Effective Cost Cutting - The Competitive Edge

William Wood

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Business today requires more ingenuity in operating profitably than ever before. High costs are not just related to labor, pensions and corporate benefits. Excessive costs can be found throughout the organization and take many forms.

Where does the company start to look for waste and excessive costs? What cuts that will assist, which will harm? The smart executive team must always understand their costs and weigh their options before making the decisions necessary to maintain competitiveness. To be effective and not threaten the stability of the business, executive management must set the example for the business. They must be as open to, and accept examination as they expect the balance of the company to be. Change starts at the top and flows down.

Cost cutting is not just about reducing staff, salaries and benefits. Indeed, these activities will reduce costs but they also send a terrible message to employees, No job is safe! As this fear spreads, productivity will suffer, you may even be in jeopardy of losing key employees that the business requires. Replacing these people will increase costs in recruiting and training while producing a further negative affect on morale. Instead of placing salary and staff cuts topmost on the list of reductions, they should be left until all other options have been exhausted.

Waste takes many forms; excess office supplies, inventory and redundant activities, to name only a few. Tasking the department leaders to find and identify excesses is an approach, but may not be the most effective method. First, they are too close to the operation and may not see the excesses. Second, they may not want to identify waste in their department, it isn’t always in their best interest.

Employees’ self interest and fear of corporate politics make it difficult to be objective. Admitting one’s faults or errors to another coworker is difficult at best, therefore, internal investigations are usually ineffective. Any individual going against the “politically correct’ beliefs and attitudes held by the company or fellow employees, will be in jeopardy of damaging their career. For that reason alone, it is easier to report to management what they want to hear rather than the truth.

The efforts of staff can ensure the business succeeds through implementing workarounds. The workarounds address the immediate problems, but do not solve the problem long-term and usually contribute to more complexities than are necessary. Tasks that benefit the business’s bottom line may be sacrificed due to lack of time. The employees work hard to make the business a success, but are they working as smart as they should be?

Process improvements and metrics measurements are excellent tools for identification of excesses and lead the way to implementation of cost cutting and continuous improvement. The detailed examination of process and data flow within the company will uncover areas that can be improved and assist in reducing complexities. Management may be aware there are problems within the organization, but the extent or depth of the problem likely is not known thanks in part to dedicated employees.

As mentioned above, employees’ and their self interests may hamper the examination of the business processes. Combine this with the belief that they are going to fall behind on their regular duties and the natural result will be a less than thorough evaluation. The business will not be fully served and the effort will likely become just another incomplete initiative.

To fully serve the interests business and perform an accurate examination, hire a consultant experienced in this type of work. The cost associated with this individual will be more than offset in several ways. The impact on your staff will be minimal, allowing them to continue with their regular duties. The consultant will not be influenced by politics and will deliver an accurate assessment of costs and potential savings.

Simultaneously with the process examination, the consultant should mentor the staff and transfer the knowledge necessary to perform continuous improvements. To make the best use of these activities, the management team must empower all employees to participate in a free exchange of ideas for business improvements.

Following this outline will provide the answers you need to decide “Which cuts that will assist, which will harm?”

William Wood is an independent consultant specializing in assisting small and medium sized businesses who require premium level consulting service. Mr. Wood has over thirty (30) years of business experience and is trained in multiple methodologies. His website is http://www.amberwoodconsulting.com .


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