Survival Strategy: Rein the Expenses

Survival Strategies Diversify or Die The BPO route Riding the Offshore Outsourcing Wave Rein the Expenses

Forced on the back foot and under a severe revenue crunch, IT companies knew keeping operational costs low is a no brainer suggestion. But for the glamour ridden IT companies and its pampered employees accustomed to easy money, cost cuts had to be undertaken in a manner that was least painful. Smart companies used the slowdown to take a hard look at expenses and cut costs in innovative ways.

Travel expenses

In 2000, Infosys Technologies is believed to have spent a whopping Rs 147 crore on overseas travel alone, Even a 10 percent saving in overseas travel costs would save Infosys close to Rs 15 crore. Every company slashed travel budgets and even essential travel expenses came under as strict cost benefit analysis. Earlier while travel was approved by the reporting head, employees were now required to have approval from senior levels. Senior managers at I-flex, for instance, were asked to be more prudent with travel costs Employees were encouraged to use video-conferencing and instant messengers and even e-mail rather than travel. According to Sangal of IDC, travel budgets in most companies have been cut by 20 to 40 percent. Aptech for instance has reduced travel costs by 30 per cent.

Power and communication

For the first time IT employees were probably encouraged to switch off their PCs. Companies reduced the number of high wattage bulb to spotlight its facilities and made do with a minimum number. Companies such as Sun Microsystems gave a week off to employees on lean days to save on power and infrastructure costs. Long-distance calls also came under scrutiny. Employees were encouraged to tap low cost new economy devices like e-mail rather than make long distance calls. Aptech for instance reduced communication costs by 25 percent. The savings to the company were minimal but companies strongly believed "Take care of the pennies and…

Employee benefits

Infotech companies were legendary for the sops they provided employees. From high salaries, e-sops, Friday night bashes, exotic vacations cafeterias, health club memberships, Indian IT pros were the envy of employees working in the other sector.The slowdown bought a radical change in attitude. Companies cruelly cut costs on facilities. Friday night bashes became a bi-monthly rather than a weekly event; office refrigerators were no longer stacked to the brim with expensive chocolates and imported ready to eat food; the free lunch became a paid service; health club memberships were restricted to senior employees. Companies had to tread carefully when implementing these measures as it could adversely impact employee moral. An anguished Project Manager of Co Systems gave this writer a call complaining that management had withdrawn a large number of facilities. But smart companies exploited the recession to build better communication channels with employees by asking them to suggest areas where cuts could be made. From tissue paper to less expensive soap, employees gave suggestions freely. Eventually it turned to be a win-win situation with companies and employees settling down to the changed landscape.

Advertising costs

As companies battled the slowdown, hoardings of IT service companies blaring their presence aloud vanished from the urban landscape. For instance, Aztec that used the advertising route to gain top of the mind recall with its innovative advertisement campaign significantly staggered the pace of every ad. Recruitment advertisements came to a slow trickle; companies were simply not hiring and those who were preferred the inexpensive options of referrals and free job postings. The funds were diverted to source more clients in a slow economy.

Salary cuts and Layoffs

The slowdown compelled companies to cut flab within the organisation. Service companies adopted one criterion for employees: "Do or Die." The GE performance model came into vogue as employees who failed to perform for two quarters consequently were quietly asked to leave. Companies pared down staff in non-core areas to stay lean and fit. Others such as Sasken made 10 per cent salary cuts across the board. For senior employees, a portion of the salary was shifted to performance based variable component, helping companies to reduce the fixed costs.

The outlook for the next three quarters may be brightening on account of the offshore outsourcing but companies are not letting the cost rein loose.

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