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Once upon a time, IT and procurement departments were created to support the rest of the business. These teams provided the systems and supplies required for everyone else in the organization to do their jobs. They were looked at as necessary and valued functions, but never as “profit centers.”
Times have changed. Even if IT and Procurement aren’t your main lines of business, they’re contributing to your bottom line, and probably having a bigger impact than you think. Gartner Analyst Mark P. McDonald noted in a 2021 IT spending forecast webinar that organizations are making a shift toward recognizing that “technology’s primary job is no longer enabling the business; technology’s primary job is now driving top-line revenue growth.”
In fact, McDonald said in the webinar that a Gartner study of more than 1,500 companies conducted in 2021 found that more than 30 percent of companies now say that their business is led by technology. For these companies, he said, technology “is a source of competitive advantage and a source of growth.”
As such, the roles of IT and Procurement are evolving. The expanding number of choices in networking services and equipment alone has required these teams to become increasingly analytical. Another major shift is IT and Procurement as value drivers within the business. Shifting focus away from cost cutting and risk mitigation to optimization, speed-to-value, and insights.
Unfortunately, it’s not uncommon to hear the terms “cost optimization” and “cost cutting” used interchangeably in connectivity management, but they mean very different things.
What’s the Difference Between Cost Cutting and Cost Optimization?
So, what is the difference between cost cutting and cost optimization in the context of corporate connectivity? Let’s start with some definitions:
Cost Cutting
Cost cutting refers to immediate, one-time actions aimed at reducing corporate expense levels. Most of the common tactics that companies employ to achieve cost reductions are related to employee management, such as layoffs, pay cuts, benefits reductions, and so on. Other initiatives could include downsizing to a smaller office, creating work-at-home options for employees, shortening hours of service, or restructuring debt.
Cost Optimization
Cost optimization is a continuous effort, specifically designed to drive spending and cost reduction while maximizing business value. An ongoing theme of optimization is ensuring that a company gets what they are paying for, or “getting the most bang for their buck.” Activities that are commonly part of network cost optimization efforts include:
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Continually verifying that IT purchases—from hardware to software to network connectivity—are both necessary and utilized.
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Assessing that all products and services are procured at the best available rates and terms.
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Verifying that actual consumption (in terms of things like bandwidth and data usage) is in line with what is being paid for.
Unlike cost cutting, cost optimization isn’t a one-off, immediate activity. Instead, it takes discipline and vision, and provides a long-term solution for your IT budget. Automated systems and tools can help companies manage their IT inventory, aligning consumption with costs and verifying those costs with contracted rates.
Why Is the Distinction Important?
Now that you understand the difference between cost cutting and cost optimization, why does it matter? It matters because IT and procurement departments have the potential to show value beyond traditional cost containment, and the reality is that short-sighted or isolated cost-cutting measures can sometimes have undesirable consequences.
Here’s an example: With the dramatic increase in importance of network connectivity in today’s hybrid workplace, telecom services have become a significant investment and lifeline for businesses. As a result, network management is no longer about administering solutions manually via spreadsheets or emails, or only investigating new service plans after contracts expire. Today, network management should be proactive and routine, leveraging advanced tools and automated processes necessary to properly support the business and inform you of changing provider rates, user consumption patterns, rising costs, and potential compliance or security risks.
For more than 20 years, Advantage has been helping businesses optimize connectivity spend and better manage their networks. Using patented technology, we ensure that your usage is always aligned with the best available rates and plans. Our online portal automates all processes included in the technology lifecycle, from procurement to MACD management and ongoing support. This approach not only optimizes spend, but also planning, efficacy and uptime for your company.
Leveraging sophisticated tools and partners with deep expertise, IT and procurement teams can find their seat at the table and more opportunities to prove their value, impact revenue, and give their company a competitive edge.
Get connected with our team to receive a comprehensive network evaluation and uncover strategic insights for increasing your connectivity cost efficiencies.