The Perils of Penny-Pinching: Why Short-Sighted TCO Strategies are the Corporate Version of Shooting Yourself in the Foot

Total Cost of Ownership vs. Short-Term Gains

As the saying goes, “A stitch in time saves nine,” but let’s be honest, most of us have at some point opted to skip that stitch, hoping the tear would somehow fix itself.

This age-old wisdom applies perfectly to the corporate world, where the temptation to go after short-term financial gains often leads to painful long-term consequences.

In business, akin to life, focusing on immediate savings at the expense of the Total Cost of Ownership (TCO) is like buying a cheap umbrella on a windy Manila day: sooner than later, you’ll end up soaked with, what is left of your umbrella, only the handle in your hand.

Delving further into the amusing, yet costly pitfalls of prioritising short-term wins over long-term sustainability, and why, for the sake of your sanity (and balance sheet), it’s always better to take a broader view.

The Short-Term Siren Song: “It’s Cheaper Now, So Why Not?”

We’ve all been there.

The shiny new deal lands on your desk, promising to save you a small fortune upfront. Maybe it’s a budget-friendly supplier offering cut-rate materials, or perhaps a slick tech solution that promises to revolutionise your processes overnight.

Either way, the allure of immediate savings is, well, irresistibly alluring. After all, what could go wrong with a bit of belt-tightening?

Turns out; it might actually be quite a lot! As American entrepreneur Warren Buffet once said, “Price is what you Pay; Value is what you Get.” Those initial cost savings might look fantastic on this month’s P&L, but what happens when the wheels inevitably fall off in the (near) future?

Take, for instance, the classic corporate blunder of cutting corners on technology infrastructure.

Remember the early 2000s when companies thought they could save a fortune by sticking with creaky, outdated systems?

Fast forward a few years, and many were scrambling to replace their entire IT infrastructure after a catastrophic crash or cybersecurity breach.

Sure, the short-term gain was real, but the long-term cost was devastating. It’s a bit like putting a plaster on a leaky pipe: the water’s still coming, and it’s only a matter of time before the flood.

The True Cost of That Bargain Laptop: An Analogy for Business Woes

Here’s a simple analogy: buying a bargain-bin laptop.

Sure, it’s cheap, and it might handle your emails and spreadsheets for now, but try running more intensive tasks, and it wheezes like an asthmatic tortoise climbing a hill; only to start freezing at the worst possible moments, usually within a few months.

Perhaps, just as you’re presenting your company’s quarterly results to the board. Before you know it, the IT department is laughing (through gritted teeth), and you’re regretting the “bargain” you scored.

In the world of business, this type of short-sightedness is common.

Many companies cut costs where they can in areas such as training, equipment, and customer service, only to realise later that their short-term gains have turned into long-term losses.

A poorly trained workforce leads to mistakes, sub-par equipment leads to inefficiency, and under-invested customer service leads to, you guessed it, unsatisfied customers. 

These short-term wins feel great at the time, but much like that bargain laptop, they don’t tend to last long. Soon enough, we'd find ourselves back at square one, only this time with more headaches and a few unhappy shareholders (& customers) to contend with.

TCO: The True Hero (Even If It’s a Bit Boring)

The idea of Total Cost of Ownership (TCO) may not sound sexy, but it’s the unsung hero of smart business decisions. TCO considers the entire lifecycle of a product or decision, from purchase to maintenance, to eventual replacement.

It’s about seeing the full picture, understanding that the cheap route may actually be far more expensive in the long run.

Take, for example, a business that’s investing in renewable energy solutions. The upfront costs of solar panels or wind turbines might seem astronomical compared to continuing with traditional fossil fuels. However, when you consider the long-term savings in energy costs, maintenance, and the positive environmental impact, the TCO often makes it the more financially responsible choice. It’s the difference between leasing a car you can return in three years with minimal hassle, versus buying a clapped-out banger for a song and spending half your salary on repairs.

