturing and financial
services.
For more information, please contact Sreeram.Yegappan@lntinfotech.com or 020 7517 1617
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