Cutting Your Company's Business Costs: Less Pain, More Gain
There's no "one size fits all" cost-cutting method for every business. Choosing the right one for your company can make the process less difficult and possibly even improve your overall financial position.
Richard J. Maturi (Feb/Mar 09)
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"Using a prize fighting analogy, I'm not a big believer in trying not to get knocked out," says Ron Hequet, a principal with Actum Consulting in Fort Worth, Texas. "I advocate a more positive, aggressive approach to the current business slowdown. People's experience and training aren't grounded in cost-cutting.they're based on creating growth and gaining market share." However, he says, there are several key areas that need to be addressed. First, analyze the infrastructure required to be open every day regardless of your size and volume. Second, assess the talent needed to support that infrastructure. Third, review the amenities - magazine subscriptions, free bottled water, etc. - your company provides that do not directly add to the goals of the organization. "All companies have economies of scale," he says. "Eliminate non-critical job functions or double up duties of some employees to cover critical functions. However, make sure you don't remove required `expertise' positions."
Michael E. McGrath, a Texas-based business consultant and author of Decide Better for a Better Life, advocates timing-based decisions. "You need to know why you are cutting costs. Cost-cutting for combating cyclical trends takes on a different form than if you are cost-cutting for permanent downsizing," he says. "I've seen so many companies struggle with strategic decisions. It's not just about making the decisions, which is difficult enough, it's also about knowing when to make them. Strategic decisions are those we need to make today to achieve something we want in the future."
David A. Fields, managing director of Ascendant Consulting, LLC in Ridgefield, Connecticut, advises a sophisticated "de-bottlenecking" strategy that targets your overall system to keep things flowing. "Don't confuse this with lean. You can over-lean your company to the point that any hiccup can prevent your ability to react," he says. "You need to analyze your system to determine what is constraining output and causing higher costs. Removing bottlenecks can create higher output at lower costs, but you need to trace your changes throughout the system to make sure the bottleneck just hasn't moved down the line, still negatively impacting operations."
Fields believes that most companies use the wrong metrics to measure performance. "You require non-financial metrics to track the progress of your firm," he says. "The `net preference' metric - the likelihood that customers will choose your product over your competitors' - is perfect for tough times. If you focus on making your product better, more attractive, and more attractively priced, your product will be purchased and your financial goals met. It's a whole new way of thinking."