The economy has been presenting rather interesting times, more so since Great Recession in 2009 and we have witnessed periods of slow down. Reasons include falling oil prices, Chinese economy, demand supply gap and others, which are either causes or effects. This presents challenging times not just for entrepreneurs but also for the investors & employees and opens up arena for new ways of looking at company cost.
“Need is mother of all inventions” – This is true for economic fluctuations as well. This created a paths for innovative, efficient and cost effective means of building and running products & services. Its all about self-awareness and action.
In this article, I attempted to share few strategies, tools to create a culture of fiscal discipline in your teams, groups and the company and emerge as a stable company in the market place for the customers & investors.
This is not about being frugal, but being conservative & creating the culture of fiscal discipline not just in your company, but down to your teams, groups proactively. This ensures you are spending on right areas and minimize possibility of harsh cost cutting measures of reducing businesses or people in future
Before we get into crux of the issue, let us clear few myths..
- Throwing money at the problem is not always the right solution.
- Throwing people at the problem is not always the right solution, either.
- Being transparent with employees on external & internal economic situation is not bad idea
- It is not about how much is paid, it is about how the pay is communicated!
- Last but not the least, cost reduction does NOT have to cost you your top line revenue.
Before we get to cost optimization strategies, lets get the data ready:
1. Create workload driver analysis for your group: Reach out to me offline if you need templates of the same, but at a high level, it consists of list of tasks done on daily basis, time taken to execute each of them and other details to model your team’s work drivers. This will help you to understand current utilization, available bandwidth on the team. Include trainings, team building activities and time-offs as well to get a holistic view.
2. Create list of projects that need to be done this year & prioritize: All Tasks, projects need to be prioritized based on business criticality & urgency – High, Medium & Low. You can add more categories that suite your business.
Prioritization is key – This will help you focus on what matters most. What tasks are proactive & help you scale Vs reactive and keep you on a treadmill forever. Remember, 20% all the work we do produces 80% of the results.
3. Analyze your cost on Capital & Operational expenditure (CapEx & OpEx): Have your numbers handy. All the vendor contracts, hardware, software, tools, network services, headcount & travel cost etc.. This analysis gives insights into the the spend, build vs buy decisions, duplicate tools, redundant expenses and helps you make decisions via below given strategies.
Now that we discussed few hard facts and got the data in place, lets get to the cost saving opportunities. Cost optimization has to be planned in levels and applied based upon desired outcome of optimization, control or reduction strategies.
Level 1: Cost Efficiency
Primary Criteria: Do not impact ANY Project Delivery or Business Top Line
Goal: Optimize cost in number of areas. Do more with currently available resources
Level 2: Cost Control
Primary Criteria: Do not impact CORE Project Delivery. Possibility of limited disruption to current product lines & strategy.
Goal: Control cost in number of areas. Do more with less
Level 3: Cost Reduction
Primary Criteria: Protect company’s CORE business. Major organizational and process changes might be needed to affect rapid turnaround.
Goal: Cost reduction in number of areas. Retain the critical mass.
These principles apply well in any industry and at any state of company’s economic condition. The goal is to create awareness & discipline across the organization to create a lean & mean business model that scales effortlessly. This is also excellent learning opportunity for leaders at the entry level to learn and play a key role in company’s success.
Hope this information has helped with few insights, please feel free to reach out if you need more information on related operating models.
All the best!