How to Make the Most of Your Back Office: Cost Cutting Strategies

When times get difficult and sales are falling, companies often make back office cuts in departments that provide support. Departments that usually face these cuts are finance, human resources and other cost centers that don’t directly generate revenue.

However, a recently study conducted by Bain found alternatives to support center cuts can actually be more effective. This study examined 37 companies in a variety of industries and found that reconfiguring support services and trimming, instead of cutting costs, is a more effective strategy to recovering from falling sales.

Evaluating Department Activities
When trimming costs, managers need to work together to identify which activities aren’t essential. Focus on keeping the activities that are adding the most value to customers, and cut activities that have less impact.

This task will require managers to carefully evaluate the steps involved in each process. For example, human resources may evaluate the recruiting process and find that applicant information is entered in two different places. Consolidating that information into the same database reduces inefficiencies, freeing up additional time and saving costs.

Implementing Department Accountability
If a specific business unit is incurring large expenses from items such as ordering reports - change the way the money is budgeted. For example, the department may have to take those costs directly out of their budget instead of a general cost center. This will encourage the department manager to generate guidelines for ordering reports, which effectively cuts out non-essential ordering costs.

Automating Tasks
When trimming expenses, evaluate opportunities for automating back office tasks. Implementing Customer Relationship Management (CRM) software may allow your sales force to operate quicker and generate faster quotes. This will also enhance customer satisfaction and reduce the amount of time spent generating sales quotes. Have managers work diligently to identify these cost saving opportunities.

Cutting Expenses
When companies examine expenses, they often find areas for improvement. For example, regulating hotel and travel expenses more carefully can save the company money and cut down on wasted resources.

Restructuring Departments
When evaluating each business unit’s tasks, it often makes sense to restructure the entire department. For example, a company that operates in five states might have a marketing department in each state. After careful analysis, senior managers might discover that consolidating the department into a regional office will save resources and positively impact the bottom line.

Outsourcing Business Functions
Before outsourcing, make sure to invest time in weighing the costs and benefits. Evaluate how the decision will affect the customer experience. This is especially true when outsourcing customer service functions. If customers are disappointed with the outsourcing result, it can decrease sales, which leads to decreased profit.

Implementing these cost-saving strategies can minimize the amount of employee cuts and make a company more efficient. And when business starts to pick up again, the company will be positioned better for increased growth and profits.

Resource:Paul Rogers and Herman Sawnz. “How to Make the Most of your Back Office.” Results Brief Newsletter.

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.