Harvard Business Review Research: The End of Efficiency as the End Game

For years, an uncertain global economic climate shifted the focus of many organizations toward costs. This meant everything from postponing discretionary IT spending to reducing head counts of individual contributors. And even during the recovery, businesses are looking around and seeing an entirely different landscape. In some industries business models have changed permanently or opportunities to grow revenue aren’t what they used to be, which adds to the allure of efficiency for efficiency’s sake.

However, you can only squeeze budgets so hard, and the old adage that you have to spend money to make money still largely holds true. Businesses are increasingly coming to the realization that simply cutting costs or perpetually postponing investment can no longer make them healthier. In the end, a business must grow, innovate, and create value to live. Together with Dell, the Harvard Business Review conducted research to learn about business priorities in a changing world, and in particular the changing attitudes toward efficiency and value.

Growing optimism favors growth
The most significant trends the research uncovered are around efficiency. While many companies still put an emphasis on cost-cutting, the percentage that rank it among their top three priorities has decreased from 60% last year to 47% for the year ahead. Perhaps as a sign of increasing optimism about the overall economy, the study also found attitudes about investing in growth are moving in the opposite direction from lowering costs. This includes putting greater importance on areas such as acquiring new customers, increasing innovation, launching new products and services, and growing market share.

A double-edged axe
Among these changing priorities, The Harvard Business Review found not all efficiencies are created equal. There are such things as good cost-cutting and bad cost-cutting. For example, according to one IT director quoted in the study: “We went astray. There was tremendous pressure on quarterly results, so we postponed investments. We did too much outsourcing and lost knowledge, capabilities, core competencies. … We cut training, so we stopped hiring at the entry level. And we used the wrong metrics.”

In fact, the study found that, overall, respondents whose companies primarily wielded the budget axe were much more likely to say their capabilities had gotten worse as a result. Bad cutting likely involves simply postponing discretionary IT spending or reducing headcount. “If your efficiencies mean layoffs,” said the CIO of a U.S.-based direct marketing company, “you probably haven’t created value; you’ve probably created discontent.”

On the other hand, companies engaged in good cutting don’t just make ham-fisted drives at efficiency; they reduce costs in more integrated and strategic ways. This includes consolidating data centers, using videoconferencing to reduce the need for travel, and automating previously manual processes.

Driving the middle path
The study also found that some companies balanced investment with good-cost cutting, such as reducing spending to free up money for investment. These “investors” and “balancers” have found spending more in some areas such as technology—while making the necessary organizational structure changes and setting performance management metrics—has lead to both growth and better, more efficient processes and collaboration across the enterprise.

IT leaders have a huge opportunity to evolve and innovate in response to the changing business environment. Real innovation in this case means creating value by helping the organization move beyond the initial over-emphasis on efficiency following the financial crises and create growth by doing things in different, more intelligent ways. The means looking at efficiency not as the end game but rather as the foundation upon which to build a more agile, responsive and innovation-centered business. And technology is the enabling platform for this new business order.

Gauge your decision-making style
Dell also worked with the Harvard Business Review to develop an interactive peer comparison tool. It enables you to get immediate insights regarding how your organization approaches its IT investments.

For example, how do you balance the need for efficiency with the need to invest for future growth? However, the philosophy around efficiency and the investment underlying these decisions drives radically different choices with significant implications for the future of your business.

Read the whitepaper here.

Leave a Reply