AVO Chief

In a down economy one of the first reactions that companies may try is to reduce their IT Operating Expenditures (OPEX) across the board. While this may bring down IT costs it may also bring down overall revenue over time. Studies conducted by Dr. Howard Rubin on 400 companies during the the 2001-2003 recession actually show that it is in a company’s best interest to optimize IT spending instead of merely cutting IT costs.

This approach is actually part of the Business Agility mantra. Companies that understand how to optimize their IT spending will be better able to achieve the agile business models they need.

The study found that winning companies applied the following six steps:

1. Optimize Costs – this doesn’t mean to just cut costs but to cut the right ones .This will help avoid short-sighted chopping of IT costs. This may actually mean spending on IT to cut total company operating expenditures.
2. Prepare to migrate to a variable cost operating model. This should provide better protection of operating cash flow since variable cost means total OPEX drops when revenue drops so company stays in the black instead of drifting into the red)
3. Increase Automation. This means to automate the routine and empower people to handle exceptions. It’s easier and cheaper to automate routine operations because they are routine/simple. It’s much more expensive to automate complicated exception handling. This is what people best anyway.
4. Identify and Focus on Key Customers. We all know the pareto rule that states 80% of revenue come from 20% of customers. Well these customers also tend to provide better profits. By focusing on customized value added product or services for these customers it may be possible to actually increase profits.
5. Market to Growth Areas. You will need to spend time communicating with and selling to key customers who need value added services you can provide and be prepared to let go of traditional customers who are not growing or are even dying and only looking for the lowest prices. You may not be able to make money with them anyways and they may end up bringing you down.
6. Invest when competitors aren’t. If you know what you’re doing and where you’re going, the field is yours for the taking. Proper product marketing and research may get you the advantage you need by being first out the gate.

So if you are the CIO or new CBO when the CEO and the CFO tell you to cut IT costs, maybe you should tell them that that might not be the best strategy and may even cause the company to lose market share and revenue. You can try telling them that a more effective strategy may be to work with fellow executives in using IT to cut overall company OPEX and to focus on revenue growth areas. And you may even be able to do this with IT solutions that require no CAPEX, that have variable costs, and provide scalable platforms to grow as the company grows.

If you want to know more details on how this is possible talk to a Business Agility Coach.

Written by AVO Chief

Efren Duarte is Director of Products & Services and AVO Chief (Strategist/Evangelist) at Avocera Products & Services Consulting and principal of the AVMI Group, a market research based venture management firm. The AVO Chief provides 2-Week Money Back Guarantee Product Marketing/Management Services Trial for qualified Startups and SMBs with growth potential. Inquire at avochief@ymail.com for more details.

Visit AVO Chief's Website

Follow AVO Chief on Twitter