Cost Optimization .. continues

Cost Optimization .. continues

I had an interesting discussion with my colleague about Cost Optimization from different points of view:

  • Why does it feel Cost Optimization is an everlasting issue?
  • Is there ever a time when there’s no need for Cost Optimization?
  • Who decides the Gross Margin to strive for?

To make a very long and fruitful discussion short, let’s begin with some basic conceptions. It always surprises me how many people there are with almost zero understanding about the concept of entrepreneurship.

What I’m going to do is I will make a well over-simplifying and a clear-cut categorization of organizations. Basically companies and organizations can be categorized into four main categories.

  1. Publicly funded Organizations, no matter who owns them.
  2. Organizations funded by charity collection, no matter who owns them.
  3. Corporations listed onto a stock exchange, owned by stockholders.
  4. Privately owned Organizations, funded by consumers and customers.

I start with the category 4) Privately owned Organizations. There are for example privately owned companies. They can rule their own money as they wish. If they feel like offering an annual sunny vacation for their employees in Bora Bora and they can afford it – go for it! People can of course have arguments and opinions about how to spend the money, but at the end of the day Organizations in category 4) distinguish their purchases themselves.

There are for example privately owned companies. They can rule their own money as they wish.

Now, for the rest of the categories (1-3) it’s different.

Category 1) Publicly funded Organizations. Usually these Organizations get their money from taxpayers’ wallets in a way or another. These Organizations should never ever behave like the money was theirs, because it’s not. It’s taxpayers’ money. These Organizations should take particularly close look into their spending and pursue (very) good governance!

donate-654328_640Pretty much the same message goes to the category 2) Organizations funded by charity collection. These are for example Organizations like WWF, UNCHR, Red Cross.. You name it. The money they spend doesn’t necessarily come from taxpayers’ wallets – at least not directly. But it comes from a number of individuals who want to believe that by donating money i.e. monthly basis they can make world a better place, piece by piece.

These Organizations should – just like in Category 1) – never behave like the money was theirs, because it’s not. It’s their donators’ money and it’s aimed to be used to the sole purpose the Organization has announced it will be used. These Organizations should take particularly close look into their spending and pursue (very) good governance!

These Organizations should – just like in Category 1) – never behave like the money was theirs, because it’s not.

Unfortunately that’s not too often the case. Rather on the contrary. There are too many cases where politicians, public servants and the management of publicly funded Organization have convicted a misdemeanor and took personal advance on other people’s money. Yet there are sad and bad examples of Organizations who claim to be healing the world – or parts of it – and they spend more than 80% of their income (donators’ money) on administration while less than 20% of the money goes to the original purpose.

Category 3) Corporations listed onto a stock exchange, owned by stockholders is its’ own case. Corporations have a board of directors who support the Managing Director, who orchestrates the management of the company.

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Corporations listed onto a stock exchange have one primary task and duty to carry out: make profit to the owners (that is, the shareholders). Period. Plain and simple. If such an Organization wants to offer annual sunny vacation for their employees in Bora Bora and they can afford it that might be done. Or might not, depending on a number of things:

If the Organization has made profit and the stockowners are happy, it might be that this kind of nice trip could be arranged. On the other hand if the Organization spends their money on that kind of trips while making loss, the Board of Directors might quickly change Managing Director to a new Managing Director who makes some swift adjustments in the name of Cost Optimization.

Corporations listed onto a stock exchange have one primary task and duty to carry out: make profit to the owners (that is, the shareholders).

The most important thing that separates Organizations in category 3 from Organizations in categories 1 and 2 is the pure simple fact that a listed company is unlikely to spend taxpayers’ money. And like I stated earlier on, Organizations in category 4 are free to spend all the money they want (and have).

To summarize: taxpayers’ money should absolutely never be wasted but they should be harbored from misdemeanor by disciplined pursue of good excellent governance.

Let’s go back to where we started and review the questions again:

–       Why does it feel that Cost Optimization is an everlasting issue?

–       Is there ever a time when there’s no need for Cost Optimization?

–       Who decides the Gross Margin to strive for?

I believe I somewhat indirectly answered to the questions or to say the least gave a few guidelines, and an intelligent reader can easily jump to his/her own conclusions.

I still want to say something about Cost Optimization: Cost Optimization should not be received as a totally negative thing. I emphasize the word Optimization. It means making certain adjustments to optimize the costs to correspond with the business. If optimizing means that the personnel of an Organization is capable of working 25% more efficiently after enjoying a week in Bora Bora, that might be done – at least in Organizations belonging to categories 3 and 4 – 1 and 2 are much more questionable and there should be rock hard justifications behind the decision-making.

