Cutting costs is an arduous job, even for the most seasoned C-level executive. It reflects poor business decisions or bleak futures and requires Teflon emotions to make tough choices. Developing and deploying a cost reduction strategy that is effective, concise, and sustainable takes time and cooperation throughout the organization, all of which are not easy. Frankly speaking, it is not an enviable position to be in.
For businesses large and small, and in good economic times and bad, creating a cost reduction strategy involves a host of vital factors. We’ve compiled a macro-level list of steps to put forth a smart cost reduction strategy that applies to any type of organization. Many of these factors seem straightforward; however, the nuance of their execution and the adaptation to each business are what will make a given strategy successful or not.
Develop a Firm Strategy
The first step is the most critical: develop a thorough, firm, and actionable plan. Though it is much easier said than done, a water-tight strategy must be drafted and accepted before making any significant decisions. Many companies choose to outsource this work to professional consultants who are experienced in the field and can make calculated decisions free of bias. Consultants should use advanced data analysis to isolate inefficiencies and help develop sustainable solutions with your business’ long-term vision in mind.
Get Full Buy-in from the Organization
Believing and leading your cost reduction strategy is imperative to its success, highlighting the need for it to be sound and thorough. Without proper leadership, there is a high chance that the rest of your team won’t follow through. Helping your staff to believe in your vision will solidify its execution across all levels.
Together with your senior managers, you will need to align on the strategy and work with them to get full buy-in from their teams. Without resounding support from the rest of the organization, there are bound to be errors that can affect the strategy’s execution.
Identify Necessary and Unnecessary Costs
Again working with your senior managers, you need to identify necessary and unnecessary costs. We can define necessary costs as those essential to the business’ day-to-day and those involved in revenue-generating activities that help your company differentiate. Unnecessary costs are those that are non-essential or don’t make a significant enough impact to justify their cost. Being objective in your assessment of costs is paramount, else you fail to take meaningful action and carry out your objective.
Encourage Staff to Find Alternatives
After you have buy-in from your staff and are carrying out your strategy, do not be afraid to look for ways to improve it. One way is to incentivize your team to help in the process. Often senior-level staff are removed from the day-to-day of junior employees and may inadvertently miss identifying some critical inefficiencies. By incentivizing this staff to take ownership in the firm and help with your cost reduction strategy, you will not only save costs but build morale as well.