Moving Beyond Cost Cutting: Looking Deeper to Increase Efficiency and Preserve Growth

Faced with rising expenses, companies often focus on cost cutting initiatives. Financial institutions dealt with this issue as their business models became more complex, and operations weren’t experiencing any efficiency gains. But as financial institutions cut costs, profits suffered because of service issues. Customers became dissatisfied, with some even pulling their business altogether.

In earlier years, manufacturing companies dealt with similar issues and learned valuable lessons on how to deal with rising costs. And since financial institutions hadn’t received any gains in labor productivity since 1995, they took a hard look at strategic plans to increase profits while managing costs.

The lessons manufacturing and financial institutions learned can apply to all businesses. Companies that haven’t had much success with cost cutting may want to look deeper. Implementing a few new strategies can assist your company in increasing efficiency, growing business, and preserving your customer relationships.

Recruit Manufacturing Consultants
Since manufacturing companies have faced issues of rising complexity and managing cost, consultants who specialize in this area are a huge asset. These consultants can assist your company in taking a look at improving efficiency while managing costs.

Evaluate Current Processes
To maximize growth and income opportunity, a company needs to carefully evaluate the existing processes. Initially, don’t consider changing business unit locations or decreasing staff. Instead, consider how operation functions are carried out. This provides opportunity to identify and eliminate wasteful practices.

Focus on Streamlining Business Activities
Once you have examined which areas need improvement, you can focus on streamlining current processes. Identify steps that don’t add value and look for duplicate activities. Then create models to streamline these processes, which will make business more effective and increase productivity.

Focus on Technology
With the rapid development of new technology there are many opportunities to move towards automating processes. Any opportunities to eliminate the need to re-key data will positively impact your bottom line. Also, look at opportunities to get rid of duplicate processes.

Evaluate Business Unit Locations
After you have thoroughly evaluated business processes, it’s time to examine location. Determine what makes the most sense, in terms of where activities should occur. Once you determine the best location, maximize your productivity by mapping out a plan for the consolidation of activities. Make sure to try different scenarios and keep all options on the table, including both onshore and offshore locations. This activity will also help you understand what is driving up costs.

Identify Opportunities to Eliminate Activities
As you go through this exercise, it may become apparent that some activities aren’t needed. Identify these activities to determine what isn’t creating value. This will assist your company in optimizing existing services and decreasing unproductive areas.

Centralize Operations
Centralizing operations can be a big driver in cutting costs. You get the benefits of economies of scale while reducing your bottom line. It’s also important that your operations staff work seamlessly with other business units such as sales and marketing to maximize efficiency. This will further streamline activities and increase productivity.

Consider Creating an Internal Common Platform
If business units across the organization are using separate platforms, you may be losing out on opportunities for efficiency. Hiring an independent company to provide a common platform can make business more fluid and ramp up productivity.

Examine Opportunities to Simplify
Companies that keep complexity to a minimum can benefit from increased efficiency. This business model usually means offering a limited amount of products or services. Companies that use this strategy often have a lower cost to income ratio and operations are more efficient.

Stay Focused on Growth
Successful companies need to strike a balance between managing costs and fostering growth. Never become so focused on controlling costs that growth and customer service is sacrificed. Because growing your business is what provides long-term opportunity for increasing revenue and expanding market share.

Centralize Management
There are many benefits to centralizing management. It provides management more opportunities to work closely to control costs, provide uniform guidance and also centralizes authority. Management can also hold each other accountable for following through on managing costs and growing the company.

Analyze Cost Drivers
The final step to increasing efficiency and preserving growth is to analyze and understand cost drivers. These drivers are essential to managing and growing your business. Create a plan for managing these drivers and make sure each initiative has a defined direction.

Looking further then cutting costs can provide many opportunities in the future. Your costs will naturally decrease, with the added benefit of increased growth. But remember to invest the time in analyzing and developing your businesses while laying a solid plan for efficiency.

Resource:
Scott Cade, Robert-Jan Hagens, Caroline Moss and Muir Sanderson. “Moving Beyond Cost-Cutting.” Booz Allen and Hamilton.

Mark Jordan is the Managing Principal of VERCOR, an investment bank that creates liquidity for middle market business owners. He is the author of "Driving Business Value in an Uncertain Economy", “Selling Your Business the Easy Way”, “Enhancing Your Business Value…The Climb to the Top” and co-author of “The Business Sale…A Business Owner’s Most Perilous Expedition.” For more information, contact him at 770.399.9512 or email him.