Cost Optimization should not be received as a totally negative thing. I emphasize the word Optimization. It means making certain adjustments to optimize the costs to correspond with the business.

In other words, optimizing something doesn’t always need to mean cutting down something, since optimizing and cutting down are not synonyms.

Pictures are from Pixabay.

7 ways to improve your Cost Optimization

Why do organizations find Cost Optimization so important right now?

ICT industry is changing rapidly and especially new, small and agile companies are emerging on the market, challenging traditional IT-companies with their new P&S ideas and enthusiasm. Traditional companies have of course been making their own actions but it takes time, for example IBM:

“”The results imply that IBM’s transformation from legacy IT to next-generation, higher-value services is likely to take longer than what consensus has expected,” BI’s Rana wrote in a note.”

That has led to the current situation where traditional IT giants are constantly examining their (ITIL® defined) Service Catalogues for the current offerings but even more their Service Portfolio for new Services and maybe even some Services that have been once already buried.

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Focusing from Cost Cutting to Cost Optimization

While I fully support the idea of going through the Service Catalogue and Service Portfolio, there is always a (moderately big) risk of drowning the child with the bathwater while washing the little toddler so to say. – Meaning that by hunting down the low-value Services one might not be able to spot the pearls and thus part of the future revenue might be gone with the wind for good.

So be careful when doing cost cutting cost optimization.

– Meaning that by hunting down the low-value Services one might not be able to spot the pearls and thus part of the future revenue might be gone with the wind for good.

Like I stated in the beginning, competition on the IT market has tightened a lot in the last, say, 5-7 years. Companies have been cutting their r&d budgets and turning their backs on science. Even though it’s understandable that the costs have to go down if your business goes down, I still want to encourage companies to make cost optimization instead of just single-mindedly cutting costs down. Of course it’s much more easier to instruct departments to cut down costs, say, 20% by the end of the next fiscal year, but by doing this the companies are jeopardizing their future prospects.

I still want to encourage companies to make cost optimization instead of just single-mindedly cutting costs down. 

I know that’s much more easily said than done. So how to approach the issue?

7 ways to improve your Cost Optimization:

  1. Go through your Service Catalogue in-depth to make sure you have a rock solid understanding and information about your current, up-to-date Service Offering.
  1. Go through your Service Portfolio in-depth to make sure you have a rock solid understanding and information about your new Services development.
    • After intense work on examining through the Service Catalogue and Service Portfolio you can take a step forward and carry out the necessary operations with cost optimization: termination of certain (less-than-break even value etc.) Services whenever possible.
    • Bear in mind: while some Services might appear poor on the first sight they might turn out to be essential in order to enable some other Services to run.
  1. Ask new offers from your 3rd party Service Providers and Vendors whenever possible to see if there is something you can save money with.
  1. Pay attention to your fixed costs and seek for saving targets there in the first place.
  1. If you really need to lay off your workforce, do it by all means respectively.
    • Remember that laying off people hurts your reputation as an employer.

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(Don’t do it like this!)

 

  1. Note that it’s the big numbers that count!
    • Don’t use too much energy with chasing costs caused by the pastries your employees have eaten, but focus on stopping the wasting of your raw material. There’s a hilarious story behind this, I’ll write it down here one day.
  1. Even if it was your worst financial situation ever, keep on investing into the future (remember Service Strategy and Service Design) and keep on marketing. Don’t starve yourself to death.
    • If you stop innovating and developing, and stop marketing your Services and Products, you will for sure run your business into bankruptcy. There needs to be certain courage and faith into the future, otherwise you can stop all your activities at once.

But you are actually cutting costs down!?

It’s obvious that also by utilizing the cost optimization approach you may end up lowering your costs – even greatly. But the biggest difference between cost cutting and cost optimization is, that in cost optimization there’s always a reason involved.

I also like to think that when doing cost optimization, you really, truly, optimize your costs. It doesn’t mean you go buy services or products with lowest prices available, but you buy whatever fits best into your business!

the biggest difference between cost cutting and cost optimization is, that in cost optimization there’s always a reason involved.

Watch out for possible pitfalls with the cheapest price

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“Special price! Only for you my Friend!” The sentence might be familiar from Bazaars in the Middle East. There you could be making stellar deals by ending up paying only for 2-3 times as much as the local people do for something very useful.. ..But in general I would be careful when buying Service with the lowest prices – especially if the lowest price is significantly lower than the average price; the Service Provider could be struggling in keeping their head over the SLA-threshold and failing in doing that, so you could get your Service for free – because of the sanctions they pay you. But did you ever really get the Service? Wasn’t there a 48hrs unplanned Service Outage during the weekend two weeks ago?

did you ever really get the Service?

