Several factors—including AI adoption, investor expectations, and the rise of a new generation of innovative upstart companies—have driven a renewed focus on efficiency in every industry. But organizations that attempt to improve operational efficiency and drive profits via layoffs and short-term cost-cutting often end up hurting the business in the long run. 

Leading businesses are working to build a more sustainable cost model for the future, in large part by streamlining their IT operations and eliminating inefficiencies. In this article, we’ll explore the hidden risks of cost-cutting and share real-world stories from companies that have created a sustainable cost structure by investing in operational excellence.

Cost-cutting is a short-term “solution”

Companies looking to manage budgets and decrease overall spend commonly turn to cost-cutting. Reducing headcount and freezing strategic investments are ways that an organization can make rapid, clear reductions in spend. 

However, this approach to streamlining operations may address cashflow issues in the short term at the cost of the long-term health of the business. Some unintended effects of these actions include:

• Loss of institutional knowledge: Employees frequently have knowledge of corporate processes and systems that aren’t recorded in official documentation. A layoff may destroy critical institutional knowledge, putting the company at risk or forcing expensive remediation.
• Reduced operational capacity: Broad, untargeted layoffs will eliminate employees playing a vital role in the company. With lower headcount and the same overall workload, some tasks will go incomplete.
• Decreased competitiveness: Freezing strategic investments means that the company isn’t growing or taking advantage of new technology. Competitors who refine their processes or expand their capabilities may take market share as a result.
• Degraded resiliency: Layoffs and frozen investments both decrease operational resiliency by eliminating key personnel or cancelling vital upgrades. As a result, companies are more at risk of a damaging and expensive incident.

For many organizations, the ultimate cost of short-term cuts far outweighs their short-term benefits. According to our data, a minute of downtime costs $4,537. That downtime might have been preventable by retaining a vital employee or making a strategic operational investment at a fraction of the cost. Instead of chasing short-term gains, IT leaders should look to reduce long-term spend via strategic investments in operational efficiency and automation.

How top companies address key cost drivers

Improved efficiency means doing more with less, not accepting a lower standard of accomplishment. Leading organizations have embraced new technologies and redesigned processes to address the biggest causes of operational inefficiencies in their IT environments.

Automating manual processes

Manual processes and redundant tasks are a significant contributor to operational inefficiency. On average, engineering teams waste about 23% of their time on low-value, trivial tasks that could easily be automated or eliminated.

Strategic use of automation, orchestration, and AI can reduce the load on personnel and enable them to focus on writing code and bringing value to the business. For example, using automated scripts to deploy and configure development environments can reduce operational overhead, critical errors, and wasted productivity.

Case study: TUI

TUI, the world’s largest integrated tourism organization, uses AI operations to reduce time-to-remediation in business-critical contexts, such as booking systems, customer service requests, and payment processes. By using the PagerDuty Operations Cloud to support incident triage and investigations, TUI fixes issues 30% faster on average. For situations involving known scenarios where an auto-remediation script is available, time-to-remediation is reduced by 90%.

Enhancing IT integration

An organization’s overall IT operations function may be broken up into several independent teams, such as operations, development, and security. Poor integration and communication between these teams can impede decision-making and key actions during a security incident, where all of these play a key role.

Companies can address these potential challenges by developing processes and solutions to bridge the gap between these areas of the business. For example, defining clear processes and automated solutions to route inquiries and requests to the appropriate SME can reduce the time required to address an incident affecting a particular component of an organization’s IT environment.

Case study: TD Bank

TD Bank, one of the largest banks in North America, uses PagerDuty AIOps to enhance the efficiency and effectiveness of its operations center. When a potential incident is identified, it is automatically routed to the appropriate team while keeping the operations center informed of its current status. By eliminating the middleman, TD Bank has reduced load on its operations center and decreased time-to-response for customer-impacting events by 25%.

Preventing potential incidents

Security and IT programs often operate with a reactive mindset. Once signs of a potential service outage, cyberattack, or other incident are detected, the team takes action to investigate and remediate the issue. However, this incurs significant costs in terms of downtime and brand reputation as the company and customers wait for normal operations to be restored.

Leveraging automation and agentic AI enables organizations to significantly decrease the incidence, duration, and cost of IT and security incidents. Predictive AI agents can monitor the organization’s environment and detect signs of an impending incident, allowing support personnel to take action before it escalates.

Case study: Vodafone

Vodafone leverages PagerDuty to identify and prevent potential customer-impacting issues in its infrastructure. Using historical data from past incidents and real-time telemetry, the system detects potential issues in their early stages. By enabling rapid remediation, AI operations reduces the load on support teams, the risk of downtime, and the potential for poor customer experiences.

Solution consolidation

Complex IT and security architectures introduce opportunity costs and reduce operational resiliency. As IT environments grow more complex, it is more difficult for support personnel to investigate, understand, and address a potential incident. Additionally, complex infrastructures often mask technical debt, which can negatively impact operational resiliency.

Organizations that proactively work to streamline their business processes and reduce potential sources of technical debt reduce inefficiency and the risk of potential incidents. Identifying and replacing manual processes with automation for key workloads reduces the time required to complete them, the risk of significant errors, and workload on key personnel. For example, when provisioning cloud-based resources, automated scripts allow systems to be spun up more quickly and ensure that they are appropriately configured.

Case study: NYSE

The NYSE processes over 750 billion messages each day, and delays in trade completion can negatively impact the customer’s experience and ability to take advantage of opportunities. By using the PagerDuty Operations Cloud to simplify infrastructure monitoring and incident response, the NYSE has been able to enhance operational resiliency and reduce the time taken to process trades by half. This was made possible by ensuring that its personnel had access to the right solutions and could use AI and automation to reduce workloads and focus attention where it was most needed.

Reaping the benefits of operational excellence

Technological advancements, such as the rise of agentic AI, have offered new opportunities for companies to enhance operational efficiency. With the ability to intelligently automate various tasks and processes, organizations can focus attention and human personnel where they provide the greatest value to the business. These changes reduce long-term operational expenditures and allow resources to be reallocated to other tasks.

By refocusing on eliminating sources of operational inefficiency, businesses can also gain a significant competitive advantage in the marketplace. Well-defined, automated processes and comprehensive visibility enable the organization to adapt rapidly to potential issues and opportunities alike.

PagerDuty has over a decade of experience in developing AI systems to solve major business challenges and enhance operational efficiency. To explore the potential benefits of PagerDuty for your organization, sign up for a free demo.