Surface Ripples

Manage Your Costs Effectively

In hard times, businesses all look to cut costs. Some do it well; others end up “throwing the baby out with the bath water”. Why?

My experience (from watching others and myself) suggests that because of the pressure to cut costs (and fast), people risk making poorly thought-out decisions. They forget that what matters is CASH, not cost cutting. You can cut costs, but not safeguard cash flow.

Cash flow is about money in and out. You work to make sure cash comes in to pay the bills when they’re due (cash out). You maximise what comes in and minimise what goes out. Cost cutting is as much an art as a science, and cutting a cost may actually cut off the cash that it generates.

All-too often, it is left to people who may have little idea of the actual business, of what drives the true value that it gives to its customers and of what brings in the cash. Staff, services or products which, at first sight seem expensive, are cut without realising that it is these staff/services/products that may be “loss leaders” which draw customers in to purchase more value-added services/products.

So, you need to start with:

Understanding The Business:

What is the organisation there to do and how does it do it? What values does the organisation adhere to? What products/services are produced/provided, and how? Which are the “loss leaders” that draw in the buyers? Are any obsolete but kept on for “sentimental” reasons? Do all employees from the top down understand why the organisation exists and what its customers truly value about it (i.e. what keeps them coming back and buying more)? Do they understand what generates cash? To answer these questions, you need to talk to those who matter – your customers and the staff who serve them.

An interesting example I saw in one Asian country recently was that supermarkets did not give out free plastic bags for groceries at weekends. Not only did this save them money (as many more people do their grocery shopping at the weekend), it saved the environment. The free plastic bags are a cost and, whilst useful, can be substituted for other more robust ones that can be used again and again (and are sold in the supermarkets). What customers valued (and needed) was the food and household products sold. They continued to shop.

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: Customer Care, Productivity, Strategy

posted by William Martin @ 18:54