Restructuring the Expense Base

Many companies are struggling with how to go about restructuring their business models to reduce costs and create an environment where costs are better aligned with revenue and profit. That is, reducing the fixed cost base and turning some of the cost reduction into a variable cost so that if headcount or transactions are reduced due to a business contraction, costs are also reduced automatically. Conversely, if the business grows, expenses grow consistent with the upturn in volume. This challenge requires some level of "out of the box" thinking. It requires companies to face options that may be culturally difficult for them to implement. It requires them to consider outsourcing certain, non-strategic technology support functions. It may also require them to consider restructuring or outsourcing certain business processes.

When technology support functions are outsourced a company gets to leverage the buying power and the process excellence of the outsourcer. This usually produces some savings, often considerable savings. But it also should result in an agreement, with measurable service levels, for the technology elements supported. For example, a typical agreement includes monthly pricing for supporting each PC in the company. If headcount is reduced, the cost for supporting the PCs is eliminated with other related employee expense. Cost associated with the utilization of mainframe capacity, servers, storage and network facilities can be similarly structured to reflect economic conditions.

Business functions / processes are somewhat more difficult to get at effectively. Suppliers of such outsourced services are less sophisticated in applying their value propositions to the business model than infrastructure outsourcers. But many such opportunities exist. How many companies today handle their own employee payroll functions? ADP is one of Americaís largest business process outsourcers, and most companies donít consider that they have already outsourced at least one aspect of their business.

Opportunities often exist in HR / benefits management, billing and collections processes, customer service, to name a few typically promising areas. To identify the areas of opportunity, companies find greater success in utilizing external change agents, people with expertise in:

  • identifying promising areas of opportunity within the business

  • identifying outsourcers with functional skills, industry knowledge

  • leverageable assets and quality track-records

  • developing business cases with the supporting financial and business related considerations clearly defined for senior management

  • articulating the strategic values associated with outsourcing a specific area of opportunity

  • developing the tactical plans required to implement an outsource opportunity once approved.

The external change agent is also critical to ensure that internal vested interests donít derail an opportunity before it can be fully explored. Most business change investigations meet a fair amount of resistance that must be overcome. The external change agent must have the ability to engage internal management and professionals in the process, listen to valid concerns and issues, diffuse potential difficulties, and communicate effectively to all parties to ensure a successful transition.






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