Focus on Cost-saving solutions you can control
Posted by Joe Hussey on 30-Jun-2009 - Filed under: Cost Reduction , also relevant to: business and IT consultancy, costs savings - 9 Comments
Focussing on cost savings for businesses has become both necessary and desirable in the current economic environment.
I believe that the focus should be wider and should consider value also. The value associated with a business’ current investments.
- Are your investments as a business yielding the desired result?
- Are your investments (in both people and technology) focussed on the right areas?
The right areas being those that yield the best results – e.g. more sales, more customer retention and satisfaction, more profit.
If a business’ focus is solely on the cost side, then while an impact will be seen in the short term, without broadening the emphasis to consider overall business impact and value, the effect medium and long-term could be detrimental to the business.
As someone who managed aspects of businesses over the years, I feel strongly that a focus on cost alone only deals with one part of the equation. The value side must be brought into play. Spending is justified when it is yielding value. Sometimes the value element is not immediately apparent and one is building for the future. One of my clients Leading Edge (a Lean eLearning training provider) is currently investing in upgrading their customer experience through their student and course portal. This investment is focussed on increasing sales and not on the cost side. It is also focussed on value – value to their customers. This attention to the value side will not yield cost savings but will yield customer growth and future business.
By all means let’s focus on cost but not exclusively and not to the detriment of business growth.
What did you think? We'd love if you would leave your opinion in a comment below, or contact Via directly.
9 Responses to “Focus on Cost-saving solutions you can control”
commented on 30, Jun, 2009 at 10:01 am
Good stuff Via
– oftentimes organisations just do not pursue the strategic strength of cost-reduction tactics! And may I humbly suggest, in true Michael Porter fashion, that if the focus isn’t on Cost then it should be on a sustainable ‘differentiation’ strategy.
commented on 30, Jun, 2009 at 10:39 am
Hi. All true commentary. Too often businesses are focused on the wrong things i.e.spending time/money on work items that will not improve their business position as opposed to focusing on those items that will. Customers, if they receive value, will return and provide follow-on revenue. The trick for business owners is to understand and track where they are spending the cash in order to be able to judge whether that spend is in the value chain or not!
commented on 30, Jun, 2009 at 10:42 am
I enjoyed reading your post. Sometimes business cut costs unecessarily and in the wrong areas of the business often to the detriment of the quality of product they provide. Cost reduction in areas such as marketing and product innovation negatively impact on the business in the long term. Diversification can be key to the success of a company in a recession. An example of this would be Gillette who introduced their Sensor range mid recession in 1990 to great success.
commented on 30, Jun, 2009 at 10:52 am
Michael
Excellent points and a very good example to boot in Gillette.
Regards
commented on 30, Jun, 2009 at 11:02 am
Barney -absolutely. Sadly some businesses under cost pressure fail to look beyond costs and as you point out investing could yield more in terms of revenue. Also, I suggest that costs should be realligned for better returns and focus on the key areas for best returns.
commented on 2, Jul, 2009 at 8:35 am
While I agree that “Customer Experience” is a factor, COMPETITIVE EDGE AT A COMPETITIVE PRICE IS THE KEY TO BUSINESS GROWTH. You only have to look at a company like Ryanair to take “Customer Experience” out of the equation. Not to mention the numerous successful companies that outsource their customer service and support to low cost regions, much to the bemusement of us all.
I think we need to face facts and take a more direct, straight talking approach to solving the problems faced by Irish Businesses. Too many people are tip toeing around the issue of Irish prices, fearing that reducing their prices will mean a reduction in income. This is not the case.
Labour costs in Ireland may be high, but this can be negated by driving cost reductions in overheads, raw materials, and services. Cost management and more importantly, Value For Money, are crucial to preventing existing businesses from going to the wall, and allowing new enterprise to flourish.
Industries demand new and innovative products and services, but they will not be held to ransom any more. Customers want the best product at the lowest possible price. Plain and simple. It’s the challenge facing every Irish business today.
We need to identify areas where we can ACHIEVE SAVINGS, ACHIEVE VALUE FOR MONEY, AND PASS THOSE BENEFITS ONTO CUSTOMERS, WHILE STILL RETAINING PROFIT MARGINS. This will drive down overall the price of Irish products and services, and make them more competitive domestically and internationally.
These are the questions that every business owner should ask themselves:
What are your largest spend items?
How do they impact your quotes to customers?
Can you reduce these costs through standardisation?
Can you reduce these costs by making small changes in specification?
Can you reduce these costs by utilising internal resources instead of hiring the services of a 3rd party?
Can you reduce these costs by pooling together with other businesses and combining/increasing your buying power?
The more demand there is for Irish products and services, the more potential there is to further reduce associated costs through volume based discounts. Profit margins can then be increased while sales price remains unchanged, or further savings can be passed onto the customer. Increased sales also generate the funds required to invest in people, innovation & technology – this is the key to sustainability, and happier days.
commented on 9, Jul, 2009 at 6:00 pm
I agree with you completely. Value is always a factor that needs to be taken in. Where in fact value is the ratio of price to quality.
On a side note, visit our site – Satori World Medical – as we are the leaders in Medical Travel and can save your company thousands.
Great post regardless!
commented on 9, Jul, 2009 at 6:41 pm
Thank you for the comment SatoriWorldMed .
Certainly will check out your website. Anywhere costs can be saved, is worth investigating..
commented on 13, Jul, 2009 at 12:28 pm
Good article.
Savings and costs should certainly be considered with different timescales in mind. What saves you money today might cost you tomorrow. Strategic savings incorporating considerations of value are key.
Stephen Hart
http://www.edenchanges.com