Every downturn sees several technology vendors urging customers to look beyond headcount reduction in order to cut costs. In a recent example, a cash management vendor promotes improvement of straight-through processing as a way to improve efficiency, and hence cut costs.
If you get the feeling that most of these pitches fall on deaf ears, that makes it two of us.
Is this because technology involves an investment whereas headcount reduction appears to be a zero-cost option? Not really. In most developed nations, letting employees go involves severance pay, benefits, legal fees, and other upfront costs, which are not insignificant.
Companies probably prefer to slash headcount because it’s a virtually zero-risk – though not zero-cost – route to cost reduction. They pay out the upfront costs, the employee costs automatically come down from the following month.
On the other hand, when it comes to technology, before they can realize the promised cost reduction, customers have to navigate a plethora of risks around choice of vendor, appropriateness of the technology for their circumstance as well as a host of uncertainties around project success and extent of end user adoption of the new technology.
It is perhaps to mitigate the risks arising from these uncertainties and thereby boost the effectiveness of their pitches that a few technology vendors are recently trying out a new and novel approach. Under this approach, Infosys and a couple of other vendors build the technology at no upfront cost and recover their investments by charging ongoing transaction fees to their customers. By doing so, the vendors take on most of the risks and effectively let customers enjoy cost reduction “on a tap”.
On the face of it, this approach might seem akin to the subscription model offered by SaaS and cloud-computing vendors. But, that’s not so: With SaaS, the vendor owns the application cloud and provisions it for use by multiple customers without too much customer-specific functionality for any given customer. Whereas, in the new approach, the vendor builds a new, highly-customized application for each customer that is not only owned by the customer but is also difficult to extend to another customer for contractual, if not functional, reasons.