Surface Ripples

Effective Cost Cutting - Cut What Can Be Cut

Some costs are easier to cut than others. Learn what are the “nice to have” as opposed the “must have” costs. These will depend on the individual business, its product, staff and customers. Some costs may provide the features that distinguish your business from others in the eyes of your customers and to cut these may lose an important differentiating factor.

Corporate giveaways could be a sensitive point, but they may have to go or become cheaper, along with advertising and sponsorship of non-critical events. You may be able to reduce print costs by setting up product/service brochures online and letterheads on your word processing software. Technology enables all businesses to be much more paper free than ever.

You may be able to negotiate reductions in fees or better credit terms from suppliers of goods or services. Look at finance and banking costs, along with accountancy and legal fees. Someone is usually willing to do a deal, and no one wants to lose a good paying customer in hard times (remember, you represent cash to someone else as well). Make sure that you know what’s out there and what you get before you terminate a relationship with a supplier of quality input.

You could sacrifice quality of raw materials, resulting in a lower-quality product. This may or may not be acceptable to buyers, so be aware that you may end up with increased returns of unsatisfactory goods which reduce your cash flow (and reputation) if they don’t like the new product.

Investing in new technology may mean that you can use less experienced (cheaper) staff in some jobs. However, if they need to make decisions or resolve problems for which the computer isn’t programmed, customers may become dissatisfied and look elsewhere if their problem isn’t resolved to their satisfaction. “The computer says no” is not a valid reason for poor service.

Some organisations have offshored parts or all of their process to cheaper areas. UK companies who moved their customer call centres overseas have experienced complaints that call centre staff are difficult to understand or inflexible (among others). At least one bank has moved its call centre back to the UK as a result. If you can’t keep control of the quality of a product, you lose business (and cash) in the long run. Here’s where local competitors may steal your market.

Redundancies have associated direct disadvantages such as redundancy payments and legal costs. Added to this are: costs of management time in counseling those made redundant, reduced morale of those who are left behind to manage increased workloads and potential dissatisfaction amongst customers if service levels fall or their “favourite” contact is chosen for redundancy.

Minimise potential “fallout” from cuts by communicating. Let your staff, customers, suppliers and other stakeholders (e.g. accountant, bank) know what you’re doing and why. Life will be easier if you have their support, and if times are hard, they will understand your reasons.

I recently read a fascinating book by Lara Morgan – former owner of Pacific Direct - in which she advised “cut once and cut deep”. She gives a great framework for reducing headcount in a sensitive but practical way. Her book More Balls Than Most shows how she went about it and the emotional pain it caused her.

I have spent more than half my life working in different world markets from the most developed to “emerging” economies. With more than 20 years in the world financial services industry running different service, operations and lending businesses, I started my own Performance Management Consultancy and work with individuals, small businesses, charities, quoted companies and academic institutions across the world. An international speaker, trainer, author and fund-raiser, I can be contacted by email . My website provides a full picture of my portfolio of services.

Labels: Crisis Management, Customer Care, Risk, Selling, Strategy

posted by William Martin @ 16:33