Or, as one wise old sage might say: “If you think it’s expensive to hire a professional, wait until you hire an amateur.” Indeed, businesses often overlook the importance of TCO until it’s far too late, realising the damage only after it’s been done, and often by then, the costs have snowballed.

The “Penny-Wise, Pound-Foolish” Epidemic

This brings us to that very British phrase: penny-wise, pound-foolish.

It’s the perfect way to describe a business that’s too focused on immediate savings to see the forest for the trees. Perhaps nowhere is this more visible than in the race to slash operational costs by cutting staff or trimming employee benefits. On paper, it looks like a victory!

Fewer expenses with higher profit margins.

But in practice? It's like taking the shortcut home through a field of quicksands, shorter, yes, but infinitely more tiresome, could even yield detrimental outcome if one were unlucky.

In the long term, cutting human capital costs often backfires spectacularly. You lose valuable talent, reduce morale, and a drop in productivity as result. The cost of replacing those employees, training new hires, and mopping up the mess from low engagement will outweigh any temporary savings. As the great Richard Branson famously said, “Train people well enough so they can leave, treat them well enough so they don’t want to.”

The Infrastructure Time Bomb

One of the most overlooked areas when it comes to TCO is infrastructure. Be it IT systems, machinery, or even physical buildings, infrastructure is often maintained just enough to keep things ticking over. It’s like driving a car that hasn’t had a proper service in five years. You know it’ll get you from A to B, but only if you pray to the gods of automotive engineering beforehand.

Many businesses realise too late that by not investing in the long-term maintenance and upgrading of their infrastructure, they’ve essentially created a ticking time bomb. At some point, something is bound to give; whether it’s a major server crash, a breakdown in manufacturing equipment, or a building in desperate need of renovation. And when that happens, the costs are catastrophic, far outweighing the “savings” they thought they were making.

It’s a reminder that while it’s tempting to ignore these maintenance costs, much like avoiding that awkward “check engine” light, eventually, everything catches up with you. If you’ve ever seen someone try to patch up a crumbling bridge in the tropics during monsoon, you’ll know exactly what I mean.

Balancing TCO and Short-Term Wins

So, how can businesses strike the right balance between focusing on TCO and pursuing short-term financial gains?

The key lies in strategic thinking and understanding that short-term sacrifices can sometimes lead to long-term success.

It’s about taking a breath and asking yourself: “What will this decision look like in two, five, or even ten years?”

It’s not always about avoiding short-term gains entirely either.

They indeed have their place, especially in fast-moving industries where agility is crucial.

But in the rush to meet quarterly targets, don’t lose sight of the bigger picture. Like a marathon runner pacing themselves for the long haul, businesses need to consider both the quick wins and the enduring success that comes from building something sustainable.

One way to balance the two is by aligning short-term financial goals with long-term strategic objectives, Organisational RACI per se, where organisational attributes considered instead of individuals, with regular periodical retrospective and forward-looking evaluation huddles.

Final Thoughts: A Stiff Upper Lip and Long-Term Thinking

At the end of the day, businesses who prioritise TCO are like the tortoise in that well-known fable. They may move slower, make more measured decisions, and invest in long-term solutions, but when the finish line comes into view, they’ll be the ones cruising smoothly while the hare is left nursing a hangover from too many quick wins.

So, to all the CEOs, CFOs, and business leaders out there, take it from someone who’s seen too many companies realise too late that the damage is already done: plan for the long game.

Prioritise Total Cost of Ownership, invest in your people, and remember; just because something is cheaper now doesn’t mean it won’t cost you dearly in the future.

Reflecting my years in marine related Oil & Gas upstream vertical where everything has contingency for QHSE and uninterrupted operation are paramount, i'll leave you with the following.

Don’t skimp on the anchor if you’re sailing into a storm, cheap lifeboats rarely float.

Thank you for your time and trust that you found this article useful.

Cheers.

Minn Tun

September 2024