Insights | January 18, 2016
Funding transformation part 2: Foundations for a savings programme
Laying the right foundations is key to enabling the delivery of cost savings to fund transformation
In my last blog, I discussed the context in which an existing contract renegotiation is likely to occur. In this blog, I’ll outline the foundations that you need to put in place for a savings project to be successful. I’ll also offer some thoughts on where to look for those savings.
As a starting point, it’s worth making a judgement on your relationship with incumbent suppliers. Some organisations (usually those with longer to run on existing contracts) have managed to incentivise suppliers to help support savings initiatives.
Others have taken a more bullish view of requesting savings with the threat of “you can just cut ‘x million’…and if you don’t, we will start looking for more savings and reducing our dependency upon you and it will be even more painful”.
However, I’m not convinced either of these approaches will work if you are operating under the current pressures and challenges of public sector cuts. Instead, I would propose looking at how the cost base can be reduced on a sustainable basis for both the supplier and customer.
Implementing projects to drive genuine cost savings on both sides should make it less painful for the supplier and also start the customer on the path towards a transformed service.
So, if you are looking at a contract renegotiation via a programme of cost savings projects, here are some foundations to put in place:
Is everyone on board?
Take a view on the politics and relationships within the organisation and with your suppliers. Make sure your senior stakeholders understand the goal, are lined up and are supportive, as larger suppliers (due to the dependency your organisation has on them) often have the ear of senior managers, and they can be incredibly effective at influencing upwards.
Form a cross-functional team
Procurement and commercial teams will not be able to deliver this by themselves. Conversely, neither will technical leads working in isolation from each other. Forming a joint team across different disciplines (commercial, technical, service, finance), with a shared mission to save money, is the only way to get an effective project in place.
Tackle the paradox
Many ICT functions will face the paradox that whilst you may be working towards reducing ICT costs based on targets set from above, the rest of the organisation is seeking to invest more in ICT to support their own cost savings initiatives.
It is a strange place to find yourself when being asked to cut ICT investment, but estates and the business are relying on you to support their initiatives to reduce both headcount and the use of building floor space.
It is valuable to spend time working with finance colleagues early on to define what savings are achievable. If you get a better unit price for a service which would actually result in higher costs if consumption increases, is that a saving? Alternatively, if investing in flexible working enables estates to hit their targets, should ICT be penalised if the ultimate bottom line has been improved by investing in technology?
Don’t set arbitrary targets for savings based on rhetoric
Nothing will irritate your staff (and potentially damage your own credibility) more than setting an overarching target based on what senior stakeholders want to hear, rather than on solid facts.
For example, savings in excess of 20% may be achievable on networks due to changes in the market since a contract was awarded. However, for services where the cost driver is largely staffing related, such high savings are likely to be impractical based on competition. If staff transfer under TUPE, for example, they are likely to be paid the same as they were before moving.
If you do take the option of throwing out a figure that senior stakeholders want to hear, give them a week or two, and they will start asking “OK, so how will you achieve it?”
By all means set out the strategy, as it will help focus and steer the organisation. However, when it comes to implementation I would recommend taking a more nuanced and analytical approach by having commercial and technical staff working closely together to understand exactly where potential savings exist. This has the added benefit of helping to get their buy-in and support.
Remember what a strategy is
Yes, it is meant to include a vision and end point. Yes, it is meant to be a plan. But without a crystal ball, it is still essentially a gamble on where you want to be and why it will be better – albeit a gamble with hopefully a better chance of success, because it will be based on research, intelligence and analysis that supports the end vision, why you want to be there, and how you can go about it.
I do have an underlying concern that some organisations are blindly following the Red Lines on ICT procurement, or Cloud First, without a proper strategy other than “we’re being told to”. This just doesn’t cut it. Let’s recognise what those policies are for: to try and turn around the super-tanker of Government ICT; something to compel us to stop and think, but not necessarily for us to blindly follow.
There has been a lot of commentary across industry and within UK Government about why there is a need to change, with criticism often levelled at large suppliers being accused of oligopoly.
While the battle scarred who have worked in public sector ICT may have some sympathy with the view that ‘anything must better’ or ‘we must try something different,’ that doesn’t relieve us from the need to think and make sensible, informed decisions.
In part three of this blog, I will look at how to understand your current spending and where to identify potential quick wins in terms of cost savings that will build credibility for the vision and deliver successful transformation.