Quit Trying To Reduce Costs! Mon 02 Jun 08

That's right, IT managers shouldn't try to reduce costs above all else.

Now before you go to your CFO and suggest this let me make it clear that I'm not suggesting that we forget about cost reduction, rather I'm suggesting we change our focus. Managing cost is a big deal for IT and for any CFO. Due to the economics of technology we've seen continual decreases in hardware and network expenses. So much so that reducing costs, year over year, has been easy. Couple this trend with increased performance for the same hardware that costs less and we have looked like heroes.

The downside to this happy story is that it has lulled us into focusing primarily on cost.  When we talk about our accomplishments we tout how much we've reduced cost and talk about future cost reductions. Not surprisingly our audience, the leadership of the company, starts to think of IT in terms of cost.

Now the hardware and network cost curve is flattening out a bit. And that leaves us facing the prospect of trying to push down costs further when the best lever we have is cutting personnel expenses. That's when you start hearing not-so-subtle suggestions from your CFO and CEO about outsourcing data centers and programming staff.

Rather than just talking about cost, technologists have to start talking about value.  Value is the benefit received relative to its cost. Simply stated:

Value = Benefit / Cost

Cost is an element in this equation but so is the benefit, a factor we don't always give the attention it deserves.  We can increase value by increasing the benefit or by reducing the cost.  Why not do both?

Talk to your company's salespeople about "value or value-added selling" versus selling based on price ("cost" to the buyer).  They'll tell you that trying to compete on price/cost is a race to the bottom. Emphasizing the value from the customer's standpoint generates premium pricing.

The reality is that there is tremendous value in the services we provide.  We've made our companies more efficient, provided new and better services to our customers and provided timely and accurate information to management.  However, perception is also reality.  Management won't give us credit for benefits they don't recognize.  Like our sales force we have to sell the value.

The first step is to determine the benefits of the projects we work on.  This includes not only true IT projects such as calculating the cost savings of using more energy efficient hardware in the data center, but also the business projects.  Technology improvements such as a new system to help reduce the order-to-cash cycle can have tremendous returns on investment.  However, because the benefits of these types of projects may be intuitively understood or seem obvious to all, business project may often proceed without the rigor of a project justification. 

When there is no formal understanding of the project's value, it is easy for the project scope to continually expand and the value to be silently eroded with each new scope expansion.  Part of our job is to make sure we deliver the value we promised.  For us to claim value we need to make sure that we go through the process of determining and documenting the project's value and then to make sure that value is realized.  Documenting the value will also help in keeping everyone's "eyes on the prize" and help minimize non-value added changes in project scope.   

The second step in selling value is to change the discussion. We need to steer the discussion to focus on the project's benefits and value. Just as our sale team has learned, value selling can reap rewards. Talk value--and add in costs only as it relates to the benefits of the project.

Until we change the dynamics of the discussion the leadership of the company will continue to think of IT as a place for minimizing costs--and our budget struggles will become increasingly more painful.

Now it's up to you: How are you going to sell the value of your IT operations to your management?

This article is also posted on Forbes.com.  Feel free to join in the discussion either on this site or at Forbes.com

"Discount" photo by quinn.anya

If this topic was of interest, you might also like these:

• CIOs and the Marketing of IT
• The CIO as Salesman
• The Marketing of IT
• Or the posts in the "Strategy & Management" category