Of course, cost optimisation isn’t about singling out one section of a business for budget cuts, as a cost reduction in one area may trigger a cost hike elsewhere within the business. Make a cut in IT, for instance, and it may bump up costs in finance, HR, procurement and/or supply chain divisions.
What, then, is the best approach to take for sustainable cost optimisation? Change management, timelines and teamwork all play a role.
Change management
Define the cost pressure points in a business. Staff expenses and taxes aside, the bulk of an organisation’s costs will be to suppliers, vendors and service providers for goods and services.
Then clarify the scope of the change you wish to implement. Are you thinking ‘big-vision’ change or incremental change? Work out what is – and isn’t – off limits for the organisation when it comes to cuts. Can you make savings via use of infrastructure, use of resources, centralisation and services sharing?
To what extent are cuts or organisational changes on the table for consideration?
The next task is to work out how to reduce costs without unduly compromising quality or service levels to end users or suppliers. The following pointers – from an August 2012 cost optimisation research report by global consultancy, The Hackett Group – may help. The report pinpointed six imperatives for cost efficiency:
1. Pursue world-class cost levels
Identify the global standard for performance costs and then identify the gap that exists between that and the current costs of a business. If necessary, put steps in place to close the gaps.
2. Reduce complexity
Reducing the complexity surrounding standard business procedures, such as complicated internal administrative processes or the use of complex IT software, can reduce costs dramatically.
