Situation
SoftwareCo wanted to maximize its investment in new projects within a relatively short timeframe, six to 18 months. The business was strong and growing, so savings initiatives focused on reinventing how work gets done, while being careful not to reduce capacity. Previous efforts to trim costs had limited success, so the leadership team turned to Bain and our highly effective “Software Playbook,” which identifies nearly 20 specific opportunities for driving productivity and getting cost out within technology companies.
SoftwareCo faced several challenges in realizing its ambition. First, several of its planned initiatives required significant upfront investment, so it was important to quickly identify opportunities for substantial savings. Work processes, particularly in engineering, needed to become leaner, but without diminishing overall capacity. As with many software companies, procurement capabilities lagged. And, the company needed to adopt a new re-investment mindset: Savings would flow into a shared funding pool, rather than each department “owning” its savings.
Bain brought substantial expertise to the engagement, including its Software Value Creation methodology. A fast-paced 10-week diagnostic period enabled the Bain team to identify five especially promising areas in which SoftwareCo could find the savings it needed. That was followed by a 12-week design phase that focused on improving and streamlining operations—and redirecting savings to the shared fund pool. Within one year, Bain helped the company redirect approximately 10% of operating expenses (OpEx) into high-priority projects.
Recommendations
SoftwareCo and Bain quickly developed a close and effective working relationship rooted in trust and transparency, which culminated in the following recommendations and key actions.
- Reinvent engineering workflows and tools. Bain was able to free engineering resources that were being squandered on duplicating non-differentiating work and redirect them to focus on strategic priorities. The team also developed a new productivity analysis to create visibility into activity, monitor key analytics and ensure continued efficiency.
- Spend wisely. Better procurement management typically helps technology companies realize 8% to 12% savings, and is often undermanaged in software businesses, where the spend is mainly indirect costs. Bain worked with the client to enable greater spend transparency across the business and assessed its spending using external benchmarks. Bain’s Buy Better + Spend Better® procurement savings approach reduced costs in areas ranging from supplies to marketing to temporary staffing
- Simplify the organization. In fast-growing companies, rapid expansion often shifts the culture to a “get it done” approach, rather than “get it done efficiently.” Bain helped SoftwareCo take a fresh look at its organizational structure to reduce overlapping capabilities; increase work spans, where applicable; and manage titles and pay grades, especially for senior leadership. The team helped eliminate bloat and unnecessary workflow, resulting in improved efficiency without sacrificing work capability, an essential consideration given the growth that reinvestment was expected to generate.
- Make customer care more efficient. Call centers are critical for software companies, but they’re expensive. Bain knew that call volume can be significantly reduced by addressing common issues in other ways: improving web-based self-help options, training call center employees so that fewer calls need to be transferred, and enhancing the skills of those call center reps whose productivity lags. Such measures will enable SoftwareCo to reduce these costs by 25%, without diminishing service quality.
- Improve site strategy. Technology companies often suffer significant productivity loss due to an ad hoc approach to site selection that leaves critical talent resources too dispersed. Bain conducted a rigorous site management overhaul to create a cohesive site strategy that both lowered location costs and improved productivity. Bain worked with SoftwareCo to develop a benchmarking tool for site evaluation that assesses talent costs, local conditions, col-location needs, vertical versus horizontal resource pooling, and other factors.
Results
Bain’s Software Playbook and associated industry expertise helped SoftwareCo identify savings across its business. The company was able to:
- Identify approximately 10% in cost savings that was committed to re-investment within the first year, as well as ~30% of “full potential” savings by the third year
- Re-invest in six opportunity areas to drive innovation and growth, while boosting the productivity potential of engineering by 2x-3x
- Establish a Results Delivery® Office to guide opportunities, connect leadership to initiatives, identify additional cost-savings areas, and enable leaders and teams to sustain these efforts for many years to come
* We take our clients' confidentiality seriously. While we've changed their names, the results are real.
