No Match Found
Organisations remain focused on urgent cost reduction. With most already feeling the effects of inflation and rising energy prices, and the impact still not yet reaching its peak, that is unlikely to change any time soon. But those organisations that move decisively and proactively can turn this immediate challenge into an opportunity to improve value from a reduced cost base while creating a more efficient and resilient supply chain.
This requires a new approach that creates a platform for sustained success. One that helps organisations better understand their entire business, so they can find significant savings to reinvest in a way that improves efficiencies, builds resilience, empowers people and meets net zero goals.
As organisations grapple with this challenge, many are rightly turning to technology as the answer. But while tech has incredible power to transform, it needs to be used intelligently. That relies on decision-making, planning and a strategy that factors everything from human behaviour to industry knowledge in the approach.
It demands a fundamentally different view of how to use technology and data. And it requires organisations to think about what they want to look like in the future.
New technologies go beyond anything that traditional cost optimisation has offered. While more rudimentary solutions offer efficiency savings and a better view of the business, others can reduce cost and improve value across the business while realising greater resilience, faster speed of change, more informed decision-making, and greater empowerment.
According to Joey Jegerajan, Chief Technology Officer for Consulting at PwC UK, technology is now critical for sustainably delivering cost savings. “It’s no longer possible to drive optimisation or efficiency in the modern world without data and tech,” he says. “If you’re serious about sustainably reducing cost or increasing value from a reduced cost base, you need to fully embrace technology and data as the asset it is.”
“It’s no longer possible to drive optimisation or efficiency in the modern world without data and tech. If you’re serious about sustainably reducing cost or increasing value from a reduced cost base, you need to fully embrace technology and data as the asset it is.”
Today, there is an abundance of tools that can help organisations drive change. The power of AI, machine learning, and predictive analytics can create stronger insights that improve the quality of decision-making. Technology can improve efficiencies and procurement opportunities by combining deep commercial intelligence with AI to search contracts, and cutting manual contract analysis by up to 90%. It can automate and improve sales forecasting by analysing historic and real-time information, and build simulation models to better understand economic projections, supply chain risk, emissions, and even competitor activities.
And as technology becomes more sophisticated, it brings new opportunities.
“What's exciting about tech transformation is that you can dramatically reduce the cost of operations while enhancing the customer experience and creating better insight through data” says Qadir Marikar, Partner at PwC UK. "That offers significant opportunities for organisations to be very competitive, particularly in this more price sensitive environment. But doing that requires a deep understanding of how you do business, and how technology fits into that, as well as a clearly defined plan of how your business and technology should evolve together".
Cloud and AI solutions, for example, now enable organisations to embrace digital, launching breakthrough business models cheaper and faster or identifying new ways to create value, whether that's new all-digital services, moving into adjacent markets or delivering better customer experiences.
“What's exciting about tech transformation is that you can dramatically reduce the cost of operations while enhancing the customer experience and creating better insight through data.”
Capitalising on those opportunities requires bold action. Many organisations are still tied to legacy technology infrastructure, often physical mainframes, which are a huge cost and source of great inefficiencies. Others have tinkered around the edges, replacing more straightforward systems and processes. Few have dared to move business-critical systems to the cloud, yet this is where real change will come - where innovation and ambition can deliver huge cost savings and sustained success elsewhere.
“It might appear daunting at first, but a skilful leader has a unique opportunity to cut IT costs while helping reposition their organisation for future growth,” says Jegerajan.
“It might appear daunting at first, but a skilful leader has a unique opportunity to cut IT costs while helping reposition their organisation for future growth.”
Inherent risk aversion is the enemy of progress. Organisations need to be confident in what their technology will deliver. Although any tech adoption should be considered in a wider context, those who make bold decisions and take bold actions stand to deliver value above pure cost saving.
Of course, any technology introduced must be used correctly. Leaders must embrace its benefits while being aware of the need for intervention to get the most out of any transformation. Because the misuse of technology - or misunderstanding of how it works - can quickly send costs spiralling.
Where technology fails there is inevitably human error involved - poor planning or strategy, a lack of understanding, or even a failure to anticipate consequences. Marikar says, “It is vital to bring diverse perspectives, from tech skills to industry knowledge and in-depth understanding of human behaviour into the mix to help predict and prepare for - and mitigate - these risks.”
Take consumption or usage-based pricing models. Viewed as the next evolution in software pricing (and a powerful way to manage IT spending), too often, organisations sign expensive multi-year cloud contracts without giving much thought to how they intend to use the service. Or whether they have understood how costs escalate where pre-agreed contractual commitments are exceeded. This sort of approach can rapidly undo any cost efficiencies made elsewhere.
“While technology has evolved from self-hosted to consumption as a service, many organisations haven’t changed their mindsets. The way they think about cost and services needs to change,” says Marikar. “The innovative economic structures of consumption model pricing can be alien to organisations, with complex tiering of usage and service level based pricing resulting in unforeseen cost escalation.”
Organisations must understand their cost and usage dynamics when it comes to technology spending if they are to optimise technology footprint and reduce unnecessary costs, and that includes being brutal about decommissioning legacy systems and defining service level requirements.
“While technology has evolved from self-hosted to consumption as a service, many organisations haven’t changed their mindsets. The way they think about cost and services needs to change.”
But understanding how demand pricing mechanisms work - and then getting the best value from the options - requires specific insights and integration of a combination of complex areas, such as contract negotiations, procurement, cloud management, business imperatives and others. These skills are currently in short supply and can be costly to recruit - solutions in this area include partnering with third-party organisations to close the gaps.
Organisations understand they need to move quickly on cost, and technology presents a compelling means to transform at speed. But its use needs to be guided by insights and expertise.
Yet, many organisations still lack transparency on their costs and processes. The first challenge is to ensure that all relevant information is available to make informed decisions. Only with the right view across the entire business can you make decisions on operating models, and adopt the right technology to drive down cost and free up capital to reinvest.
Data and technology must always be part of the same conversation, according to Jegerajan: “Data unlocks insight. And if you are a more insightful organisation that delivers more value to its customers and the stakeholders, and utilise technology to harness that data in the right way, you’ll not only reduce your cost base but succeed long-term because you will provide a tailored and better experience for your stakeholders.”
“Data unlocks insight. And if you are a more insightful organisation that delivers more value to its customers and the stakeholders, and you use leveraging technology to harness that data in the right way, you’ll not only reduce your cost base but succeed long-term because you’re giving everyone what they want.”
Beyond its importance in pure cost management, data gives organisations genuine insight into operational effectiveness, allowing them to be more strategic and proactive in other critical areas, such as supply chain management, emissions and net zero goals.
As organisations look to optimise their cost base, technology adoption has become a significant focus. For many, it’s a once-in-a-lifetime opportunity to take significant costs out of their technology platform and position for the future.
True success depends on applying the right human insight and understanding - to the problems it can solve, how it is used and any risks along the way. To reduce costs quickly and thoughtfully, while also positioning for new growth and innovation, organisations need to ensure the right technology is adopted, and used in the right way.
To discuss anything raised in this article, please get in touch.
EMEA and UK Consulting CTO, PwC United Kingdom
Tel: +44 (0)7841 562026