The current economic recession has been a wake-up call for many businesses – and an imperative for others – to review efficiency.
The key to sustainable improvement is to agree the future business model and to then re-align business processes and resources. But cost reduction is not as simple as adjusting resources to match volume changes. There are many aspects to be assessed before changes are made.
For many, there are still ‘big ticket’ savings to be had. For others, the days of identifying ‘low hanging fruit’ have passed. Incremental improvements that do not require capital expenditure are now often central to change initiatives, for example:
• Avoiding duplication of effort through clear allocation of roles & responsibilities
• Implementing suitable team structures
• Standardising, simplifying processes to optimise synergies across the business
• Having the right measures / targets in place
• Eliminating ‘work arounds’
• Amending policies, controls, terms of business that drive cost into the organisation
• Assessing operating strategies by identifying customer and product profitability
• Limiting discretionary spend
• Adjusting service levels to reduce cost
Whatever the changes, doing too much too soon can lead to long term problems, such as shortage of capacity and skills. So which areas should you target?
Companies should establish their current and ideal Corporate Body Mass Index (CBMI), by assessing nine areas: people and organisation, productivity and processes, policy, procurement and grants, property, pay, projects and discretionary spend, and provisions and working capital.
A thorough but rapid assessment against these criteria can identify if your company’s CBMI is healthy, which areas need attention, and what ‘weight saving’ opportunities exist. An appropriate approach will identify significant opportunities without damaging longer term prospects.
The plan to achieve the ideal CBMI will need to deliver sustainable results, be self-funding, and result in a lean yet fit-for-purpose business. To implement a successful cost reduction exercise, businesses must consider the following:
• Be clear about quick wins vs. future competitiveness
• Ensure saving targets are not just communicated top down
• Get management buy in and share with stakeholders
• Create a winning team
• Have the right progress measures in place
Cost reduction projects are currently top of many company agendas. They can deliver a rapid return, minimise the recession’s impact, and position companies for profitable growth in the upturn. However, when projects are not well planned, communicated or do not deliver sustainable change, they can endanger a company’s short term survival and its long term health.
Andy Schaer is Director responsible for cost reduction services at Ineum, a strategy, organisation and information systems consulting company. If you’d like to know how your organisation rates on the Corporate BMI scale, email him at firstname.lastname@example.org.