Balancing cost and quality is a puzzle that no organization has been able to rule over. The intended trend is to reduce the cost and increase the quality. It’s like going to a car showroom and expecting to buy an Audi at a price lesser than that of a Camry. It just does not happen, yet companies strive to achieve this task of impossibility.
Companies must cost their services competitively in order to survive in this cut-throat market. Customers look at the costs first and then peep into the rest of the features next. So, it is imperative that the cost quotient remains at par with the market.
To state an example for the cost of services, your cell phone plan will tell you exactly how many minutes you get in a month and how much internet you could use during the same period. Any extra consumption will be charged according to a rate chart which is shared with you before you buy the service.
Companies that are hell-bent on reducing costs end up sacrificing quality for their own temporary performance showcase. They tend to do the bare minimums and haggle with the customer over petty matters. As you would expect, the customer would not be too pleased with IT, and the rating goes down. It’s like when you go to a Mexican restaurant, the tortilla chips that you get to enjoy free of cost gives you more pleasure than the fajita burritos you pay for. The little extra thing they offer makes our lunch complete. Customer satisfaction rating generally goes through the roof. What if the Mexican restaurant decides to cut costs and not offer the free chips? Would you be as happy as you were earlier? Would you go back to the restaurant? You know the answer. Likewise, an IT company into cutting costs will lose customers eventually.
What is possible though is increasing quality by investing more and over a period of time, cashing in on the capital investment made – in business language – realizing the return on investment. To state an example, let’s say an IT organization provides web services to a customer. Every time the end user loses or forgets the password, the user would call in the IT organization and have it reset. To improve the service, and the overall quality, the IT organization introduced a web self-help system where users can reset their own passwords.
The cost of this solution was huge. But, it ensured that the IT organization can afford to reduce the headcount of its employees, and over a period of time, they were able to break even. And beyond the break-even point, the company was able to make increased profits due to a better quality of service. It was a win-win situation as the IT organization was making more money than earlier and users were able to reset the passwords at their whims and fancy. They didn’t have to wait in line for the service desk agent to answer the call and go through the motions of getting a ticket logged.
On the other side of the spectrum, there are IT organizations that are far too much into quality. They live by their quality principles and give utmost importance to quality improvements over everything else. Quality is absolutely necessary for every IT service but the level of quality differs from one service to another. We cannot pinpoint a quality threshold for certain types of services. For example, if an IT organization is providing IT service to a space shuttle carrying 300 passengers, you would want the quality to be as close to 100% as possible. And, for an IT service like providing text messaging on cell phones, the quality factor can compromise up to a certain extent – say 90%.
To reiterate, every IT service will demand a different quality level. The skill is to identify the required level and achieve it at minimal cost. Thereby reaching the point of optimization. Reaching for high quality has its pitfalls too. The most common one is the inflated cost of quality improvement. The IT organization ends up spending more on the quality than its coffers can afford. They start getting beaten on the profits, and this company is likely to go bankrupt despite having excellent quality credentials. Like I mentioned earlier, the idea is to reach the optimum level and leave it at that.
Stating an example, while customers expected better prices from their cell phone company, they expect much better quality. They want value for the money they are paying. So, an IT organization is expected to provide quality. But what is quality? The customer defines how quality looks and feels like. Going back to the example of the cell phone company, the customer will expect the cell phone service provider to spread the coverage wherever the customer goes, the customer expects no calls to be dropped and probably expect to have high-speed internet across all coverage areas.
There are IT organizations that venture too much into the forbidden forest called as quality. What they don’t realize is that if the customer’s specifications are met, then that conforms to the quality conformance. Going beyond the customer’s specifications results in inflated costs. The IT organization ends up spending more on the quality than its coffers can afford. They start getting beaten on the profits, and this company is likely to go bankrupt despite having excellent quality credentials.
Am I saying that quality is not necessary? Absolutely not. It is extremely important. But, it needs to be set by the customer, and the cost of the service must be dependent on the quality offered. Why are some products more expensive than the others even though they offer the same set of features? Quality. Period.
So, in effect, an IT company into cutting costs is most likely cutting down the quality of service they offer. And the company that delivers high quality is probably not making too many profits. The balance is to stay in between.
The graph throws light on how the cost increases as the quality gets better.
Cost is depicted on the y-axis while quality is on the x-axis.
Initially, when you start bringing in quality improvements, the cost to implement is reasonable. Say increasing availability from 30% to 70% may work out economically. You will find that as you progress in quality, costs escalate quickly. For example, if you want to improve the availability of the system from 70% to 90%, you may be looking at a cost in excess of what you spent on improving from 30% to 70%. Well, beyond 90%, for every percentage increase, you might end up spending the same as from 70% to 90%. As you move up the quality ladder, if you want to improve availability from 99.8% to 99.9%, you might end up spending a fortune.
Well, you need to find the plateau as illustrated in the graph which is the region of optimum cost and quality. This is the balance we are looking to achieve in order to stay competitive in the market and financially viable.