by Dan Creswell CTO Sporting Index
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When the underlying demand for IT is cost reduction, the result will ultimately be increased cost as the business short-changes itself in a variety of arenas.
The core of any technology group is its people. It is their mindset, experience and capability that ultimately dictates the outcome of any work undertaken. It is essential the right people are acquired and developed, tight budgets for training and wages will make this almost impossible. The best one can do with such an approach is to hire inexperienced, intelligent individuals such as undergraduates who will hopefully learn faster on the job than most. One might be tempted by outsourcing but similar issues exist. In absence of talent, how does one assure the level of talent and experience or indeed the quality of work produced by a company over which there is limited influence?
Many companies maintain approved supplier and technology lists with onerous processes for making changes. The justifications are many and varied including the desire for a single point of contact for issues, bulk purchase discounts and the belief that a mature product is more stable. The effect however is to constrain the options for tackling any particular challenge typically leading to inappropriate use of a technology, bending it to solve a problem it was never intended to address. The result is a sting-in-the-tail architectural compromise that saves money momentarily after which a potentially growing long-term cost is suffered. Other undesirable side effects are to discourage staff from experimenting with new technology thus limiting the potential for innovation.
An attitude of cost reduction often drives mis-guided attempts at automation where the intention is to eliminate staff. What follows is a death-march attempt to build an end-to-end system that implements all the rules of thumb, guidelines and exceptions that computers are so poorly equipped to handle. If one takes cost-reduction out of the equation, it becomes clear that a focus on eliminating waste and drudge from repetitive tasks freeing staff to be more creative and innovative in their contributions is the better option. Taiichi Ohno describes it thus:
“First, work and equipment improvement should be considered. Work improvement alone should contribute half or one-third of total cost reduction. Next autonomation or equipment improvement should be considered. I repeat that we should be careful not to reverse work improvement and equipment improvement. If equipment improvement is done first, cost will go up – not down.”
A climate of cost reduction will also lead to a variety of software development compromises under the umbrella of “do something quick and cheap now, pay the price later”. One obvious example would be when a bug fix is done crudely in the name of saving time rather than doing the necessary small amount of re-design. System maintainability is increasingly compromised such that development costs for any given change increase over time. Quality also suffers as testing and reviewing are cut back.
The list of undesirable consequences of a focus on cost reduction is very long, let’s cut to the chase with a quote from John Seddon: “If you manage costs, costs go up.”
What then do we do about this? We work with the board to develop a focus within the business on delivery of value to customers (e.g. innovative products, a reliable website and friendly support) which ultimately underpins revenue. Anything that does not improve the overall customer experience should be viewed as costly and ineffective.
Even the humble phone system can be evaluated in the context of customer value. Consider how it allows for more direct interaction with customers and provides a better environment for discussion of product ideas than, say, email. Importantly, the value-based approach makes it easier for staff to relate their work to the bigger picture with the potential for increased quality, engagement and motivation.
The value-based approach is exemplified by the likes of Jeff Bezos and the late Steve Jobs, can anyone say it doesn’t work?
Having worked in a few organizations and witnessed others in “cost cutting mode”, one of the tremendous drawbacks is lower morale within the workforce. Lower productivity is often an unplanned and unaccounted side effect of these initiatives. As you note, pursuit of customer value is the critical organizational objective, cost-cutting initiatives in and of themselves is a shallow well that quickly runs dry. Thanks!