In turbulent economic times, companies are faced with difficult decisions; including where to cut costs. Although an executive’s first instinct may be to reduce staff, there are many options available. With a few creative strategies, your business can identify opportunities to maximize efficiency while minimize job loss.
Sustainable Cost-Cutting
Sustainable cost cutting starts with looking at your company’s organizational chart. This allows you to brainstorm what options are on the table. To accomplish this, determine which activities each business unit performs, and how these tasks are adding value to revenue production. Then, determine which activities can be streamlined or discontinued without effecting productivity or sales.
For example, evaluate the Human Resources department and determine which activities are contributing to hiring and retaining valuable employees. You might find that employees are bogged down with a cumbersome system that does not efficiently handle candidate information. Solving this issue would increase efficiency, and allow staff to concentrate on other company initiatives.
Maximize Process Efficiency
When a company grows, sometimes old processes get in the way of becoming more efficient. Identifying processes that are outdated and need an overhaul will boost your overall efficiency.
There are many options for revamping processes that are not efficient. For example, you can change which employees handle the process if the task is not appropriate for the department. Also, in some situations, you may have the option of automating the process. Automating does not just make the process faster, it frees up employee time to focus on other projects.
Another option to consider is outsourcing functions that can be achieved more efficiency than handling in-house. This can include support functions that need to be more flexible to accommodate the organization’s growth.
Balance Cost-Cutting with Growth
Cutting costs should be balanced with investing in the company’s future growth. That is because cutting costs too deeply can paralyze a company’s ability to plan for growth; jeopardizing their market position. To accomplish this, focus heavily on efficiency while simultaneously planning for future growth.
Creating Customized Solutions
Using a one-size-fits-all approach to cutting costs can hamper your company’s ability to succeed. That is because each product you produce has a unique set of customers, with individual needs.
Implement effective cost-cutting strategies by examining your customer’s priorities. If price is a priority, you will need to examine options that will drive the price down without compromising quality. If value is a factor, consider offering special discounts to loyal customers. And if quality or brand image is an issue, make sure to avoid cuts that will affect these factors.
Customizing cuts based on the customer’s needs will preserve your profits and boost productivity.
Cut Duplicate Services
As an organization grows, sometimes functions are duplicated. Identifying these areas is an important opportunity for cutting costs.
For example, you might examine back office functions to determine if two employees or business units are doing the same thing. And if so, determine how those processes can be consolidated to maximize efficiency.
And remember to always consider technology solutions when cutting duplicate services. For example, if two business units are collecting the exact same information, it would make sense to create a centralized system; minimizing the duplication of work and increasing efficiency.
Connect with Front Line Employees
Since front line employees are in direct contact with customers, it is important to carefully analyze their activities. This is because these employees have a huge impact on your company’s ability to produce revenue.
Examine how much of their time is spent selling versus completing paperwork or administrative functions. Brainstorm ways to shift more of their time to sales and less time on paperwork. This could include delegating paperwork tasks to a support person, or streamlining processes to require less paperwork.
Also, it is important to motivate employees to connect with the customer. This can be achieved with incentive programs or special recognition for a job well done.
Look for Opportunities to Increase Sales
Saving your organization money is important. But it is just one strategy in a muti-faceted approach to success. It is important to understand other opportunities for success – like making contact with customers more effective.
For example, if a customer contacts a bank call center to order checks, what other opportunities exist for that customer? You might train call center employees to discuss the benefits of receiving online statements; which saves paper and is better for the environment. This cuts the organization’s mailing costs and improves efficiency. Analyze how to make points of contact more effective and entice employees to grow business.
Even in financially difficult times, it is important to look deeper when cutting costs. Take the time to create strategies for maximizing efficiency without tabling plans for future growth. This will allow your company to save money while maximizing market share.
Resource:
Hernan Saenz and Darrell Rigbyi. “Winning in Turbulence, Streamline G&A.”
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.
Thursday, April 23, 2009
The Power of Managing Complexity: Streamlining Business in a Turbulent Economy
In difficult economic times, it is important to minimize your company’s exposure to loss. This can be accomplished by evaluating which products are making money and which processes can be simplified. Evaluating these components will allow you to determine if there is a way to streamline production and ramp up revenue potential.
Simplify Production Costs
In good economic times, companies are growing and more layers of complexity are added. However, increased complexity can create higher costs and decreased production. In addition, in a difficult economy, evaluating these areas can help your company save money.
When evaluating costs it is important to par down spending without hampering innovation. Plus, you will need to consider the benefits of staying close to important markets. That is because having operations in local markets will keep you in touch with what customers want. This is especially true during a recession when competition is fierce and being connected to your market is essential.
According to the article “Winning in Turbulence” by Mark Gottfredson and Darrell Rigby, using a Zero-Based Approach can help simplify costs. This approach suggests that you imagine a time when your company only produced a few products without all of the complexities. This will allow you to brainstorm ideas on how to simplify processes and cut out unnecessary costs.
Evaluate your Product Offerings
Although it is nice for customers to have choices, if you have a small customer base seeking a product, this might be a place to cut. This is especially true if the profit margin is narrow. Plus, expanding your product line to include too many choices may even dilute your company’s brand if the new products are not perceived well.
Evaluate How Production is Achieved
When producing products, it is most cost effective to have large runs of products; versus small batches. Although many companies do small runs for convenience, you can achieve streamlined production with a few steps. First, implement a higher order minimum for customers – which will cut down on small batches. Also, implement longer lead times on production so you can combine orders and minimize costs. You may also want to consider outsourcing production when it makes sense for your company.
