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The major impact of digital transformation on cost reduction By Andjela - 3 min read

The major impact of digital transformation on cost reduction

Cost reduction in the current business landscape is more a matter of necessity than a matter of choice. While searching for every opportunity to cut costs, companies often rely on the most obvious, ‘traditional’ methods to support an increase in savings, but researches show that in the past years, this kind of cost-reduction amounted only to about 2 percent of the total costs. Squeezing a 2 percent savings from ‘traditional’ levers ‒ by layoffs ‒ creates more problems than it solves. For example, there is a form of wider social costs through a backlash from communities, customers, and workers as well as politicians.

On the other hand, proper management of digital tools is able to increase productivity and be a profitable alternative to conventional cost cuts. Researches also show that applying digital technology and analytic tools can reduce costs by 5 percent. Now, if you were to do the math on your own, you would realize that, by having a clear sense of what costs should be reduced, you would be able to avoid the risk of being left behind.

Strategic Cost Reduction leaves room for Sustainable Growth

Savings are determined not with the costs you cut but rather by how you stimulate growth and differentiation. A top priority in strategic cost reduction is to identify low-performing operations and differentiate them from the ones earning the best returns. It is often difficult to assess the direct contribution to profit and return on digitalization and that is why company leaders seem eager to cut down on the IT department budget. To avoid cutting costs in areas of IT that are closely correlated with developing new value propositions, CEOs and CIOs have to work together to see a broader perspective of IT infrastructure and its capabilities. Highly functional infrastructure is enabling enterprises to facilitate corporate-wide decision making, develop better customer insights, and support departmental cross-functioning with an up-to-date overview. Since this department usually grows organically by short term initiatives, there should be a much greater emphasis on reviewing requests for new IT projects to make sure they are aligned with the corporate strategy.

Strategic innovation is an area that needs IT support in finding new opportunities for growth. And, in order to minimize the risk of new endeavors, every corporation requires a corporate-wide digital and analytics tools. Supplying management with the right data at the right time to improve the decision-making processes is one of the ways to reduce costsbecause it doesn’t only save time and money ‒ it also protects your business from costly consequences of bad investment decisions.

Reinventing your business: Do more with less

The way we act today is how we are going to be remembered in the future. By making the right decisions, you are not only becoming a role-model, but the business you run is determined to thrive. That is why the focus has to be on changing the perspective and looking beyond the downturn. If necessity is a mother of innovation, we will agree there isn’t a better time to innovate than right now, in the apex of the COVID-19 crisis, when almost any of the previously utilized models proved to be ineffective. Accelerating digitalization is something that widens the already existing gap between digital leaders and those who are lagging behind. Reshaping your digital infrastructure to match it with your corporate strategy can create competitive advantages, but it isn’t likely to be happening without a clear mandate from the top management. That is why business and IT leaders need to work together to explore investment opportunities and emerging technologies that can sustain innovative, smart ways of doing business. Digital co-creation with employees, customers, suppliers, partners, online community, and potential customers is a great way to explore and discover new profitable niches and increase productivity. You just have to reach for it.

 

If this article inspired you to think of new ways of working, share your thoughts with us in the comments section.


Andjela - Content creator
Andjela
Content creator

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