The 5C’s: Cost reduction, Consolidation, Conserve Cash, Control & Coordination

In chaos there really is opportunity! (for the wise)

There is no doubt that we are now living in interesting times with all the ‘expert’ predictions indicating that the situation is only going to get worse, and business conditions will get tougher. I was originally very reluctant to start this article with such a negative attitude and potentially risk being dismissed as yet another voice dispersing FUD, but this is the unfortunate reality of the situation.

Consequently, the impact of a downturn in the economy will affect organisations of all shapes and sizes whether they are public, private, government or commercial, and if they aren’t already feeling the pain, executive management will be forecasting difficult times ahead.

cost reduction

Perception gravity

Despite some possible short term gains as a result of interest rate reductions and announcements of economic stimulus packages from government, you would have to say the smart money will be on an overall continued decline in business and consumer confidence in 2009.

As we have witnessed in the stock market in recent months, sentiment and herd mentality has a significant impact on the direction things go. Further declines in both business and consumer confidence will make the prediction a reality and further accelerate and heighten calls within the organisation to take ‘appropriate’ counter measures.

Feedback from our customers would indicate that this is happening within their environments with many asking us what steps they can take to better prepare and what strategies they should implement.

Reflex actions

Like many service providers to business, the counter measures of ‘choice’ for IT will be to reduce headcount, renegotiate existing contracts, kill any non mission critical project expenditures and cut costs.

On the surface, all of these measures are theoretically valid and will garner almost universal support from the executive team. After all, isn’t that what we would do normally?

The problem is that whilst they will appear to be logical and reasonable responses to the situation, the longer term implications may end up being more of an issue than the original problem. Significant consideration needs to be given to the to the longer run implications of well intentioned strategies.

I came across an example recently in an article from Forrester that I felt articulated situation perfectly. In brief, the article talks about a large organisation that was looking at sharp reductions the current IT budget. With IT costs at a staggering 7% of company revenue, on the surface this would have appeared to be a good move. However upon more detailed examination, the revenue contribution of the slick, IT enabled business processes absolutely dwarfed the proposed cost savings.

The moral of the story, think twice and carefully before we react.

Unintended consequences

In addition to the example above, research has also shown that the decisions we make in economic downturns can have a dramatic impact on the market standing of an organisation as you emerge from the challenging period.

The graphic on the next page illustrates this perfectly with an example of how four organisations market position altered fundamentally (almost inverted) through the recessionary period early in this decade.

What this highlights is that the rules of the game determining winners and losers are rewritten in downturns. The decisions and responses your organisations will take can will influence which one you will be and may have unintended consequences.

Developing sound strategies in tough times At Data#3 we have developed an initiative that provides guidance and assistance to our customers to aid them in navigating the anticipated difficult times. The initiative is based on our 31 years of experience (which spans a number of economic downturns) in providing solutions that add value to our customers and we are calling it the 5 C’s.

The 5 C’s stand for:

  • Cost reduction
  • Consolidation
  • Conserving Cash
  • Control
  • Coordination

The 5C’s initiative outlines a number of possible customer strategies and opportunities under each of these categories that can be shown to deliver the desired outcome, along with supporting customer evidence where we have achieved this before. If you would like to know more about how the 5C’s initiative can benefit your own organisation, contact us to organise a discussion.