Cost Reduction
With margins squeezed and slow growth in a world of inflation, there are fewer opportunities to pass on your increased costs. Business costs are challenging, on second thoughts, they are psychologically difficult – but there are choices.
- How do you review your cost base and spot ‘layer cake’?
- Where can you focus to save time and money?
- Why are technological advancements so important when it comes to saving money?
- How do you best tackle rising costs?
Layer Cake
Quite simply, this is where roles and responsibilities have been left to drift. That is, the organisational chart does not reflect who does what today and job roles have not been updated since employees were recruited. How is this a ’layer cake’? Well, in most cases you will end up with two or more people doing the same job, resulting in double touching, wasted meetings, and lack of clarity as well as poor accountability. This all takes up time and human resources. Lose the layer cake and you will get to a more natural headcount or at least the capacity to enable the team to be more productive – but how do you do this?
The idea is simple, and we have a guide chart to help with this exercise (please email or give us a call if you would like one). We simply log all the roles against who is doing what, typically in an excel spreadsheet; it may need to be split into teams if you need to look at more than just the senior team or if you are a larger organisation. Once you have your excel spreadsheet, you can sort by category to see where the overlaps may occur and then engage with management and staff to make changes or redeploy elements of the role to the person best suited, not the one that historically landed the job.
This can be powerful particularly if you make the role changes transparent, by increasing the accountability of who does what across the team this creates peer pressure to deliver. This exercise should result in freeing up time and resources thereby helping with cost reduction.
In addition to redesigning roles and responsibilities, we would also suggest that you review the number of meetings going on, how long they are taking, and what they are for. Two options, remove the chairs and it will cut the meeting in half, or better still change the data report. Is a meeting necessary or could it have been done by creating a better report? The fundamental idea here is that meetings are glue. That is, they are generally used to fix things but if you can proactively anticipate the ‘break’ before it happens, your team should not need the meet and thus you increase free time and capacity, thereby reducing costs.
Just say “No”
It has been proven that you can only run three strategic initiatives in a year. Establish a clear perspective of where you are going (the plan) as this enables you to say, “yes”, “no” or “car park” the aim being to do less but better. Does the initiative or activity fit the plan? If it is a “no”, lose it or park it. To be clear about where you are going you need to constantly review, update, and share the plan so that the executive team can participate and add value in making “yes” or “no” decisions.
Too many companies try and do too much and therefore at best are only ever average and at worse, they fail to deliver across too many initiatives. Therefore, say “no”, and concentrate on where you can break through and you will save time and human resources which again enables cost reduction. Saying “no” may also include saying “no” to the wrong type of customers and “yes” to the right type – lose to gain.
Automation
Today, every business can use technology centre stage, resulting in greater productivity with fewer people. Research suggests that many businesses have operational and divisional models where IT has been bolted on (the ‘spoke’) to help create efficiency. The future, however, is far simpler – every business is modelled around the technology (the ‘hub’) from the ground up. This will involve some organisational design work for traditional businesses that are reluctant to positively disrupt themselves but the more automated a business can become, the fewer people and associated costs it will require.
- Information productivity – IT systems must allow information flows for levels of acceptable productivity and to remove ‘islands of information.’ This is not simply a connection to a system; it is how employees use/manipulate/create information and disseminate it. The faster the information, the more automated the dashboard, the less manual the intervention, and the clearer and faster it is for all to work.
- Core business applications/databases – Many organisations retain their core business applications/databases on a physical IT infrastructure. The management, performance, security, and usability of these ‘legacy’ application infrastructures and their migration to hosted cloud services (G-Cloud, Amazon Web Services, and Microsoft’s Azure) will accelerate automation.
- Automation technology – Automation technology does not have to be complex, and it certainly does not mean robots or artificial intelligence (although it can do). Some examples of automation technology that make businesses more efficient would-be technologies that allow companies to automatically enforce email signatures (so that no employee can ever send an email without the correct signature) or technologies that allow co-workers/customers to book meetings automatically.
- Training – Employee failure rates with respect to taking on board new concepts/technologies/working practices and ideas are generally down to a lack of undertaking on behalf of the employee. Just because the CEO, IT Manager, Office Manager, or whoever sends out an email telling employees what to do with a link to a webpage for some help does not mean that an employee will understand or embrace the situation. This means many companies have great systems already in place but employees may need to be encouraged to embrace automation and/or properly trained to use it. Companies with Microsoft pre-pandemic in many cases had access to the Teams app and the option for virtual meetings, which are proven to be cost reduction efficient, yet few were using it as it was little understood. What other under-utilised systems have you already got?
Procurement
Creating a lean cost base is a real skill. Of course, buying sits central to this as does knowledge of what you are buying. Richard Branson’s advice was that every leader should sign off the cheques once a year so they could interrogate the cost base with the potential to save money by doing things differently – again by saying “no” or redeploying assets.
However, if the cost is essential how do you know you are paying the best price? We all think we buy and negotiate well but do we? Essentially the best way to check what you are paying for goods and services is to get professionals experienced at analysing buying habits and costs across a wide range of businesses as they know what is reasonable or not for the size of business and insist on better renewal and tendering processes each year. Banking, payment terms, insurance, and rates are all such costs – many can be reviewed on a contingent basis subject to the cost saving. We propose that you undertake a forensic analysis of your spending.
- Are your resources being directed to the most effective areas?
- Is the spend even necessary?
- How well-brokered or tendered, is it?
- How can you save Tax?
R&D
Research and development #TaxRelief drives innovation and fuels growth. Could investigating a claim transform your business? Our previously published article “Research and Development Tax Relief” by Thomas Wells from Frazier Deeter looks at the most frequently overlooked tax relief which can release valuable cash to be reinvested into your business. If you invest time or money in innovation, you may be able to make an R&D tax credit claim and receive a cash tax credit or a significant cost reduction in your payable corporation tax.
Summary
With cost pressures and margin erosion, it is very easy to be too busy to review matters. Business design work involves realigning the plan, the team, and the model to the future needs of the business in the most efficient way. This takes time and resources but if you are caught up in the day job, it is hard to step back. Therefore third-party support can be essential to conduct a sustainable cost reduction evaluation. Despite the pandemic and war in Ukraine, the opportunities for growth remain boundless if we recognise the human capacity to resolve challenges.
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If you are looking for advice or an exploratory discussion without obligation please contact us at +44 (0)1737 240888, our Contact Us page, or email av@avondale.co.uk and together we can examine your opportunities.
