ORGANIZATIONAL SURVIVAL SERIES
PART IV: COST CUTTING
FOOD FOR THOUGHT
T H E R E T U R N O F P R A G M AT I S M : C O S T C U T T I N G
“The problem, when solved, will be simple.”
Anonymous
The Return of Pragmatism addresses the ‘intensive-care’ of
business life: Cost Cutting. The hypersensitivity of the markets
of late and the fall out of dot.com stocks has led to a
retrenchment in business and a re-look at basic capabilities in
search of effectiveness, efficiency, and pure cost take out.
We are all in business to please customers and deliver great
products, services, and value. When times are good and we plan
and execute well, we are on track. When times are not good or
we execute poorly, results materialize slowly and we must
regroup. We need a health check. So, let’s get down to business.
SCOPE THE ISSUE
The challenge of productivity improvement is enormous and
amorphous because it impacts everything and, at its essence, the
goal is to improve all things, without breaking anything.
We have divided this paper into two pieces:
First, “Lessons Learned: Wisdom from the Road,” in which we
enumerate ten best practices learned and garnered from hands-
on practical experience.
Second, we present an analytic framework, “Dividing the Pie,”
which helps analyze the opportunity and identify action steps
that will yield maximum benefit over the shortest period. In this
section, we illustrate the framework applied to technology
spend.
APRIL 2001 F I N A N C I A L S E R V I C E S
LESSONS LEARNED:
WORDS OF WISDOM FROM THE ROAD
To p Te n L i s t
1. Address the demand side. A boom economy drives
business decisions toward keeping up with growth,
which focuses on supply-side issues: keeping up with
demand, ramping-up, building out. When the family
budget is tight, family members must determine how
they can buy and consume less.
2. Make it easy on yourself. Do not expect your people to
come up with the idea of firing people or eliminating
jobs. If jobs need to be cut, you know it at a high level.
Give your team the goals and let them decide how to
structure the remaining jobs to get the work done.
Above all, communicate honestly and often, and treat
people fairly through the whole process.
3. Process. We paved the cow path. What are the manual
processes that have been captured in our automated
systems—and the true business drivers that require
them? Find those people—often in the product
development and legal areas—and rethink the processes
end-to-end looking for unnecessary work, missed
opportunities, ways to simplify, and ways to improve.
4. Chase out the paper. Paper is a cost magnet. The
average piece of paper is touched a dozen or more times
and every touch costs money. Every piece of paper is
stored and has to be retrieved. Eliminate the paper from
the process and print copies only when needed.
Likewise, store copies only when needed, and eliminate
them from the business process.
FINANCIAL SERVICES 1
 5. Technology. Technology is deployed for one of DIVIDING THE PIE
four reasons: 1) better service, 2) better data, 3) The following provides a three-step process (three easy pieces) and analytic
cost savings, and 4) improved efficiency. Don’t framework that executive and management teams can quickly deploy to
expect cost savings unless they are explicitly identify the opportunities, scope the effort, and identify action steps that will
designed into the implementation, and explicitly yield rapid results.
reduce some cost factor: people, paper, time, etc.
In three steps: 1) locate the fertile-ground by capturing the entire ‘spend,’ 2)
Cost savings won’t materialize without a concrete
determine the percentage of the spend that can be effected in the short-term,
action to get the cost out.
and 3) select high-impact areas, set goals, and determine pragmatic, viable
6. Moore’s Law. Moore’s Law has driven significant courses of action.
improvements in computing costs. Business
improvements in the network are unleashing STEP 1. L O C AT E T H E F E RT I L E - G R O U N D
pent-up demand, so as unit costs for technology
continues to decrease, consumption is rising. All Spend Map Spend
In large pieces, capture
netted out, determine whether your total costs are the entire spend. Distribution Costs $
trending up or down. Be cautious of technology Front Office $
(application, database, and network) that has been Back Office $
deployed that is under-designed (lacks Staff Support $
functionality), but is over-powered (compensating Infrastructure $

