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If you are constantly challenged to reduce opex (operating expense) in your company, at a level more than what can be achieved by traditional approaches such as location and labour arbitrage, there are insights that Shiva Ramani, CEO of iOPEX technologies, US (http://bit.ly/F4TShivaR), can offer.
Smart opex management involves two critical aspects, viz. transaction efficiency and consumption efficiency, explains Shiva, during a recent interaction with Business Line. Excessive and unbalanced focus on either leads to poor results, he adds. “Transaction efficiency is about reducing the cost of a specific process, through cheaper location, faster resolution, automation to execute and so on. Consumption efficiency is about eliminating the need for execution of the process, by re-engineering the process, skill alignment, and proactive resolutions.” We continue our conversation over the email.
Excerpts from the interview.
Does opex get the right attention?
A casual discussion on opex definitely gets attention quickly at the ‘C' Level. But the right attention is what results in releasing savings in operating expenses for capital investments towards growth. Zero or marginal growth is not an option anymore in an integrated global market comprising growing and recessionary markets. Opex has the unique quality that it crosses multiple functional boundaries, such as technology, operations, finance, and customer management. To give it the right attention, it is important to intelligently arrive at a golden ratio between these always moving parts. We work with clients who genuinely seek sustainable efficiency improvement and hence sustainable cost optimisation. We work with three types of stakeholders within an enterprise and we get the right attention from each of them:
• CFO : Clearly interested in cash preservation and finding capital for growth. Sets the overall vision for the optimisation project.
• Functional head: Interested to get the best return out of the capital/assets deployed and ensure process improvement, thus saving time for the current staff to focus on strategic aspects of the business.
• Operation manager : Interested to improve daily delivery and avoid ‘fire-fighting'.
Working with all these stakeholders helps achieve alignment in optimisation objectives and find the golden ratio. Rather than looking at short-term ‘slash-and-burn' approaches, the focus must be on elimination of process wastage, automation and sustainable improvement methods. Also, the market is ready for optimisation, as enterprises have extracted and exhausted the benefits of the first two Os — outsourcing and offshoring. It would be important to point out here that optimisation is not a one-off exercise, but as things change, this would be a frequent exercise to be carried out.
What are the common mistakes CFOs make regarding opex management?
There are several mistakes, but mainly the following three:
• Misaligned goals to achieve certain opex numbers, that are not in line with the business requirements, both high and low — that is, higher-than-necessary budgets and lower budgets than what are actually needed.
• Improper or lack of benchmarking.
• Excessive focus on short-term results.
Your suggestions on the performance metrics CFOs must use for evaluating opex?
Here are a few ‘true' metrics that matter most to stakeholders, without in any way compromising the traditional operational performance metrics.
(a) Cost of supporting a customer or maintaining an application: Take a holistic view of what it takes to sustain a client/asset/application as against cost of one transaction.
(b) Cost of a process/ transaction: Aim to find ways to reduce transactional costs, and measure against industry benchmarks.
(c) Customer experience, where applicable: Impact of optimisation on customer experience.
(d) Uptime of assets deployed: Aim towards reduced downtime.
The value delivered is never in terms of ‘conscious efforts' but only in terms of ‘actionable intelligence.' For instance, in the case of a large telecom provider we worked with, the value delivered was concrete and specific, with recommendations leading to a saving of $50 million for a three-year period with no compromise in performance standards. That is significantly more valuable than six months of serious efforts to collect, align, analyse the data.
In another case, we embarked on a productivity analysis for a workplace support team, which managed 35,000+ desktops and successfully reduced the operating cost by 30 per cent. Other low-hanging fruits in the technology world include licence rationalisation (ensuring that you are paying for the right number of licences), as examples of starting point to embark on the optimisation journey.
On the functional gaps in audit.
There are some key gaps that may exist in the audit process. Primarily, the following four:
• Lack of functional data related to performance, people.
• Lack of financial data related to actual costs.
• Lack of key personnel that possess ‘tribal knowledge'.
• Politics that makes people withdraw key information.
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