Following the release of mixed results from an international study on indirect cost reduction, a recent article suggests that a more holistic approach to cost reduction might prove a good idea for businesses looking to run a leaner operation.
Traditionally, cost reduction has always been associated with staffing costs. These are of course, the highest set of costs within most businesses, therefore this is only natural. The problem is, concentrating on staff costs only will hinder a business’s ability to reduce costs in other areas. If there aren’t enough human resources within the organisation, there isn’t enough scope for implementing a huge number of efficiencies.
When considering cost reduction that isn’t staff related, take into account the following factors:
- Does your organisation have the ability and in-house skills to understand where the productivity gaps and efficiency gaps lie – and where the creation of real value is occurring?
- It might be beneficial to obtain a third party assessment of your business operations, rather than attempt to carry out any cost-reduction exercise in-house. Internal conflicts of interest may mean that the results are not 100% unbiased. Political sensitivities or supplier loyalty for example, may sway opinion in a way that doesn’t ultimately benefit the business.
- Can your key processes be streamlined? There is most likely countless processes and procedures within your organisation that can be streamlined and automated. Consider everything from invoice processing, simplified ordering – right through to payment processing too. When you start to list them, you’ll be surprised just how many exist.
- Researching new technologies that will reduce or eliminate your in-direct costs is a great way to gain a new perspective on running a leaner business. Unfortunately, change is ongoing – therefore it’s increasingly difficult to keep up with ongoing technical developments and focus on your business at the same time.
- How will your organisation create long-term, sustainable benefit? Cutting immediate costs is the easy part. The trick is to know how to create sustainable efficiencies that will impact your bottom line over the coming years, and permanently eliminate the weakest links in your business. All this is time consuming and will take your focus away from your core business operations.
To develop a long-term cost reduction strategy, we recommend hiring a dedicated resource, with clearly defined goals and a deep understanding of the diverse range of costs within your business. Only with the right demonstrable management support, can real change take place.
Robin Dunlop
About the author
Robin has a financial management background, having held CFO and other senior positions in Australia, New Zealand and the UK before entering the consulting field.
Over the past 30 years, previously in senior management roles, and more recently with Resources for Profit, he has helped numerous organisations save millions of dollars through a combination of process improvement and knowing where to source the best value to achieve ongoing sustainable savings.
When asked where his passion for maximising value came from, it’s often suggested it’s his Scottish background. He would however say its many years in line management, where improving process and keeping costs down to a minimum were an important part of his responsibilities.
As a founding director of Resources for Profit, an award winning consultancy who specialise in Indirect cost management, he is now able to offer over 35 years of experience to his clients.