Evaluate the Productivity of your Equipment
If you have a product line that has a high percentage of scrap, evaluate those costs compared to how profitable the product is. In these situations, it might be worthwhile to consider not producing those products anymore. Also, make sure that low-volume projects are not being run on equipment that is designed to run high-volume projects. Making these simple changes can increase your efficiency and profits.
Streamline Decision Making
Streamlining the decision making process can reduce costs by increasing accountability and speeding up decisions. According to the article “Winning in Turbulence” by Mark Gottfredson and Darrell Rigby, this can be achieved by making a list of how many managers a decision needs to go through before arriving at the CEO. Evaluate if there are layers in this hierarchy that can be reduced or eliminated. Making these changes can save your company substantial operating expense each year.
It is also important that managers have clear direction on how decisions should be made (with appropriate accountability). Without these components, decision-making can be disjointed and time consuming; paralyzing a company that is struggling to stay afloat in a poor economy.
Controlling Costs
As organizations become more complex, costs often become difficult to manage. Without cost accountability, your company can face serious issues in a poor economy. To enhance your company’s performance, create a system for evaluating the validity of all costs; even the small ones.
Focus on Fixing Short Term Challenges
When you are evaluating the complexity of your organization, you may find many areas that need improvement. Unfortunately, in a poor economic environment, it is not practical to fix all of these areas at once. Instead, evaluate which processes will yield the best results in the short term. This strategy will produce quicker results; helping your company weather a difficult economy. And once you have survived the hard times, you can focus on the larger issues that need attention.
Evaluate Data Collected
Having good data can help executives make decisions and plan the future of the company. However, having too much data can bog managers down and decrease productivity. To solve this problem, evaluate what data is currently collected. Then, par down the data to include only what managers need in the current economy. Also, evaluate the data collection processes to determine if there are opportunities to streamline those functions.
Managing and improving your company’s complexity can help streamline processes and improve your bottom line. Plus, you will benefit from enhanced productivity and increase revenue – which can turn your company around in a difficult economy.
Resource:
Mark Gottfredson and Darrell Rigby. “Winning in Turbulence, The Power of Managing Complexity.”
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.
Simplify Production Costs
In good economic times, companies are growing and more layers of complexity are added. However, increased complexity can create higher costs and decreased production. In addition, in a difficult economy, evaluating these areas can help your company save money.
When evaluating costs it is important to par down spending without hampering innovation. Plus, you will need to consider the benefits of staying close to important markets. That is because having operations in local markets will keep you in touch with what customers want. This is especially true during a recession when competition is fierce and being connected to your market is essential.
According to the article “Winning in Turbulence” by Mark Gottfredson and Darrell Rigby, using a Zero-Based Approach can help simplify costs. This approach suggests that you imagine a time when your company only produced a few products without all of the complexities. This will allow you to brainstorm ideas on how to simplify processes and cut out unnecessary costs.
Evaluate your Product Offerings
Although it is nice for customers to have choices, if you have a small customer base seeking a product, this might be a place to cut. This is especially true if the profit margin is narrow. Plus, expanding your product line to include too many choices may even dilute your company’s brand if the new products are not perceived well.
Evaluate How Production is Achieved
When producing products, it is most cost effective to have large runs of products; versus small batches. Although many companies do small runs for convenience, you can achieve streamlined production with a few steps. First, implement a higher order minimum for customers – which will cut down on small batches. Also, implement longer lead times on production so you can combine orders and minimize costs. You may also want to consider outsourcing production when it makes sense for your company.
Evaluate the Productivity of your Equipment
If you have a product line that has a high percentage of scrap, evaluate those costs compared to how profitable the product is. In these situations, it might be worthwhile to consider not producing those products anymore. Also, make sure that low-volume projects are not being run on equipment that is designed to run high-volume projects. Making these simple changes can increase your efficiency and profits.
Streamline Decision Making
Streamlining the decision making process can reduce costs by increasing accountability and speeding up decisions. According to the article “Winning in Turbulence” by Mark Gottfredson and Darrell Rigby, this can be achieved by making a list of how many managers a decision needs to go through before arriving at the CEO. Evaluate if there are layers in this hierarchy that can be reduced or eliminated. Making these changes can save your company substantial operating expense each year.
It is also important that managers have clear direction on how decisions should be made (with appropriate accountability). Without these components, decision-making can be disjointed and time consuming; paralyzing a company that is struggling to stay afloat in a poor economy.
Controlling Costs
As organizations become more complex, costs often become difficult to manage. Without cost accountability, your company can face serious issues in a poor economy. To enhance your company’s performance, create a system for evaluating the validity of all costs; even the small ones.
Focus on Fixing Short Term Challenges
When you are evaluating the complexity of your organization, you may find many areas that need improvement. Unfortunately, in a poor economic environment, it is not practical to fix all of these areas at once. Instead, evaluate which processes will yield the best results in the short term. This strategy will produce quicker results; helping your company weather a difficult economy. And once you have survived the hard times, you can focus on the larger issues that need attention.
Evaluate Data Collected
Having good data can help executives make decisions and plan the future of the company. However, having too much data can bog managers down and decrease productivity. To solve this problem, evaluate what data is currently collected. Then, par down the data to include only what managers need in the current economy. Also, evaluate the data collection processes to determine if there are opportunities to streamline those functions.
Managing and improving your company’s complexity can help streamline processes and improve your bottom line. Plus, you will benefit from enhanced productivity and increase revenue – which can turn your company around in a difficult economy.
Resource:
Mark Gottfredson and Darrell Rigby. “Winning in Turbulence, The Power of Managing Complexity.”
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.
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