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Nine Ways to Cut Costs While Keeping the Lights On Wipro Voice: A Conversation with Toshiharu Mogi, Group Head, Consulting Services - Member, Wipro Council for Industry Research
Mogi, who has a PhD, says Wipro works with its clients to identify effective cost control initiatives with implementability as a critical factor. "We help our clients identify practical opportunities to rapidly reduce costs and do more with less. We help our partners get smarter with their spending, and our teams engage throughout the process to ensure they realize their cost targets," he explains. In the first step of this process, Wipro consultants look at what Mogi calls "the lights-on cost," which he defines simply as the cost to run the business. He says many companies have difficulty calculating these operating costs in a way that accurately represents their true base cost. Wipro conducts a "Smart Spend Analysis" to determine the critical cost components in a way that helps drive business decisions. "Our goal is to intelligently understand our costs and cost drivers and ratchet down these costs so our clients can operate on a lower, more agile cost curve," says Mogi. "The outcome typically helps reduce 'run' spend, and thus enable additional investments in new solutions to make them more competitive." "Understanding costs is the first step; the next step is to define strategies to drive down costs. Wipro runs a 'diagnostic sprint,' which is our tested methodology that quickly identifies the opportunities that will have near-term cost take-out potential," says Mogi. The following represents the top set of cost-reduction initiatives that Wipro clients have effectively implemented. Global sourcing"Buyers like global sourcing because offshoring can cut operating costs up to 35 percent," Mogi notes. He points out these are "sustainable, not one-year cost cuts, and come with a number of other benefits including quality, flexibility, and resource availability." Wipro consultants study how well the enterprise utilizes its global vendors. He points out many companies just use offshoring for simple activities in a staff augmentation model. "The staff augmentation model does cut costs, but it doesn't take full advantage of global sourcing's possibilities," he says. For example, Wipro worked with a buyer that used an offshore company to augment its staff to support its Web-based applications. It was paying the supplier by the number of hours worked. The problem was the outsourcer was following the buyer's processes and using its tools, according to Mogi. Wipro proposed changing the model. The supplier initially did break/fix support for 35 applications. "We examined the workload and proposed a managed service model that was output based instead of hours based. This resulted in a 10 percent discount and created a new model to reduce costs even further while still meeting all of their service level agreements," he explains. Mogi says Wipro took the number of problem incidences as its deliverable. The result: the client was able to decrease its cost per incident while Wipro simultaneously almost tripled the applications it monitored to 90 at the same price. The supplier reduced the buyer's cost by 25 percent the first year, Mogi reports. "Once we converted them to a new model, we had more freedom in managing the work," he continues. Wipro put in request, knowledge management, and root cause analysis tools "so we could do things in a more repeatable fashion in the future." In the end, the buyer reduced cost and improved its productivity by changing its global sourcing model. Another way to improve global sourcing is "to maximize synergies," the Wipro executive continues. For example, companies can centralize testing. Or it can consolidate horizontally by moving more work to one supplier or vertically along a particular business line. "The goal is to optimize work flow," says Mogi, "and our consulting teams help identify how to improve the workflow and synergies to improve cost and productivity." Demand management and governanceMogi is often surprised at the amount of cost savings available by simply determining what work is critical and what is not. Wipro shares a clear scope of work document with the client mapping all the activities that would come under its purview that the client needn't focus its efforts on. After an analysis, Wipro found up to 20 percent of work "doesn't keep the lights on. These tasks were important but the company had not prioritized them correctly. Leakage occurs when companies don't have a correct demand management process," Mogi says. The Wipro executive quotes an instance where the supplier saved one insurance company 20 percent of its operating costs by either cancelling or mothballing certain projects that were not absolutely necessary. "They were in a cost-containment mode. We helped them decide which projects they could stop without adverse effects to the bottom line," Mogi reports. Companies also need to manage the responsibilities of the program management office. Some buyers have excess capacity because their demand is not uniform. "We ask the CXO: 'Are you over or under staffed?' Most have a hard time accurately answering that question. We help our clients do a better job of forecasting demand so they can create