Cost pressures continue to build in the Canadian economy - the dollar is up, the price of oil is up, interest rates are up – and these are just 3 of the biggest factors. As a result, more chief financial officers are focusing even more on expense management and are looking at every cost with a renewed mandate to bring them down. Organizations usually have better controls on direct costs than on indirect costs or overheads, therefore, many CFO’s now see this as the place to obtain savings.
Most business have gone through the downsizing, rightsizing or whatever euphemism you want to use, and can no longer cut bodies without damaging the heart of the business and its ability to function and meet customers needs. It is the area of overhead goods and services that presents the best opportunity to reduce costs and improve profitability. Many of the expense categories that fall under ‘overhead costs’ are common to most businesses and include telecommunication costs, insurance, printing, and office products.
The problem most companies face is the lack of internal expertise to analyze what a company is spending and have the confidence to know with certainty that the prices that they are paying are in line with the market. In most cases it doesn’t make economical sense to hire and maintain expertise in all of these cost areas when they may only need to be looked at every 2 or 3 years. Companies do the best that they can but in many cases are at a distinct disadvantage. For example, fierce competition among the telcos has led to complex pricing options, particularly in the wireless arena. Knowing and negotiating around of the pricing models can lead to savings up to 35%. However, one has to dig for savings and ought not to take pricing offers at face value.
Many companies are reluctant to move from their existing provider because of a well-nurtured fear of phones not working that the current vendor has cultivated over the many years of the relationship. Unfortunately, this results in often very sizable premiums being paid to the incumbent vendor. The reality is that the days of fly-by-night telco resellers is long gone and the vast majority telco service providers are well run and stable.
Telco services should be treated as a commodity rather than a service. There are many ways that a company can reduce the average cost per call, and it can often be done without a change in suppliers, but you must understand what you are paying for and only pay for what you need. Unfortunately, this is the tricky part. The telcos make millions every year by selling services that their clients no longer need (or in some cases never needed or used in the first place). It is just not in their best interest to advise their customers that they have too many lines for the volume of traffic that they have.
In many cases the relationship between company and the supplier is unbalanced in the favour of the supplier. This is particularly true in highly complex categories such as telecommunication services. Most vendors are keenly aware of this and use it to their advantage to receive margins significantly higher than one should expect.
Suppliers know that most employees are juggling many new responsibilities as the results of downsizing and just don’t have the time to understand the complexities of every cost area that they are responsible for. As a result, through know fault of their own, they rely heavily on the expertise of their vendors to understand their business and provide the right solutions at a fair price. Unfortunately, this reliance usually comes at heavy premium.
