Industry voice: Funding transformation. Part 2 – foundations for a savings programme

13 Jan 2016, 3:50 pm

By Dan Bromley, Rainmaker Solutions

Part two of Rainmaker Solutions’ comprehensive guide to making significant cost savings from your ICT spend.

HandshakeIn my last blog, I discussed the context in which an existing contract renegotiation is likely to occur. In this one, I’ll outline some of the foundations that you need to build in order for a savings project to be successful and offer some thoughts on where to seek 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 the contract) have managed to incentivise suppliers to help support the 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, I will start looking for more savings and reducing our dependency upon you and it will be even more painful”.

However, I’m not convinced these approaches will work if you are operating under the current pressures and challenges of public sector cuts. Instead, I would suggest looking at how the cost base can be reduced sustainably for both supplier and customer.

Putting in place projects to drive genuine savings by removing cost on both sides should make it less painful for the supplier and also start you on the path toward a transformed service.

So, if you are looking at renegotiating via a programme of cost saving 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 supportive, as the larger suppliers (due to the dependency your organisation has on them) often have the ear of senior managers, and they can be incredibly slick at influencing upwards.

Form a cross-functional team

Procurement and commercial teams will not be able to deliver this themselves. Conversely, neither will technical leads working in isolation from each other. Forming a joint team across the different professions (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

A lot of ICT functions will face the paradox that you may be working towards reducing ICT cost based on targets set from above, while the rest of the organisation is seeking to invest more in ICT to support their cost savings initiatives.

It is a strange place to be in when forced to cut ICT investment, but estates and the business are relying on you to support their initiatives to both reduce headcount and use of building floor space.

It is well worth working with finance colleagues early on to define what a saving is. If you get a better unit price for a service, but if consumption increases resulting in a higher cost, 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 is reduced by an investment in technology?

Don’t set arbitrary targets for savings based on rhetoric

Nothing will irritate your staff more (and potentially damage your own credibility) 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 possible on networks due to changes in the market since a contract was let. However, for services where the cost driver is largely staffing related, such high savings are likely to be impractical based on competition. If the staff transfer under TUPE, for example, they are going to be paid the same as they were before.

If you do go the route of throwing out a figure people 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 bonus of also helping to get their buy-in and support.

Remember what a strategy is

Yes, it is meant to include a vision and end point. 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 short odds, as 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 the super-tanker of Government ICT; something to compel us to stop and think, but not necessarily to blindly follow.

There has been a lot of commentary in industry and within UK Government about why there is a need to change, with criticism levelled at large suppliers being accused of oligopoly.

While the battle scarred who have worked in public sector ICT 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 spend and where there are potential quick wins on the saving front that will gain credibility for the vision and deliver savings and transformation.

 

 

Rainmaker_solutions_correct_logoDan Bromley works with niche consultancy Rainmaker Solutions. He has worked in commercial roles within the public sector in Defra, Rural Payments Agency and the Home Office and also undertook a secondment to the private sector to understand outsourcing from the supplier’s point of view.