With the business world under unprecedented competitive pressure, in which pricing strategies alone are no longer viable, the time has come for strategies to cut costs and save expenses.
It is necessary to think about converting fixed costs into variables, seek alliances, outsourcing and lean to the maximum in information technology and telecommunications, together with an austere policy of focused expenses.
It is a global movement that also reaches Venezuela; We are all interested in lowering / optimizing costs; from the country's first industry, to the smallest company, through the State and its bureaucratic apparatus.
The stimulus to achieve this, in general, does not come from a spontaneous act of management, but is usually external, such as the impact of the recession, increased competition, or the demand for dividends by the shareholder, among other possible.
Cutting is different than optimizing. Cutting costs is like pressing on a spring; when it is squeezed it is reduced, but when it is released it jumps and reaches higher levels than before. Optimizing them is something different, and could perfectly be replaced by "achieving the necessary costs to carry out the business."
For the optimization of costs, a generally applicable approach can be followed, which is that of adding value, either to the product or service as the accumulation center, or to the customer as the final destination of all efforts. Anything that does not add value directly must pass to an analysis that clearly identifies whether it adds any indirect value; And if it doesn't either, then you have to find a way to reduce it until it disappears.
Cost optimization projects must be supported by a very solid foundation of reliable, accurate, consistent and timely information. The information base must be ensured, since it must also be used for the subsequent monitoring of the indicators that emerge from the project.
The cost and expense level is a function of the scale of operation and reaches its optimum value, for that scale, when the company can successfully compete.
When there is an excess of costs, the natural attitude is to reduce them. But if they are reduced beyond the optimum for scale, it will necessarily induce stiffness in the operation that can cause it to collapse; it is a high risk area with a lot of managerial expertise; it's like visually navigating a coral area.
This risky situation arises when there is confidence that the retraction of the market is temporary and that the scale must be sustained with the future in mind. Experience has shown us that after recessive stages, expansive stages come.
I recommend guiding the project to processes, with an integral vision of the business model considering the set of policies and rules, mixed with the characteristics of the market and the competitors. From there, the process model must be detailed in order to generate a map or roadmap that shows which processes are eliminated or improved, use of assets and technology, impact on people and environmental considerations.
It is a surgical operation, but one that can result in a lighter company capable of surviving in difficult times, and of winning in good times.
Some of the questions that will help the analysis are:
- Where should efforts and energy be concentrated? What value do the processes carried out in the company or institution add? What changes if this or that activity / process is eliminated? Are the concepts and amounts of the expenses that are made necessary? Where should competition be fought?
The goal is for the company to be in "good shape", which means without extra "pounds". Each part operating as it should be and without ballasts that delay it and prevent it from moving with ease, agility and flexibility. There is talk of removing fat and leaving the muscle well trained. Fat, ballast, overweight: there is the excess of costs and expenses.
Practical Guide
The sources of cost reduction must be identified and for that, among others, there are some clues that can guide where to start looking.
- Everything that has to do with central office or centralization, in general, means the duplication of some efforts, transfers of papers, people and resources to some place far from where business is done. One must wonder which of the main office activities could be transferred to the business field and what real change would occur. I dare to anticipate that the change would be to have a higher level near the customer or a production center has an associated cost to do so. What do production and management facilities do away from the market? And not only will the costs go down, the service will surely improve. Any project that has been delayed twice its original time has generally gone far enough from its purposes and rather is generating dissatisfaction, which lowers productivity.If the problem that originated the project is still in force, it must be reformulated and revalued with the intention of lowering costs and expenses. Perhaps what results is something more achievable and in less time. Arrears, despite being costly, give invaluable lessons. Everything consists of being able to break the delay-delay circuit. Any operational decision that requires a chain of consultations to be made is generating not only direct costs, but also opportunity costs, due to the delay that occurs between the initial stimulus and the response to the decision. Very large organization pyramids are expensive and time consuming. You have to flatten and put the decision maker as close as possible to the matter to be decided. And at the same time, avoid deciding on the basis of what they told or told us.The best decision is the one made with the maximum knowledge of the cause. A reorganization is likely to produce greater cost reductions than a specific cost reduction job.
Some reflections on human resources
- One of the most sensitive cost components is personnel, which should not only be measured by the short-term financial impact, but also by the specialization / experience / training burden that is lost, especially when analyzed from the perspective of long term. Labor laws do not favor productivity and are aimed at protecting the workplace; while the market demands contracting flexibility and is willing to reward value addition. With this, a rigidity situation is configured in which the worker does not always benefit. Schools and universities prepare neither in what is nor in what should be; plus family education that has not understood that only at home you learn to be responsible, to measure consequences, and to be open to change,among other aspects such as saying good morning and good afternoon. If the type of business requires intensive attention to the public, human contact, level of service, creativity, kindness, and thus human attributes, then it is difficult to change the factor intensity to technology, since it can pose a strategic risk. The more decentralized and integrated a company becomes, the flatter the organization becomes, the more customer-oriented and close it becomes, the more intensive in technological tools for decision-making, then the higher the level of people that required, and perhaps less quantity.and thus human attributes, then it is difficult to change the factorial intensity to technology, since it can mean a strategic risk. The more decentralized and integrated a company becomes, the flatter the organization becomes, the more customer-oriented and close it becomes, the more intensive in technological tools for decision-making, then the higher the level of people that required, and perhaps less quantity.and thus human attributes, then it is difficult to change the factorial intensity to technology, since it can mean a strategic risk. The more decentralized and integrated a company becomes, the flatter the organization becomes, the more customer-oriented and close it becomes, the more intensive in technological tools for decision-making, then the higher the level of people that required, and perhaps less quantity.then the level of people required is higher, and perhaps the quantity is lower.then the level of people required is higher, and perhaps the quantity is lower.
