Firms tightly control costs to weather the storm

When the world around you is collapsing in terms of orders and pipeline business the most obvious reaction is to turn the focus internally to wrestle with the costs that you can at least control.

When the world around you is collapsing in terms of orders and pipeline business the most obvious reaction is to turn the focus internally to wrestle with the costs that you can at least control.

So it was no surprise to hear numerous channel players announce budget cuts, staff layoffs and a scrutiny on the travel and expenses budget that was aimed to rake back millions. All the big names used financial result filings as the chance to make those sorts of announcements promising the investment community that it would deliver results.

SAP was among the first to start with a recruitment freeze and a tightening of travel budgets. That freeze remains but it is at least now keeping its workforce stable, looking to bring in fresh blood when existing employees leave. But the German vendor was not alone and plenty of others also made moves to react to the worst recession in recent decades.

Several months after the first wave of cost-cutting declarations, they are producing savings and helping to restore faith in the tech sector among the analysts and investment communities.

Two fresh examples are worth looking at in greater depth because they show not only the ambition on the cost control front but also the sort of results that can be achieved. In the past two weeks both Computacenter and Dell have reported numbers for the half year and second quarter respectively.

Computacenter has been turning the screw on its costs and managed to shave off £13m in sales and administration costs in the first six months of the year. During that period it has also seen a growth in the services side of its business, showing the way it is heading as the market comes out of recession.

"Computacenter made strong progress in the first half of the year, reflecting success in sharpening our focus on cost reduction, growth in contractual services and exiting from businesses that use capital inefficiently," said Mike Norris, chief executive of Computacenter.

Norris added that the pipeline was looking positive and it was optimistic about the future, but in terms of giving the market some good news right now the cost reduction programme featured heavily.

Over at Dell it was a similar picture. The numbers might be larger but the aim is the same, to use its considerable financial nous to influence factors under its control and get itself positioned to weather the economic storm. It also aims to create a leaner company able to take advantage of the inevitable upturn, which its senior management believe will arrive next year.

Dell launched a $4bn cost initiative last year aimed at reducing waste and improving its production processes. In its results it revealed 70% of its total product volume had been redesigned and optimised as part of that process.

"We have been reducing complexity in our organisation and significantly lowering operating costs, in anticipation of improvement in the global economy and IT spending," said Dell CEO Michael Dell.

The emphasis on costs was echoed by Brian Gladden, Dell's CFO: "This quarter again demonstrates the discipline with which we are managing our business and further strengthening our balance sheet. The best path for Dell remains one focused on profitable growth, lower costs and smart use of working capital."

Controlling costs might appear to be the sort of housekeeping most companies keep between themselves and their account departments. But in the current climate the option of not being seen to react to the current climate is not a serious one for a tech sector keen to stress it is able to overcome the present difficulties.

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