The COVID-19 crisis has hit all sorts of businesses. From mom-and-pop stores to SMBs to Fortune 500 corporations, all are facing tremendous challenges, and despite all efforts, everyone is bracing for a severe downturn on the global economy. Then it is no surprise that all companies, regardless of their size and reach, are scrambling to cut costs and IT and Telecom at the forefront of the areas that need to reduce costs significantly.
Now the real challenge is not just cutting costs, but rather doing it in a way that will have minimal impact on the company’s operations. A more significant achievement will be to reduce costs while at the same time increasing productivity.
But first, let’s try to agree on what we mean by cost. If you are committed to reducing costs, you need to think in terms of TCO (Total Cost of Ownership); otherwise, you will risk having a false sensation of achievement. TCO has been used for decades, and it is the de facto standard for most companies.
It allows for a complete image of what the real cost of something is. In simple terms, if you think that the TCO of the car that you drive is the monthly amount that you to the lease/financing company, then you are just looking at the “tip of the iceberg.”
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The TCO for your car includes insurance, annual plate, and registration, maintenance, gas, toll fees, parking, and valet, etc. Conversely, in the IT and Telecom realm, the cost of the connectivity or the voice services installed in your company, are not just the invoice that you paid to your provider. The TCO for those services includes hardware, Salaries & Wages of the IT team, software subscriptions and licenses, MAC (Move Add and Changes), downtime, security, and even compliance and auditing.
So, where to start? First, know where you stand, meaning, establish a baseline of your current cost. Do not try to cover all of them; instead, use the Pareto principle; focus on 20% of the actions that will yield 80% of the cost reduction. Read your contracts, terms and conditions, and SLAs (Service Level Agreements). Set a cost reduction objective, but be realistic, and also know how much “pressure” you can apply to your providers.
We see this time and again; on a well-conducted negotiation, you might get a 20% discount, but if you press for 40%, you may end up getting nothing. Like everyone else, your provider has to turn up a profit, and if you press beyond a point, it will force them to consider the possibility that they will be better of not providing the service at all.
Second, classify the operation impact of any cost reduction that you want to implement. A suitable method is to use the zero impact, low impact, and high impact classification. For example, a zero-impact will be anything that you can get a discount for the same service (same for less); also, disconnected unused services (you will be surprised how many companies still pay for services that someone forgot to disconnect).
A low impact case could be switching to a different provider, you will get more or less the same service, but there will be some minor impact, like porting phone numbers or changing static public IP addresses. High impact, usually involves adopting new technology o replacing a legacy one, like moving your servers to the Cloud, or being forced to change technology because of EOS (End Of Support).
As much as possible, move away from legacy technologies. Many companies still cling to their T1s, PRIs, or POTS for voice services. All providers want to get rid of them because the maintenance costs are sky-high. New technologies like SIP, VoIP, virtual fax, etc. can effectively replace those. One notable exception is the potential liability of replacing POTS for elevators and fire alarms; still, there is a new technology that will mitigate that liability.
If you are going for high operation impact, be sure to go for robust, battled-tested solutions; if your objective is to cut costs, it does not pay to be an early adopter.
Another vital aspect to consider is to ask when you do want to see the cost reduction? Today, in a month, in a year? It will open new possibilities; for example, if you want an immediate cost reduction, you should try to convert as much CAPEX as you can into OPEX. Nowadays, most CFOs will go for OPEX instead of CAPEX 99% of the time, and the subscription model that most providers offer (notably SaaS, Software as a Service) will allow you to do just that.
So far, I have not touched the productivity side. Since the dawn of the modern economy, economists have analyzed the correlation between cost and productivity, granted that it is much easier to determine it for the manufacturing of goods, than for intangible services. Nevertheless, the relationship exists, and it cuts both ways, meaning that If you do not take it into account, you risk sacrificing productivity by implementing cost reductions. In the technology realm (whatever is IT or Telecom), we are used to reducing costs while increasing productivity. Think about email vs. snail mail or faxes, not only way cheaper but also way more productive. Still, legacy services like snail mail and faxes play an essential role in our society; try sending any medical records to your physician, thanks to HIPAA you will be looking for a way to fax them in no time.
After all the preamble, I am going to share the key takeaways of methodology that could help you to reduce costs while increasing productivity; but before that, a fair warning. It is based on decades of experience both as an end-user and a top management executive from world-class telecom companies. It is useful, yet straightforward. It is battle-tested over many years but is by no means a panacea. It will vary significantly depending on the use cases, and finally, like any planning tool, it has a reasonable degree of subjectivity.
- Negotiate with your providers using all the tools available; preemptive renewals, longer-term commitments, favorable regulation, revenue replacement, etc.
- Do not accept “More for the Same”; many providers will offer more of the same service (i.e., Internet bandwidth) to avoid reducing their revenue, but in many cases, you do not need the extra bandwidth, and you will end up not reducing your costs
- As much as possible avoid vendor lock-in
- Claim your SLA credits; even if they are small amounts it will show your provider that you are aware of its commitment and that you are monitoring the quality of the service that you receive
- If you are using legacy voice services (PRI, POTS), migrate to Hosted PBX
- If you are already using Hosted PBX, migrate to full Collaboration
- Migrate, augment or replace legacy Private Networks (MPLS, VPLS, etc.) with a full-featured Managed SD-WAN
- If you are paying for a passive backup circuit (Internet, MPLS, Wireless, etc.), convert it to active using SD-WAN, so you do not pay for something that you may use someday, but instead, something that gets a benefit from daily
- Lyft & Replace in-house Data Centers to the Cloud
- Reduce your Bandwidth Cost using private Direct Connections to the Cloud
- Replace your retail SIM cards for wireless devices with Managed Global SIM cards tailored for your use case whatever is IoT or High-Bandwidth
- Use a Subject Matter Expert or outsource your Contract Management, to consolidate Troubleshooting, SLA tracking, Credits, etc. from many providers under a single one
- Request Local Billing in Local Currency in countries where the taxes, regulations and the foreign exchange are more favorable
It is only an excerpt from the complete methodology that includes an Excel tool. If you want to learn more, you can check the recorded version of my Webinar, “Reducing your Telecom Cost while Increasing productivity,” here: