Published: 29 April 2020
As the impact of the COVID-19 coronavirus pandemic spreads, leaders face pressure to cut costs. They can use this research to better understand the best practices and techniques of driving cost management across the enterprise.
With the backdrop of COVID-19, Gartner explores how organizations redouble efforts to actuate cost optimization across the enterprise. Gartner’s Cost Optimization in 2020 Resource Center can instruct organizations aiming to understand the best practices and techniques of driving cost management across the enterprise.
We focus on the following topics:
Budgeting and Financial Transparency: Good cost transparency is key to being able to make smart decisions around cost management. This topic offers ways in which cost transparency can help generate a greater array of decisions that can be undertaken.
Sustainable Cost Management: We find the best-in-class organizations think of cost management as a continuous discipline. This topic explains how and why these organizations have more financial success and greater customer and employee satisfaction than those that use the term only as a proxy for cost cutting.
Digital Economics: Digital economics explains how digital natives and some incumbent organizations are managing to create net new top-line revenue by understanding the new metrics and economics of digital business. Digital economics explains how organizations are creating new sources of revenue by exploiting digital business models.
The scope of cost management covers three of the major focuses for organizations: cost cutting, cost optimization and value optimization. Understanding the relationship between these three is vital to setting up good cost management practices.
Cut costs to eliminate waste and remove capabilities that are no longer part of their strategic plans, thus freeing up vital resources, time and funds to reallocate on prioritized areas.
Use cost optimization to improve the efficiency of capabilities that are required today to enable the organization to catch up to, and keep up with, its peers.
Use value optimization for investment in new capabilities that are required for the organization to get ahead of peers and industry expectations.
Good cost management is about ensuring a strategic balance of funding, time and resources being allocated to all three disciplines to enable the business to thrive.
Leaders should seek to develop their capability in all three of these areas in order to be fully successful in cost management.
Suggested First Steps
Organizations impacted by the COVID-19 crisis and seeking specific advice around cost management during a downturn should take guidance from the following documents:
: Enterprise architecture and technology innovation leaders should create a digital twin of their organization for business cost optimization.
: Organizations that haven’t prepared for an impending downturn will be forced to cut costs. Finance leaders must avoid three cost reduction mistakes that could impede their progress.
: PepsiCo reframes strategic questions to identify CXO KPIs and maps the information needed at key decision points in business processes to key out operational metrics.
: CIOs can leverage the principles of digital economics to find game-changing monetization and business model options for digital business transformation.
: CIOs must ensure an authoritative IT cost optimization team can manage technological, business and political interdependencies across the organization.
: CIOs can use the corresponding catalog of leading indicators, which connects dependencies to desired business outcomes for planning and reporting, to guide investment decisions.