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Operational efficiency – it’s not just about cost cutting
by Matthew Burrows
Efficiency isn’t just about reducing costs; other business objectives, including service quality, still have to be achieved in order to keep existing customers and revenue. Many organisations are too concerned with
costs and are not aware that the real business
value can be destroyed if approached purely as a
cost cutting exercise.
If we are going to look at efficiency, we should
aim for a consistent definition. ITIL V3 offers us
the following:
Efficiency – “A measure of whether the right
amount of resources have been used to deliver a
process, service or activity. An efficient process
achieves its objectives with the minimum amount
of time, money, people or other resources.”
Effectiveness – “A measure of whether the
objectives of a process, service or activity have
been achieved. An effective process or activity is
one that achieves its agreed objectives.”
So using these definitions in order to be
efficient we must also be effective.
One objective must be to deliver services
which meet customer requirements/needs. In the
current economic climate cost is obviously a big
factor; so reducing the cost of delivering service
is often the main driver for improving operational
efficiency. It is worth noting that you can reduce
your costs necessary to deliver service or operate
a process, but if your customers leave because
the quality of service has dropped then you are
still in danger of going out of business.
How do you reduce cost? We’ve probably
all seen the standard approach used
when challenged to reduce costs by a
certain percentage:
• Get rid of contractors, ban travel,
reduce training, cancel bonuses,
reduce permanent headcount
• Over-stretch remaining resources,
lose key knowledge
• Reduce motivation and therefore productivity
• Negatively impact service quality, lose
customers and revenue
At this point, usually further action will be required:
• Start the cycle again to reduce costs further
• Invest to improve service quality
I’ve seen organisations that go through this cycle every three or six months in a potential ‘death spiral’. Sometimes they manage to pull out of it, but it takes lots of effort. You can imagine the conversations that sometimes go on between customers and consultants...
Customer: “I need to save money.”
Consultant: “Is that the only benefit that you need?”
Customer: “Yes, saving money is what I’m tasked with doing; my number one priority. The board have told me that I have to save money.”
Consultant: “That’s easy, I can produce a business case which meets your cost reduction needs. In fact, I can exceed your target and reduce your costs by 100% - send everyone home. Of course, you’ll have no customers or revenue, so you’ll need to go home too.”
Yep, I know this is a little bit flippant, but it’s not that far away from some conversations that happen.
Joking aside, my view is that it’s easy to save money in the short term, but difficult to get the optimum balance between cost and quality.
Therefore, as value is often seen as quality/
cost, it’s about delivering the required quality
of service for an acceptable cost.
So, how do we approach driving increased
efficiency bearing in mind these risks
or constraints?
We spoke about efficiency being a measure of
whether the right amount of resources is used to
deliver a process, service or activity. But, what do
we mean by resources?
Resource – “A generic term that includes
IT Infrastructure, people, money or anything
else that might help to deliver an IT Service. Resources are considered to be Assets of an
organisation.” ITIL V3.
Asset – “Any resource or capability. Assets of
a service provider include anything that could
contribute to the delivery of a service. Assets
can be one of the following types: Management,
organisation, process, knowledge, people,
information, applications, infrastructure, and
financial capital.” ITIL V3
There’s a whole host of things that could
contribute to greater operational efficiency – so
why do many companies just purely focus on the
tools or the numbers of people?
Quite often automation is used as one of the
key techniques to improve efficiency and can
achieve significant benefits when implemented
with effective business change. Automation is
about using technology effectively to do tasks that
would otherwise have been done manually. It can
generate the following benefits:
• Improve the speed of the tasks
• Remove human error and manual activity
• Improve quality as well as reducing cost
Considerations:
• Usually some investment is required in tools
• Processes need to be clear, documented,
repeatable and often simplified further to be
effectively automated – no point in
automating bad process
• The effort and investment required can be
more than the benefits if you pick the wrong
processes or tasks
I’ve had several customers who’ve made
that last mistake – I usually advise looking
at the most important services or process first,
the ones that happen most often or the ones
that generate the most revenue or customer
impact. By looking at these you get a bigger
return more quickly. I have one customer
where we prioritised their business services
in this way, and ended up only doing 13 services
out of their list of hundreds because we got a
massive efficiency improvement and a multimillion
pound return very quickly. We concluded
that the effort involved may be too high for some
of the lower value services.
Here are my considerations for anyone
needing to generate additional operational
efficiencies:
• Cost reduction does not equal efficiency
• Understand your current costs and baseline
current service quality
• Agree required balance of Cost and Quality
- It’s important to understand the targets
and expectations from the beginning
• ISO/IEC20000; consider alignment as part
of your toolkit in driving increased efficiency
even if you don’t want to go through
to certification
• Think People, Process, Partners & Products
• Tools alone do not generate the required
benefits, effect cultural change
• Simplification and Standardisation are often
the keys to increasing operational efficiency;
Create repeatable standard processes and
remove duplication and bottlenecks
• Utilise experience (good and bad) - too many
organisations expect their people to get
it right for them first time, without having
the experience of how to do it
The basic principle of business is essentially
quite simple, if you deliver services or products
which meet your customer’s needs at an
acceptable cost, you a likely to stay in business.
Get the balance wrong and you may need to
update your CV/resume. Get it right and the
benefits are huge.
Matthew Burrows is an acknowledged best practice expert and a regular contributor to publications and events, providing thought leadership on industry committees and working groups. He was involved at the very beginning of BSM through his presentations at BMC launch events. These customer case studies of BSM programs he was responsible for managing, demonstrated that BSM was real and delivering tangible business benefits. In his day job, Matthew is the Managing Director and an active consultant/practitioner at BSMimpact, a niche consultancy that works with organizations to deliver successful transformation and maximize the value of a Business Service Management approach. The company's impressive client list includes O2, British Airways, IBM, HP/Compaq, Centrica (British Gas), Vodafone, BMC, BT, Unilever, Virgin Mobile, and more. In addition to his fellowships with RSA and the priSM Institute, Matthew is a member of the itSMF UK Management Board, lead for the Global priSM Advisory Committee, and a member of the SFIA Council. He is passionate about sharing knowledge and supporting the continual professional development of others.
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