In the worst case you might be out of the business because of your Service Provider’s lower-than-the-low performance. At that point it doesn’t help much to know that you didn’t pay too much for the Service..

My message is: Cost optimization is the word of the day. Make use of it thoroughly. When buying, compare prices carefully and be positive you understand what you are buying and what is included in the fixed price and be wary of falling into possible pitfalls with the cheapest prices. When optimizing costs.. Start with reading the chapter “7 things to improve your Cost Optimization” I wrote for you.

Pictures are from Pixabay.

ITIL® is a Registered Trade Mark of AXELOS Limited.

B2B: Customer satisfaction surveys

B2B: Customer satisfaction surveys

I have been writing about the Customer satisfaction survey regarding the end-user perspective, but how about the ITSM point of view?

Customer satisfactions survey in ITIL®

I like to think Customer satisfaction survey (later on “Css”) as an elementary part of ITIL’s Continual Service Improvement life cycle. Conducting Css’s on a regular basis is considered one of the key activities in Continual Service Improvement (later on “CSI”). Just like any other activity in CSI, also Css’s must be owned by the IT organization. The results of the surveys help IT organization to understand customer satisfaction.

IT Service Management needs all kind of data in order to understand the baseline: where do they stand at the moment? Without information about the current state of the service it’s completely useless to paint the sky with stars pretty much any service level targets or customer satisfaction levels.

One of the most essential things the IT Service Management must carry out is to verify that the customers’ needs are met – and that is where conducting regular Css’s play the key role.

One of the most essential things the IT Service Management must carry out is to verify that the customers’ needs are met – and that is where conducting regular Css’s play the key role.

Customer is always right, right?

Shortly: no. I know saying this is an easy way to stir up emotions, because there are lots of people who tend to think that customer is always right.

 

Customers are ordinary people – regardless who they are and whether the business model is B2B or B2C. Customers are humans and I prefer performing an In-Depth analysis of the Css results instead of just taking a look at the 1-2 key numbers available.

That is also a reason why using Css’s results as measuring the performance of the ITSM department should be carefully considered. In any case, Css’s results must not be the sole indicator when examining the ITSM activities.

That is also a reason why using Css’s results as measuring the performance of the ITSM department should be carefully considered. In any case, Css’s results must not be the sole indicator when examining the ITSM activities.

 

stockvault--businessman-drawing-a-circle-around-people-icons178079I recall a case where certain IT specialist teams were measured by the Css results – and what was even better their monetary bonuses were bound with the result numbers. While other teams performed very well over and over again, there was one team that was always putting in a sub standard performance, thus leading to the situation where they were always left without bonuses. That really seemed unfair from this team’s point of view.

 

Do you know why this one team was always underperforming? Why wasn’t anything done? Why wasn’t the team leader or some specialists changed?

The answer is: Because of the cultural issues.

 

While the other teams were working with people from Western hemisphere, this one “underperforming” team was working with Chinese customers.

 

China Business Review summarizes this:

 

Service 

Chinese buyers have extremely demanding service requirements on issues as diverse as lead time, availability after hours, and technical service. When dealing with Western companies, Chinese businesses feel that they are paying for top quality and expect technical issues to be dealt with quickly and efficiently. Companies that can demonstrate a track record of customer satisfaction in this area will have an advantage.

 

That was especially true in that case: while other teams were getting A’s or B+’s from their customers, this one team only got something like D or C+ at the best. And they never got any bonuses, even though when discussing at the dinner table, Chinese customers seemed to be satisfied with the service after all.

I admit, I haven’t spent my time searching for scientific articles about Chinese cultural behavior in relation to answering to Css’s, but according to my experience and what I’ve seen and heard, Chinese don’t necessarily give you very good Css numbers no matter how good you are. And yes, I’m aware that I’m generalizing now pretty heavily, but like I said, I’m writing from my own experience. Needless to say, this wasn’t written to rail against Chinese, not at all!

I wrote this to demonstrate why one should always take time to look beyond the results and check what really lies there behind the numbers.

I wrote this to demonstrate why one should always take time to look beyond the results and check what really lies there behind the numbers.

Css is everything?

