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.
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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.
-
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.
-
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?
-
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.
-
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.
-
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...
-
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.
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Mike
Bird is a consultant with Bloomstorm, the Business Change
Specialists. Bloomstorm helps companies who are struggling
to get a return from their business change initiatives. Go
to
http://www.bloomstorm.com to find out more about
Bloomstorm and what we do.
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there, sign up for our free monthly newsletter, Bloomstorm
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