Technology optimizations can bring major improvements to EBITDA. In some cases, the optimizations can bring be as significant double digits to the spending and increase profitability. While important for any company, cost optimizations can be critical to an investor trying to create value.
This blog outlines the largest areas for margin improvement potential, but the details on how to address the challenges are out of scope. The focus is on the questions to ask.
There are limits to efficiency, however; 100% efficiency can be harmful to an organization if not enough slack is available to ensure the organization can improve and innovate.
The Top 6 Common Areas For Cost Optimizations
Legacy Architecture and Technical Debt
Outsourcing and Nearshoring
Poor Planning and Quality Product
Immature SDLC, Security, and Agility
Missing Key Roles and Inefficiencies
Unrationalized Collaboration Tools
Top prioritized list of questions to ask and areas to evaluate for costs savings impact
Legacy Architecture and Technical Debt
Large technical debt or legacy slows down development and incurs higher costs.
SaaS vs. on-premise deployment can significantly reduce costs.
Inefficient architecture that cannot scale carries a high cost to maintain and deploy.
Weak transformation or choosing the wrong modernization strategies.
Limited components and library sharing increase the cost of development.
The lack of appropriate off-the-shelf components usage limits the ability to leverage.
A lack of modern and healthy APIs can increase development costs.
Lack of awareness of open source licensing can lead to loss of IP ownership.
Outsourcing and Nearshoring
Unrationalized excessive development center distribution with limited efficiencies.
The wrong outsourcing strategy incurs poor quality and high costs.
Underutilized development centers' capacity.
Poor Planning and Quality Product
Building the wrong market use cases increases waste, unused features, and code.
Inability to experiment and add new features and innovations.
Limited portfolio planning, ability to share resources and components.
Immature SDLC, Security, and Agility
Using a waterfall vs. an efficient, agile execution impacts product quality and costs.
Lack of test and DevOps automation increases error-prone manual effort costs.
Inability to locate, hire and attract talent limits the ability for expansion.
A limited continuous improvement mindset restricts team from creative cost savings.
Lack of use of KPIs metrics and monitoring automation limits cost savings insights.
Missing Key Roles and Inefficiencies
Missing key roles and limited ability to advance development or quality efforts.
Missing specific skillset to advance a specific initiative.
Overwhelmed resources and leadership are unable to manage needs.
Underutilized resources capacity
Unrationalized Collaboration Tools
Lack of use and inability to explore modern tools to increase efficiencies.
The inability to share data between tools increases manual error-prone efforts.
Lack of dashboards hinders the ability for proper decision-making with insights.
About the Author
Hazem has been in the software and M&A industry for over 26 years. As a managing partner at RingStone, he works with private equity firms globally in an advisory capacity. Before RingStone, Hazem built and managed a global consultancy, coached high-profile executives, and conducted technical due diligence in hundreds of deals and transformation strategies. He spent 18 years at Microsoft in software development, incubations, M&A, and cross-company transformation initiatives. Before Microsoft, Hazem built several businesses with successful exits, namely in e-commerce, software, hospitality, and manufacturing. A multidisciplinary background in computer engineering, biological sciences, and business with a career spanning a global stage in the US, UK, and broadly across Europe, Russia, and Africa. He is a sought-after public speaker and mentor in software, M&A, innovation, and transformations. Contact Hazem at hazem@ringstonetech.com.