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Sunday, September 7, 2008
Removing Business Costs - Seven Deadly Sins to Avoid
Cost removal is just another form of change. Yet we see companies in every sector making the same mistakes time and again. So here are seven deadly sins of cost removal that it will pay you to avoid.
1. Cutting costs across the board A flat rate budget cut typically does more damage to the high-value, high-revenue parts of the business than you ever recover from cost savings. Worse, costs you cut like this will creep back within two years. Think instead about the causes of your costs and remove these instead.
2. Wimping out Fear of the impact of cost removal is no excuse for not doing it. Uncomfortable conversations now are much better than redundancy conversations later.
3. Waiting for perfect analysis If you are hemorrhaging cash now, every day's delay costs you money. A quick and dirty analysis will give you 95% of the data you need to proceed quickly and do straightaway most of the right things you need to save money. Is the extra 5% of certainty worth the extra days and weeks of delay?
4. Getting in your people's way Your people know better than you do where waste and inefficiency reside. They will find and eliminate it--provided you set demanding standards for delivery. If people know what is required of them, they will astonish you with their performance.
5. Spending more on compliance than you are saving Cost removal often means new policies and procedures. Yet in many companies the cost of complying with new policies far outweighs the savings that are made. Know how much it will cost to manage your new policies and only implement those which are cost-effective. As my mother would say: don't cut off your nose to spite your face.
6. Creating a new organisation structure Whenever the sky is falling, the first response of many corporate Chicken Lickens is to change the organisation. Usually this is a mistake. First, it distracts people from the real issue: running the business more efficiently. Second, it adds cost--cost to do it, cost as it beds down, and cost as new organisational interfaces are created. Third, it delays real action to improve performance. Fourth, companies hide behind it so that they don't have to talk about getting rid of people. So why do companies continue to do this? Usually because it is easy and looks like real action. But rearranging the deckchairs did not stop the Titanic sinking...
7. Damaging customer service to save costs This is not to say that you should avoid making customer service efficient--but never knowingly preside over a reduction in customer service standards for the sake of short-term savings. The savings will be temporary - the loss of customers, sales and reputation will not.
Many companies fail to improve their cost performance because they don't think effectively about which costs to remove and how best to do so quickly. If you avoid the seven deadly sins described here, however, you will have a fighting chance.
1. Cutting costs across the board A flat rate budget cut typically does more damage to the high-value, high-revenue parts of the business than you ever recover from cost savings. Worse, costs you cut like this will creep back within two years. Think instead about the causes of your costs and remove these instead.
2. Wimping out Fear of the impact of cost removal is no excuse for not doing it. Uncomfortable conversations now are much better than redundancy conversations later.
3. Waiting for perfect analysis If you are hemorrhaging cash now, every day's delay costs you money. A quick and dirty analysis will give you 95% of the data you need to proceed quickly and do straightaway most of the right things you need to save money. Is the extra 5% of certainty worth the extra days and weeks of delay?
4. Getting in your people's way Your people know better than you do where waste and inefficiency reside. They will find and eliminate it--provided you set demanding standards for delivery. If people know what is required of them, they will astonish you with their performance.
5. Spending more on compliance than you are saving Cost removal often means new policies and procedures. Yet in many companies the cost of complying with new policies far outweighs the savings that are made. Know how much it will cost to manage your new policies and only implement those which are cost-effective. As my mother would say: don't cut off your nose to spite your face.
6. Creating a new organisation structure Whenever the sky is falling, the first response of many corporate Chicken Lickens is to change the organisation. Usually this is a mistake. First, it distracts people from the real issue: running the business more efficiently. Second, it adds cost--cost to do it, cost as it beds down, and cost as new organisational interfaces are created. Third, it delays real action to improve performance. Fourth, companies hide behind it so that they don't have to talk about getting rid of people. So why do companies continue to do this? Usually because it is easy and looks like real action. But rearranging the deckchairs did not stop the Titanic sinking...
7. Damaging customer service to save costs This is not to say that you should avoid making customer service efficient--but never knowingly preside over a reduction in customer service standards for the sake of short-term savings. The savings will be temporary - the loss of customers, sales and reputation will not.
Many companies fail to improve their cost performance because they don't think effectively about which costs to remove and how best to do so quickly. If you avoid the seven deadly sins described here, however, you will have a fighting chance.
Labels: Removing Business Costs - Seven Deadly Sins to Avoid
# posted by gopi @ 9:45 AM 
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