Reducing Cost But Not Capability!

So. Austerity. The new word and the new worldorganisations, although still to be to be managed
order it seems. Even the G20, so long exponents ofeffectively by others - including the government. The
'fiscal stimulus', must eventually accept the need tochallenge is keeping viability without destroying
contain spending. And raise taxes...longer-term capability: for organisations that means
Which brings us to the purpose of this article. Ifhaving a clear vision and effectively allocated
income is likely to be harder to come by, then profitsresources; for the country it's much harder, not least
will be hit - and it's time again to explore other waysbecause every aspect of public spending will have its
of increasing that bottom line. Time to increaseown advocates and pressure groups. And unions...
profits by the equivalent of a massive sales boost -There are many ways of reducing cost without
by reviewing costs. If net margins are even as littlereducing capability, and three options we consider
as 2%, a saving of £10,000 from costs is thewith clients are:.
equivalent of increasing income by £500K. It's a lot -1. To categorise costs by relative business
and it's not just tricky maths.importance, viz: the essentials, or those things that
If savings are sustainable and you're not just seekingdirectly affect delivery, without which you would not
short-term fixes which cause long-term problems,have the product or service to deliver; the 'nice to
you can see a long-term boost to profits. If you acthaves' - those things which make people feel good
rationally, and think through the impact on capabilityalthough can be dispensed with if absolutely required;
and not only capacity and cost.the luxuries - those things or payments that are
The traditional way of reducing headcount, pursuedaffordable when business is good; and the
by too many consultants, is what is called a POP plan.unnecessary - those costs which have evolved
Standing for People Off Plan, it's a cynical means ofthrough time, and really are not needed.
seeing immediate cost savings through headcount2. Or, to bucket costs into three categories: core
reduction, citing long-term savings despite short-termactivities - those costs which directly add value to
pain through redundancy exercises. Instead, withoutthe organisation and its outputs; support activities
examining what needs to change within thewhich may not directly add value, yet are necessary
organisation, this methodology results in ato enable core activities to take place; and
demoralised staff coping with existing workloads withdiversionary activities - those costs which occur
reduced numbers. In extreme cases, instances ofbecause of failure elsewhere.
sabotage, both direct and more subtle, results.3. Undertaking functional analysis (the process of
Oftentimes, the consequences include deeperdeciding what needs to be done to support your
business problems - which occasionally result inbusiness strategic planning) and then process
organisations re-appointing the consultants whosere-engineering (the process of making sure that what
recommendations caused the issues in the first place.you need to do is done effectively and efficiently).
Better to adopt a more rational process, involvingUsing the latest software, employees and senior
functional analysis, process re-engineering, effectivemanagement can see the impact of processes, and
change management, and practical implementation.readily identify savings and waste.
Do something more practical. Something which can beWhat is really interesting is that involving senior
achieved by almost any business in every sector.management and staff in identifying cause can really
Something which can be achieved by large, mid-sized,help in changing effect. Try it - you might be
small or even micro-businesses.surprised at the results.
How? It's a dilemma already faced by many