Cost optimisation in the new reality: TMT sector

  • Ian West, Partner |

5 min read

Operational and financial efficiency have been at the core of all organisations. They have dominated the agendas of all budget meetings and reports, as companies are always looking at ways to reduce costs and enhance profit. But this year was unlike any other for organisations, as the pandemic put their cost optimisation plans to the test and gave them an opportunity to gauge future readiness.

Owing to the nature of the sector and the effect of the pandemic, cost optimisation has been a key area of concern for organisations in the retail, hospitality and leisure sector this year. But it’s extremely surprising to see organisations in the technology, media and telecommunications (TMT) sector, planning extensively for the future too. For the last 20 years in the industry, I have never seen clients undertake such rigorous levels of cost optimisation for their organisations.

In our first in the series of KPMG's ‘Future of’ new reality virtual events for the TMT sector, we focused on the 'Future of Cost Optimisation'. Ed Boulton, Director, Global Strategy Group and I looked at how the pandemic has changed cost optimisation strategies for organisations. In this blog, we will cover the topics we discussed and some practical guidance on how to plan for the future of cost.

Cost optimisation and operational restructuring

These days, clients have two frequent questions:

 

  • What cost base can I afford to have?
  • Where do I invest my money?

In my opinion, the correct way to approach these questions is to start from the baseline. Typically, we look through three different lenses: a financial based view, an organisational baseline and an activity baseline view.

In the financial based view, we look at areas where the client is spending money. In terms of organisational baseline, our clients look at the number of people they have got. Where are they, what is the structure looking like? In the activity base-line view, we look at the money the client is spending on various activities and what are they getting out of it?

Interestingly, we have seen a distinct return to ‘operational discipline’ in some organisations, where effectively measuring productivity and operational planning have become top priorities for management. This isn’t new or surprising, but the pandemic has compelled organisations to ensure that their stakeholders and clients are getting the best out of their investment.

One important new trend is the simplification of the operational structure. C-suite executives now want to integrate various businesses, such as those that they have acquired, into one core operational structure. This simplification is helping to drive growth and create greater efficiency within the wider model.

Artificial intelligence and technology – are they just gimmicks?

Even before the pandemic, organisations were looking at AI and technology to reduce costs and increase efficiency. Technology and AI can help with cost optimisation, but you will need to dive deeper. Robotic process automation has been a great implementation for some as it can assist with transactional processes, but don’t implement new technology under the assumption that it will definitely affect your finances in a positive way. Do the relevant checks before you invest, and ask the following questions; how will it land in the business, what will it change?, and how will it help you? Will it drive further costs, or push more volume through the system to drive more revenue?

One very good example of AI to optimise costs and efficiency is in contract billing. The use of AI technology ensures that contracts aren’t being overcharged regularly. In the past you would have to rely on audits to rectify these anomalies, but AI has taken away manual activity and ensured continued cost optimisation.

The return to the workplace

There is a lot of speculation at the moment about the long-term impact of working from home vs. working from office. Clearly, there’s a cost angle to this in terms of reducing the physical office space. Organisations are re-thinking the purpose of the office. One of my biggest clients is looking at using their UK head office for collaboration purposes only, for example.

Secondly, I think we’re also thinking about what our office space needs to look like – so that it genuinely fulfils the needs that we have for the future, and not the past.

Employee wellbeing and the future of organisation

Alongside the workplace angle there is also the consideration of your organisation’s people. Prioritising employee wellbeing should be paramount in every decision you make.

I advise my clients to think through carefully about the impact of cost optimisation measures on their people. Throughout the pandemic, many organisations have stepped up to support employees, which is indeed very positive.

At times, when you have to take some tough decisions, then the way you treat your employees sets the tone for your organisation. The rest of the workforce will judge its emotional connection to the organisation against how you treat anyone that’s being asked to leave. 

How can you plan ahead?

Another question that clients often bring to me is – how do we maintain this momentum and plan ahead? My suggestion is to not only put the new processes and systems in place but also discontinue the old ones. For instance, if you have a new digital order processing system, then don’t waste time and effort by running them both in parallel. We need to be decisive about stopping things that only add to the cost and hold back optimisation.

By using these techniques, you can generate ideas. The last thing I’d suggest is to really use a wide range of benchmarks as a way to compare your organisation and structure to others in similar situations. This is less of a scientific exercise – but it will allow you to identify any costs in your business that are out of sync with your competitors.

By bringing these different perspectives in, you will normally have something that will be able to drive significant change and enable you to become more efficient.

In our next event in the series, we will be focusing on the Future of Data for the TMT sector. If you would like to receive an invite to the next event, please drop an email to Sarah Noel.