Be Different or be dead

February 11, 2012

5 proven ways to cut cost without hurting service

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5 proven ways to cut cost without hurting service.

Don’t fall victim to reducing costs and, as a result, killing your business.

If you have to take costs out of your organization, follow these 5 steps to ensure that you are better off after costs have been taken out.

1. Renew your business plan — Cost cutting in any organization should be preceded by a review of your overall strategy. If your margins are suffering, take a step back and renew the path you are currently on.

General across-the-board cost reduction in the context of a strategy that isn’t working could reduce performance further.

2. Determine your new cost envelope — To effectively reduce operating expenses, you need an objective. What should your expense base be given where you expect revenues to be and what margin would you be satisfied with? Cost = Revenue - Profit.

For example, if you expect revenues to fall to $100 but you expect a 25% margin, then all your operating costs can be no higher than $75. If current costs are $150, you have your work cut out for you!

3. Modify business processes — With a reduced cost envelope, look for opportunities to simplify your business processes. Taking costs out of the business without changing HOW you operate is a recipe for disaster as it generally negatively impacts how customers are served.

4. Simplify your organization structure — The flow goes like this: strategy -> process -> structure. Create your strategy; deliver it through simple business processes and then look for the appropriate structure to organize and apply scarce human resources.

A rich source of expense reduction after process change benefits have been extracted is your structure. Simplify it. Remove levels to get the senior ranks closer to the customer.

Remove ‘ion’ positions: co-ordination, liasion and so on. Keep the positions that drive output.

5. Cut the CRAP — Shed all the things you are doing that are no longer relevant to your renewed direction.

Consider crap candidates such as low value customers, unprofitable products, mass advertising and long terms projects that can be postponed.
Assign a Cut the CRAP champion to eliminate costs and give them a non-negotiable mandate to take a knife to irrelevant stuff.

If costs don’t serve customers directly, take them out!

Put the customer in the driver’s seat. Question all costs that can’t be linked to a customer deliverable.

Cheers,
Roy
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• Posted 2.11.12 at 07:55 am by Roy Osing
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