Peer to Peer Magazine

9 WWW.ILTANET.ORG BEST PRACTICES Don't Let Tech Choices from the Past Limit Opportunities Today degree of tension between cost category owners and functional budget owners to drive down costs within the organization. Value targeting is another important component. Good ZBB is not just starting from zero in a budget and building up. Value targeting allows you to introduce external benchmarking so top-down and boom-up reviews of both unit price and consumption levers can be used to identify opportunities, according to the 2015 Accenture article "ZBB and Closed-Loop Cost Management: An Engine for Growth." Some common examples of external benchmarks include IT costs as a percentage of revenue, IT employees as a percentage of total employees, and the degree of outsourcing by IT subfunctions. These benchmarks also beer enable target-seing budget goals and exercises like reduction of applications by 50 percent, reduction in support costs by $x million, etc. This analysis then enables radical transformation opportunities and identification of where targets can be increased or decreased as needed. Make sure up front that fellow executives are commied to the approach to avoid derailing. It is recommended to identify a champion like a CFO, COO or CEO. It is best that the sponsor be outside of IT, as the outcomes might be difficult to accept and implement. Having this support will be valuable in providing a one-time reset to your legacy environment. Transformation Is a Journey Cost transformation is a journey, and ongoing and proactive communication provides the needed currency to make it happen. The entire workforce (made known through senior sponsorship and category owners) must be empowered to challenge the status quo. The focus of ZBB identifies and eliminates wasteful spend in favor of strategic initiatives. Finding the dollars from these programs to fuel and fund innovation opportunities in legal services is the clear opportunity. Firms not afraid to look critically at past decisions will fund their own promising future. P2P period of time as inflation and other macro pressures favored strong cost management. Its use has begun to increase again. Some companies have adopted the approach not just for budgeting but as a cost management philosophy. Many firms have found a successful formula for maintaining a competitive edge when applying ZBB consistently and from the top down. The program has strong potential to help firms address their technology debt. Its method of requiring each expense to be categorized and justified as if it were new would allow firms to get at legacy decisions. ZBB enables change in a way that is aligned with business decisions and outcomes so that risks are minimized and opportunities to reduce costs and free up capital are realized. ZBB is not an approach you should undertake lightly. It will yield big rewards, but it will consume more management time than a typical annual budgeting exercise. Some teams find it easier and more successful to position ZBB as a strategic planning activity rather than a budgeting exercise. Anything not essential for that mission is eliminated or reduced. ZBB looks at cost categories consistently across the organization, including cost of goods sold (COGS), distribution, commercial real estate and general administration. The budget is rebuilt like a bill of materials (BOM) for the products and services an organization provides. For IT cost review, look at the BOM from the technology perspective –– the allocated people, applications and infrastructure along those product and service lines. This strategy is noted in the IDC's 2017 report "Optimizing IT's Costs and Benefits with Advanced Managerial Accounting Practices." Depending on the level of organizational commitment, double-digit reductions have been witnessed in COGS of anywhere from 20 to 40 percent in typical selling, general and administrative expenses. More important, a majority of the cost savings related to non-full-time employees can be achieved in the first year of the effort. Visibility is required to be successful. Look consistently across the spend in the organization, and organize everything with cost category ownership. A matrix for accountability is important to generate some RICHARD S. MACKEY Richard S. Mackey is a Senior Manager of Accenture's ITT practice in the operations business process services team. He can be contacted at richard.mackey@accenture.com. The exercise forces the entire organization to focus only on what capabilities and people are needed to deliver on business and growth objectives.

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