Are Your Cost Reduction Measures Enough for Long-Term Survival?
By Georgia Price, Business Consultant, BJSS
Every company in the world contends with two main issues…
How to maximise revenue and keep expenditure low, all the while maintaining service or product quality.
With the turbulent events of the last year, where many organisations lost their main revenue stream overnight, keeping expenditure low became even more important. 2020 Gartner research indicates that “96% of finance leaders took cost reduction measures by June”. Furthermore, over 828,000 jobs were lost in the UK, with an additional 9.9 million placed on the government furlough scheme.
While these tactical, short-term cost cutting actions were necessary to stay afloat, these measures are not sustainable for prolonged business operation and growth – especially with still so many unknowns around what a post-Covid “new normal” will look like. As organisations look to recover, they should instead consider implementing more overarching strategies to optimise, rather than simply reduce, costs. Delivering these changes in a way that allows them to stay flexible and adapt to the everchanging circumstances will also be vital.
At BJSS, from our experience supporting clients, we believe there are three approaches organisations can take to optimise costs sustainably. Details of these approaches are outlined at a high-level in this article. Further insights, including practical steps organisations can follow, can be found in our white paper Don’t Just Survive, Thrive: Optimising Costs to Perform During Uncertainty.
1. Implement an adaptive strategy
An organisations’ strategy should be the compass by which all decisions, especially those related to costs, are made. As strategies tend to be designed with general knowns of the industry in mind, the widespread disruption caused by the pandemic meant that many businesses found themselves left with strategies that were no longer relevant to the current landscape. Expensive strategic initiatives had to be paused or abandoned, and organisations lacked the direction required to be able to adapt and respond.
To recover, organisations in this situation have the opportunity to implement a new, adaptive strategy that is developed iteratively and delivered incrementally. Adaptive strategies incorporate many familiar elements to previous strategies, such as core visions, KPIs, and business goals. However, they grow with the changing nature of the market and allow for periodic adjustments to ensure the impact of any disruption is minimised and can be incorporated into strategies faster than the traditional formulation model.
In terms of costs, taking this approach will allow organisations to identify “the next best action” to optimise costs in a way that is in line with strategy and won’t hamper competitive advantage in an unforeseen way further down the line.
2. Adapt The Operating Model
An organisation’s operating model is the link between strategy and delivering value. It’s therefore important to remember that reviewing an organisation’s operating model to optimise costs is not a euphemism for making redundancies. Cutting headcount indiscriminately will not help an organisation prepare for the future. Instead, it is an opportunity to identify ways to reduce fixed costs while maximising productivity to grow and maintain profitability.
The significant shift to digital we’ve seen in the last year, alongside rapid headcount reductions and, for some companies, rapid growth, all affect an organisation’s operating model. Taking the opportunity to review existing structures, technologies, and capabilities to ensure they are aligned with strategy, and the current landscape the organisation is operating, will reveal great efficiencies in the process. Additionally, ensuring the organisational design and operating model is flexible enough to pivot in response to the continued uncertainty will help avoid the expensive quick fixes or reduction in productivity some organisations have experienced this year.
3. Streamline Process
Sitting beneath the strategy and operating model are the business processes, people and technology required to support them. Identifying areas to streamline processes or introduce automation is a great option to reduce costs while optimising performance. Again, in the context of the quick fixes made by many organisations to cope with the changes this year, it is likely that the processes behind these fixes can be re-looked at to identify areas to reduce waste now the dust has settled slightly.
It’s important to remember that process improvements should not be a one-off initiative but a cycle of continuous activity that involves identifying areas that can be improved, executing this incrementally and collecting and analysing feedback to adapt future improvements, as required.
make changes last
As organisations look to optimise, rather than just cut, costs, making improvements to processes and reviewing the strategy and operating model are vital areas to focus efforts. However, it’s important to remember that realising and sustaining the full benefits from these initiatives by achieving a culture of continuous improvement requires high stakeholder and employee buy-in and engagement. This can be particularly hard when cost optimisation is the goal.
Initiatives related to reducing costs in an organisation can trigger high levels of anxiety from staff, especially since budget cuts and headcount reduction have been a key aspect of the pandemic. While there may be high resistance to changes, effective change management that focuses on the impact on employees can help ensure new measures are implemented successfully without reducing productivity or increasing workplace stress. A clear vision, frequent communication and ensuring teams have the tools, resources, and skills to succeed in the new ways of working are key to getting this right.
Research by Gartner found that “companies that outpace their peers in long-term profitable growth sustain operating cost savings for 40% longer than competitors” which suggests this effort pays off. So, the only question left to ask is has your organisation done enough to lead the way or will you fall behind?
Read our white paper to find out the steps your organisation can take to optimise costs to lead the way. Don’t Just Survive, Thrive: Optimising Costs to Perform During Uncertainty is available to download now.