In the years of plenty, it’s the furthest thing from anyone’s mind. We happily expand our companies, invest our excess and reward our employees generously. But in this economic climate, cost cutting is a painful reality. You might be given a mandate to shave off 10% of costs. Or the business might be facing more serious issues, and have to look at reducing cash outlay by 30%.
Either way, it helps to have some creative ideas to get the process going. Business consultants Kevin, Shawn and Edward Coyne shared some of their insights around cost cutting in the Harvard Business Review, based on years of experience. We’ve found and simplified some of our favourites, combining them with our own suggestions.
Cost cutting tip 1: Look for ways to combine incidental costs. If you’ve already trimmed away a lot of the “nice-to-haves”, such as free smoothies on Fridays, free tickets to events and weekends away for strategy sessions then, suggest the Coynes, don’t try to shave away any more – you probably can’t. Side note: Taking things to the extreme, such as telling your employees they need to bring their own coffee or that you are removing all the plants from the office building will likely produce anger and backlash amongst staff (we’re talking from experience here, we’ve seen this happen). So instead, “consolidate what’s left of the incidentals,” they advise.
“Combine activities like training days and celebrations into single events. Combine events across multiple departments. Cross-schedule the use of outside resources, such as facilities or trainers. You’ll be surprised at the opportunities. For example, one university determined that Parents’ Weekend and Homecoming were both far too valuable to eliminate—but found that it could save close to 40% of the combined cost by holding the two events on the same weekend.”
Cost cutting tip 2: Reduce spending on departmental management. Ouch. That could be painful for some of us, either because it affects us directly, or it affects our relationship with people we need to deal with regularly. But if cost cutting is your mission, it’s an important factor to look at.
According to the HBR, most administrative departments (particularly those with more than 20 employees) use as much as 20% of their budgets to supervise and coordinate their own activities.
On this point, the Coynes advise that you determine which departments are performing the same functions that they were a year ago. Those who fit this description do not need the same level of supervision as they did some time back.
“As a rule of thumb, you should be able to reduce the number of hours devoted to supervision by about 10% in each year that the department’s duties remain largely unchanged, as long as there has been little turnover,” said the Coynes. “But to gain value from this reduction, you must increase the individual contributions required of the supervisors.”
So, your mandate is to redefine the roles of those supervisors: they can spend less time supervising, but now they might be given a revenue target to meet, or a new business development goal.
Cost cutting tip 3: Re-look at old cost cutting ideas. Take a look at your past three budget cycles. Invite each department to do the same, with a single purpose in mind: you’re looking for previous suggestions that were made, either around cost cutting or enhancing productivity. Often times, a suggestion may have involved a small capital outlay with the expected productivity to be greatly increased.
Now is the time to revisit these ideas. Something that wasn’t suitable a few years back may now be just the thing you need to implement to stay within budget.
Cost cutting is never a fun exercise, and most business leaders – financial professionals included – might face a mind block around the process, because of its negative connotations. Sometimes it helps to bring in some external influence and creativity to either start or oversee things. Contact The Finance Team to find out how one of our associates can assist you in reaching your cost cutting goals.