for missing functions). Total $

7. Make the tough decisions. Examine all the spend

categories for expenses that have become the
cultural norm but have outlasted their usefulness. STEP 2.
Everyone should give a little. Get rid of the
D E T E R M I N E T H E P E R C E N TA G E O F T H E S P E N D T H AT C A N
outrageous outliers. Take the write-offs.
B E E F F E C T E D I N T H E S H O RT T E R M
8. Engineer and Re-engineer. “We reduced cost last
year, and the year before.” Set aggressive In this process, look at Spend Map Spend % Actionable
the following kinds of
improvement goals and continue your sedulous questions: Distribution Costs $ %

pursuit. Front Office $ %

a. What major
contracts can be Back Office $ %
9. Parallel Processes. Look at organizational design renegotiated?
Staff Support $ %
b. Where can we ration
for layers, like functions, shared processes, job demand? Infrastructure and IT $ %
design, system constraints, invisible barriers. c. Are we willing to
Total $ %
eliminate jobs, close
10. Look for Gold. Focus on high impact areas, look offices, relocate
positions?
for undervalued, un-noticed assets, intellectual d. Are we willing to
effect sales
property, and capabilities to build new revenue
compensation?
streams as you remove cost.

2 K P M G C O N S U LT I N G FINANCIAL SERVICES
STEP 3. S E L E C T H I G H - I M PA C T A R E A S , S E T G O A L S , A N D D E T E R M I N E A C O U R S E O F A C T I O N

This typical Impact Areas $ Spend % Actionable $ Goal Action Steps

information
technology spend eCommerce $100 0% $0 Strategy and Prioritization
matches action Core Business Applications $200 20% $40 Project Prioritization
steps to each
major impact Project and Program Management
area. Contractor Management
IT Service Delivery $50 50% $25 Rationalize Service Levels
User Level $50 10% $5 IT Asset Management
Set Affordability Levels
Server Level $50 20% $10 Architectural Review
Capacity Planning
Outsourcing Review
IT Asset Management
Enterprise Level $100 30% $30 Outsourcing Review
Data Center Consolidation
IT Asset Management
Network Level $100 20% $20 Infrastructure Design Review
Contract Management
Total $650 AVG 20% $130

A F E W W O R D S A B O U T I N F O R M AT I O N 3. Every business decision to change a business process, a

TECHNOLOGY SPEND
location, a move, a touch, an add-on, or a change drives IT
The common language between technology and business people is
cost.
money. Money is the universal translator. Business people want to
4. Accounting rules move current expenditures into future
understand the cost structure of the technology expenditures and
periods. So money saved today (amortized) is money that
the drivers and consequences of the decisions they make (today) on
can’t be spent tomorrow.
the technology expenditures of today and in the future.
5. Within a ‘fixed’ spend, fewer and fewer resources over time
1. The choice of application drives the choice of technology,
will be available for discretionary spending as each new
which drives the cost of the infrastructure.
system deployed requires ongoing maintenance—eating up
2. The infrastructure costs have two elements: one, the cost to
an increasing share of the fixed budget.
build, and two, the cost consumed (i.e., the cost of the
network, and the cost of using the network).

FINANCIAL SERVICES 3

About the Author
Bruce Brodie is a senior manager with KPMG Consulting’s financial services
practice. He has 20 years’ experience in financial services, including experience
as Chief Financial Officer and Chief Information Officer. He brings a wide
variety of perspectives gained through numerous business development,
acquisition, divestiture and merger integration activities. Bruce is the author of
numerous articles on organizational change and the impact of technology. At
KPMG Consulting, he leads the deal-structuring aspects of the financial
services venturing group.
Food For Thought regularly provides views and insights to help
readers navigate and succeed in the world of business
t e c h n o l o g y.
4 FINANCIAL SERVICES
A B O U T K P M G C O N S U LT I N G , I N C .
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