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May 09, 2023

From cost cutting, to cost optimizing

Four ways businesses can ensure their spending decisions meet short- and long-term business goals.

Amid today's economic uncertainty, businesses are under pressure to scrutinize their cost structures and, in some cases, make fast cost-cutting decisions to quickly meet new margin pressures or survive the next competitive round. However, to ensure the best outcome across all measures of business performance, organizations need to focus not solely on cost cutting, but on cost optimization. This requires a strategic approach to ensure any spending decision they make maximizes both long- and short-term value. They can do this by taking an enterprise-wide approach to strategic cost optimization (SCO), using an array of strategic tools.

Why SCO matters

SCO is essential to manage cost efficiencies while boosting business performance and remaining competitive. The approach should consider all areas of your business operations and should be based on several core principles. Without them, a short-sighted cost-cutting approach could ultimately cost more in the long run. For example, we helped an insurance client achieve $56M in cost optimization over a multiyear period by keeping a long-term, sustainable approach in mind. We first leveraged immediate optimization opportunities through sourcing, and then applied longer-range organization design, automation, and process optimization.

Prioritize opportunities with a proven SCO framework

Businesses need to fully assess what cost optimization opportunities exist, their potential impact on the business and how quickly they can be deployed. To do that, they need to apply across their enterprise specific levers such as sourcing reviews, IT infrastructure reviews, organizational design reviews, process optimization, automation, and digitization.

You may find opportunities where you least expect it. For example, according to the ISG Index Insider Business Process Outsourcing in Financial Services report, banking and financial services companies are finding significant cost optimization opportunities within their middle offices.

Once you have identified cost optimization opportunities via your assessment tools and processes, it’s time to figure out the best way to optimize and prioritize them. Cognizant has developed a SCO framework (see Figure 1) to help define the best strategy for each opportunity. Our framework focuses on four dimensions for actions to take on each set of processes: right-shoring, process mining, automation, and enterprise platforms.

Figure 1

Right-shoring: delivers high-cost optimization opportunities and rapid speed to benefits

Right-shoring is a great way to immediately capture cost-optimization opportunities. With this approach, you move entire business processes to the most cost-effective delivery locations while taking advantage of experts’ best-in-class process enhancements. It allows you to focus on the unique parts of your business and enjoy cost profiles that match your business objectives. For example, one financial services organization may opt to begin immediately with a ‘lift’: a right-shore approach that can yield above 50% in cost reductions; while another company may prefer to start with process optimization along with automation, which can also yield over 50% — but over a longer period.

Process mining: delivers medium-cost optimization opportunities and medium-to-longer speed to benefits

The process mining option is gaining traction in the market. With this approach, you use tools such as Celonis to model each business process, identify process backlogs, determine levels of rework happening and gain a deeper understanding of how the process performs and where its pitfalls lie. This takes time and experience, but with the insights gleaned you are better positioned to decide whether each process should be optimized as-is, automated or right-shored. Other benefits of process mining include visibility of where non-technology-led interventions can serve and enhanced customer experience — all while generating cost optimization of 10-30%.

Automation: delivers high-cost optimization opportunities and medium speed to benefits

Directly employing automation to improve process efficiencies is best done in conjunction with process mining, but that is not required. What is required, however, is that automation be applied at an enterprise scale to realize substantial savings. This means first creating an automation-first mentality and organization. That is not for the faint of heart. The many automation tools in the market each have strengths and weaknesses, and demand lots of new skillsets to learn. Partnering with a service provider that specializes in automation can be both efficient and transformative for moving forward. We specialize in this field through our Cognizant Automation services and our Cognizant Neuro® for Business Processes automation fabric. Many organizations choose to automate in conjunction with the other approaches in our framework, sometimes as they wait for a new Enterprise Application Platform to roll out. When selecting a partner for cost optimization, their automation maturity is important because deeper expertise will enable them to help automate right-shored processes. In fact, one of our fundamental approaches to right-shoring is to simultaneously assess potential automation opportunities for processes being right-shored, which can yield over 30% in cost-optimization savings.

Enterprise Application Platform rollouts: delivers medium-cost optimization opportunities and low-to-medium speed to benefits.

New core banking and cloud platform rollouts are a necessity for organizations modernizing their operations. Examples include Pega, SFDC, SAP and FICO. The platform providers continually enhance their built-in processes based on usage across all industries. While such platforms are critical to your business, rollout times can be longer than you can afford to wait. Thus, it is critical to do a full assessment of cost-saving opportunities and prioritizing them against time to savings. Platform rollouts are highly beneficial in providing process cost optimization and modernization, but their rollout schedules shouldn’t preclude you from continuing to seek out and act on immediate to medium-term cost-optimization opportunities achieved via the preceding three methods.

A strategic balance for the modern business

As noted above, SCO needs to be an enterprise-level pursuit, and businesses need to devise a balanced strategy that optimizes the blend of speed and scale to benefits. Start with an assessment of your business processes, and then establish roadmaps for each one within a strategic framework. Consider whether any partners you work with have expertise in all four dimensions described above. Also consider your organization’s ability to take on new tools and develop new skillsets. The systematic execution of the plan should be yoked to a solid governance system that monitors expected benefits.

As an example, we helped an insurance client save $56M across multi-LOB operations spanning 332 processes, 6,000 FTEs and a cost basis of approximately $360M. The SCO solution included right-shoring, process mining, automation, and organizational design/enablement.

SCO is critical for all business organizations striving to be efficient and cutting edge. Implementing SCO in a sustainable way ensures your cost efficiencies continue to be realized into the future.

To learn more, visit the Business Process Services and Digital Finance and Accounting Solutions sections of our website or contact us.

This article was written by Dr. Amita Oppal Gill, Managing Partner & Country Leader for Intuitive Operations & Automation in Cognizant’s Banking & Financial Services practice.

Cognizant Insights Team

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