Yes, you can have both. Here’s how.
If your company is taking yet another look at its financial forecast this year due to COVID-19, you’re not alone. As I write, companies in nearly every industry are struggling with plummeting revenues and the pandemic’s stop-and-go business impact. In the midst of continuing uncertainty, they’re looking for efficient new ways to meet changing customer needs. The drive to free up cash flow is influencing daily business decisions more than it has in years. And in order to make sure they can survive even their worst-case “what if” scenarios, companies are under tremendous pressure to reduce costs – now.
Point B’s Perspective
Even in good times, cost-reduction initiatives are an essential part of sustainable business success. In tough times like these, they may be a matter of survival.
Done right, cost-reduction efforts can increase productivity, competitiveness and growth. Done poorly, they under-deliver, destroy value, and erode organizational confidence.
It’s a fact that these initiatives fail more often than they succeed – at rates of 70 to 80 percent, according to reputable business surveys. It’s not unusual for companies to end up spending more time and resources trying to save money than they actually achieve. Whatever savings they do realize are often short-lived. When efforts fail, it’s usually employees who pay the greatest price.
It’s time to expect more from cost reduction.
Yes to both: rapid and sustainable cost reduction
Point B’s approach to cost reduction answers the need for rapid, sustainable savings and long-term business health. We’ve built our approach on more than 25 years of putting people at the center of change through organizational effectiveness, operational excellence, and process improvement. Working alongside our customers, we bring a holistic view to identify more and better cost-saving levers than simply reducing headcounts. Here’s our list of the Top 10 ways to create sustainable savings. Just a few of many opportunities: improving processes; using technology differently; and developing people in ways that reduce the work, or the effort it takes to get the work done. One of these gave our customer, a CFO of a Fortune 50 company, an idea that yielded $150M in annual, ongoing savings.
Make it meaningful on the ground
When cost-saving efforts fail, it’s often because the people involved are “flying at too high a level” to determine whether an initiative is practical and implementable. If it hasn’t been well thought-out, a plan that looks fine at 30,000 feet will flounder on the ground as people struggle to put it into action. Other, often related, reasons include an inability to accurately estimate and enact savings, a failure to manage and mitigate change, and a lack of structured planning, process and governance.
You can avoid those common pitfalls by creating a pragmatic plan that’s rooted in respect for people. Aim for savings estimates that are ambitious but achievable. Make sure that your plan to achieve them is realistic for people to implement; involve them in sizing up the opportunities. Create a detailed roadmap with clear milestones and ways to measure progress. Get both the top-down guidance and the bottom-up assessment to validate the opportunities and create a plan that works for the people who will be putting it into action. Enact, track and improve your plan with data and analytics that are meaningful and accessible to everyone involved.
Make it sustainable; ask the right question
A shift in cost-reduction perspective can reveal new opportunities to “reset” business in ways that save money while making your company stronger than it was before you began.
Instead of asking, “Where can we cut?” start by asking “Where are we going?”
I don’t mean this in theory. I mean it in the form of a clear conceptual picture or model you create to show what your company’s ideal state will look like in 2-3 years. This may mean envisioning a new operating model, a different organizational structure, a change in processes, a new technology platform, and more.
It’s important to develop this model at a level of detail so that everyone can see it, feel it, and understand it – including leadership, managers and the people running daily operations. It serves as a powerful visual tool to make sure that, when you trim in areas – and maybe even add to other areas – you’re doing it with the end in mind. You’re not only reducing costs, you’re creating a window into the future that everyone can move toward together and eliminating unnecessary stress by reducing unknowns. Employees can understand why certain decisions are being made and how they fit into the bigger picture. We have customers who, years after creating their future-state models, are still using them as a filter to make sure that any proposed initiatives fit into the bigger picture.
Sharing your future-state model with everyone also signals transparency, which is critical to healthy organizational change. In good times and bad, it pays to tell people what you know, when you know it. Holding onto information erodes trust and morale. Telling it like it is shows people respect and earns trust, even when tough decisions must be made.
Make it rapid; prioritize speed to value
Rapid cost reduction is not only about moving fast, it’s about moving in the right direction. From day one of a cost reduction assessment, we engage stakeholders in what we’re seeing, where we think savings might be, and where we are finding efficiencies. And we share our hypotheses for savings early and often because no one knows a company and culture the way its own people do. By sharing our findings and thoughts in real-time, we get critical feedback on the fly and arrive much more quickly at solutions that work for the organization.
During assessments, we often see savings that can start to be realized nearly immediately. When we identify a source of savings and a solution just a few days into an assessment, we will spin off a team in an agile fashion to drive a quick win, even as we continue the assessment and develop more savings opportunities. In addition to the savings these quick wins deliver, they build confidence and momentum. We encourage companies to have their people work closely with us – even pair employees with us as we work – so their organization takes ownership and learns to become increasingly self-sufficient in driving future efficiency initiatives.
The Bottom Line
Rapid and sustainable cost reduction begins with asking the right question: “Where are we going?” Let the answer open eyes and minds to the wide array of levers you can use to drive new efficiencies and get where you want to go. Instead of defaulting to layoffs, companies can find many ways to reduce costs for good while making their employees’ work experiences more efficient and productive.