I vaguely remember having read on opinion somewhere on the ITSM boards that one wouldn’t need other metrics than the Css. In my opinion that’s far from truth, because while Css brings valuable data, it’s not so clear-cut a meter:

stockvault-ata-analytics-concept183337Let’s say you run an ITSM team. During the last two years your team’s Css results have been around 3,2 – 3,5 (range 0 to 5). Your customer is moderately happy, but it’s obvious they could be happier. After a steering group meeting with the customer, your CIO sets a new target level in Css: 4,0.

As a number-wise thing to do it’s “easy” to go through the survey results and look beyond the numbers. That’s a start. But what would you answer if I asked for example:

  • How much you can reduce your costs by reaching your new target level 4,0?
  • What’s your estimation; how much more revenue you can achieve from your customer if you reached 4,0 by the end of the beginning fiscal year?
  • etc.

That’s an example of the problematic when dealing with intangible benefits. I suppose almost everybody can agree that higher Css results are better than the low ones, but converting Css results into the revenue numbers on the budget is tricky.

converting Css results into the revenue numbers on the budget is tricky.

What I’m saying is that Css results is one of the absolutely essential KPIs, but don’t get yourself distracted thinking that would suffice. In order to provide world-class ITSM you need other metrics and targets as well.

 

Pictures are from Stockvault web page.

 

ITIL® is a Registered Trade Mark of AXELOS Limited.

Consumerization: Customer satisfaction surveys

Consumerization: Customer satisfaction surveys

Everybody receives ‘em, from every kind of services: whether it was a hotel accommodation or a booking of concert tickets or anything.. In the era of consumerization the end customer is a king and their opinion counts. But what’s the point of customer satisfaction surveys if they fail to reach the most crucial thing: customer satisfaction?

My case: Invoicing gone bad

Last week I received an invoice concerning the maintenance service of my car. I knew for sure I had paid the bill in question already a month ago.

I called to the service desk and after waiting for around 10 minutes (I was not happy with 10 minutes response time!) my call was answered. The customer support person was polite and yes, the invoice was a double invoice and according to the customer support person I could just ignore it. There would not be a reminder of an unpaid bill coming afterwards.

When the phone call ended, it took less than 1 minute to receive a customer satisfaction survey (later on just “Css”) as an SMS. I could either answer Y(es) or N(o) to let the service provider know if my case was solved or not.

So let’s wrap up what really happened:

  • I got an unfounded invoice concerning a service I had already paid for.
  • I waited for ~10 minutes on the phone for response.
  • I got a Css in less than 1 minute.
  • I could just answer “(Y)”es or “(N)”o describing about my satisfactory on my case.

When the phone call ended, it took less than 1 minute to receive a customer satisfaction survey as an SMS.

Case closed?

The customer support person told me on the phone that the unfounded invoice had already been credited. However, it took three more days until I got the credit note and a so-called explanation of what had happened. Until I finally received it, I didn’t want to answer the survey: I had no tools to verify if they really had handled my case properly or not – and what’s even more serious: I didn’t trust them at this point.

By the way, do you want to know the root cause for the incident in this case? 

Ta-da-daa… Surprisingly: “system failure”! That’s really enlightening and I’m sure their customers can feel themselves relieved now..

Measuring customer satisfaction?

It’s interesting that the only answering option I got was a binary 0 or 1 (Yes or No) to the Css.

What’s the point of conducting Css’s if the only information you get is just Yes or No? Sure, you can do advanced mathematics and calculate the percentage of all the Css’s and compare the Yes-No results. That gives you something, but it’s almost nothing.

Wouldn’t you like to receive even a little bit more information? For example:

  • How likely would you be to recommend our customer service to your colleagues and friends [0-10]?
  • How would you rate your experience of our customer service in general [0-10]?
  • How quickly did you get through to a customer service specialist [0-10]?
  • ..

There are loads and loads and loads of examples of the Css questions in the internet, so there’s no need to list more of them here.

My point is: why to conduct Css’s if the only measure is a percentage of solved cases vs. all the cases?

Timing is everything

And finally, about getting the Css in advance: the problem is that if you answer to the Css too early (= before you are certain your case is handled properly and closed), you might

  • give unnecessarily good feedback of the service, if it later on turns out that your case was actually still unresolved
  • have to go your problem all over again, calling or otherwise contacting the service desk and dealing with yet another customer support specialist, because your earlier incident has already been closed and thus is not active any more.

Why? Because you answered Yes to the Css you received too early.

There is a collision between the Service Desk’s point of view and the end customer’s experience: from SD’s point of view the case is closed, but the end customer has no possibility to verify if the case is solved, they can only trust the Service Desk.