Gartner Blog Network


The Fallacy of Cost Containment

by Michael Maoz  |  November 18, 2008  |  1 Comment

One of my first jobs after university was with a commercial glass manufacturer. My first day on the job I was summoned to the office of the founder and CEO. He was a tough businessman and nobody could say they were happy to be called to his office. As it was my first day, I had nothing to lose except a job, the nature of which was still unclear. The CEO was on the phone, and I sat in the chair in front of his desk trying not to fidget while he finished barking into the phone. “Michael. That’s your name, right? Michael? I want you to go through all of the accounts receivable. I want you to dig out every unpaid invoice in this office, and I want you to go after these deadbeats, and I want my money. I don’t care how long it takes, and I don’t care how much it costs me.”

Basically, get the money regardless of cost.

Though ‘save money at all costs’ seems absurd, most businesses engage in one form or another of this practice. We outsource customer service to lower labor costs. We look at the 35 percent savings and slap ourselves on the back. When customer satisfaction erodes, or when customer defection rises, or when brand value drops, we don’t correlate the two: cost containment v driving up marketing/sales expenditures. We accept the cost cutting gains and explain away the losses in the other areas as ‘macroeconomic factors’ or ‘anecdotally related data.’

Before you outsource those precious moments of truth with the customer to the lowest bidder, think of all of the money you are pouring into marketing and sales. This is a leaky bucket. It happens when we move processes around: to web self-service, to automated kiosks, to IVR/voice response, to outbound email alerts. This is a ongoing theme in our published research.

“Look at all of the money we’ve saved, boss!!!” “Never mind, kid, we’re closing the place down. Whatever you did to get that money, I don’t want to know.” Oh well. And I thought he’d be proud of me. Just like our shareholders might not be as happy with us unless we both contain cost and maintain the quality of the interactions with our customers. Go ahead: cut costs, just not at all cost.

Category: 


Thoughts on The Fallacy of Cost Containment


  1. Jim Watson says:

    Michael, this post really resonates with me. I think of several experiences I’ve had when calling Dell customer support, and reaching an off-shore support agent, struggling with language barriers, and finally ending the call over two hours later with my problem unresolved.

    While Dell did intiailly reduce its operational costs by off-shoring some of its support centers to India, a few years later, the repurchase rates from long time customes had also been reduced, and so had the company’s profits. If a cost reduction initiative is likely to impact the customer experience, companies should take a longer and wider view of the likely impact, before pulling the trigger.



Comments are closed

Comments or opinions expressed on this blog are those of the individual contributors only, and do not necessarily represent the views of Gartner, Inc. or its management. Readers may copy and redistribute blog postings on other blogs, or otherwise for private, non-commercial or journalistic purposes, with attribution to Gartner. This content may not be used for any other purposes in any other formats or media. The content on this blog is provided on an "as-is" basis. Gartner shall not be liable for any damages whatsoever arising out of the content or use of this blog.