When costs need to come out of a business, the first instinct is to try and use your current methods better – perhaps cutting hard and fast from the top down; or implementing zero-based budgeting, then justifying what to keep. But what if your current thinking won’t take you far enough?
Our overwhelming experience shows that when companies focus on short-term costing, it often causes unintended consequences. Relying on 10% cuts, without really understanding where these costs are coming from, only leads to the ‘elastic band’ effect: costs taken out ‘spring back’ six to twelve months later, as the underlying activity still needs to be carried out.
Evaluating your costs presents a fantastic opportunity to review your whole organisation: to identify the areas that are working well, and where value is being added - or destroyed. It involves thinking holistically, in a systematic way, about your entire organisation.
1. What's your competitive advantage?
Decide on what will enable you to survive the current challenges, whilst ensuring that you’ll be better placed than your competitors when the markets improve.
2. What's working well right now?
There are things about your business today that are working well and could form the basis for future success. Building on what’s great already means that you’re starting out with positive intent.
3. What are the implications?
Put your customer and your people at the heart of every efficiency saving. Your organisation cannot function without both of these – regardless of how healthy your new balance sheet might look. This may mean radically re-thinking what the ‘essential costs’ are.
4. Are you making the most of the opportunity?
Cost transformation should be a platform for success, not an emergency procedure. Don’t miss the chance to review your operating model. What would make your organisation easier to engage with? How could you function better internally? How could you deliver products and services better and quicker?
5. Have you set targets, and does your team know what they are?
Measure the things that you want to see changed and make sure that everyone knows how they can contribute. Clearly communicated signs of progress will bring your team together – they’ll see what’s changing and why.
Our collaborative, holistic, future-focused approach has already achieved great success for a diverse range of clients. For example, an organisational review created a £30m annual saving for a sports governing body; and a series of workshops with staff at a major UK retailer resulted in a new structure at Head Office, alongside an annual saving of £4.6m.