a more flexible supply balance," Mogi says. Of course, outsourcing suppliers can scale up or down faster than buyers. "Global suppliers can help smooth out the peaks and valleys of demand," the Wipro executive continues. IT services consolidationWipro adopts the successful factory model around applications and support. For example, it has a centralized testing organization that interfaces with a buyer's development and support operation. Or it can consolidate help desk services. Functions can be run as services across organizations, such as user interface, testing, PMO, application support and maintenance, architecture, helpdesk, and data management. Companies that have grown rapidly, through acquisition for instance, may have IT organizations mapped to different businesses. We help our customers take a functional look at their operations to see which common services could serve the IT and business needs in a more centralized and optimal manner. Scale economies, best practice sharing, utilization management, tools consolidation, and common processes help drive efficiencies and performance improvements Workforce optimizationWipro analyzes both staff and management to see if the company fits into Wipro's hierarchy pyramid. "Companies need to understand their skill mix. You don't need a 10-year veteran for low-level work, which happens quite often," says Mogi. Few companies refresh their workforce, but "that's a critical task in times like this," he continues. Wipro helps its buyers benchmark each job; "we know what management development ratios should be." Wipro tells buyers: "Here's how we would run this division." Wipro also looks at utilization rates. For example, Wipro worked with an investment bank in New York City to study how the bank managed the work it sent to low-cost locations. We can benchmark organization structures and management span of control against many different organizational configurations to see how well balanced our clients are building an efficient organization. We also look at how our clients are utilizing outside contractors and global vendors and assess the cost and competency requirements tradeoffs. IT process and quality improvementsWipro brings in a strong IT process and quality culture throughout our engagement. We have been working with clients to improve their process maturity, enable a metrics-driven organization, and deliver continuous improvement. Utilizing process improvement standards such as CMMI, P-CMMI, ITIL, Six Sigma and Lean models, we help our clients achieve significant improvement on cost and quality. Wipro is an innovator on IT process improvement and is the world's first CMMI level 5 certified company. Application portfolio optimizationWipro looks at applications across the enterprise with the goal of finding functions or processes which can be migrated to a lower-cost platform. This can be a useful cost-saver for companies involved in a series of mergers because these companies inherit different platforms from each new acquisition they make. "We find a lot of overlap," Mogi says. Architecture transformationA well-defined architecture plays a pivotal role in the success of any business. Wipro helps clients identify if there are any commercial off-the shelf options that can reduce costs. Or, should the company adopt service-oriented architecture or Web services instead? How do open standards fit in? These are a few of the key questions that organizations need to ponder and formulate strategies accordingly. The goal is to be configuration driven. Total cost of ownership improvementsThis involves value engineering across a chain of products. "We look for solutions that include better supplier management or inventory control. Both improve the costs for a product," the Wipro executive reports. Sourcing and procurement excellenceMogi says Wipro studies the non-labor costs. Will eProcurement or supply chain management help? How much money can global sourcing strategies save? Based on the findings, the supplier proposes its BPO services that can help streamline sourcing. The bottom line: Mogi says if companies looked at every one of these nine areas, they could certainly reduce costs in these uncertain times. Lessons from the Outsourcing Journal:
Wipro set up the Council for Industry Research, comprised of domain and technology experts from the organization, to address the needs of customers. It specifically looks at innovative strategies that will help them gain competitive advantage in the market. The Council in collaboration with leading academic institutions and industry bodies studies market trends to equip organizations with insights that facilitate their IT and business strategies. For more information on the Research Council visit www.wipro.com/industryresearch or e-mail industry.research@wipro.com Publish Date: April 2009
Copyright © 2009 - Everest Partners, L.P.
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"It's no surprise a lot of clients want to rapidly and dramatically reduce their cost by 25 percent or more," reports Toshiharu Mogi, group head, Consulting Services. Moreover, capital is "difficult to come by in this macroeconomic global recession." The result: companies now seek an enterprise-wide solution to gain productivity improvements. "They need to show results," the Wipro executive continues.
