With market conditions expected to contribute to declining revenues and profits across a broad spectrum of industries, many companies are engaged in, or considering, expense management initiatives. However, the news isn't all bad. While unpleasant to undergo, an expense reduction initiative, well prepared and implemented, can also provide capabilities to the organization that can be used to manage innovation and revenue growth when the market rebounds.
In this article, we won't be addressing how you determine your financial objectives. Whether you focus company-wide, within specific functional areas, set percentage targets or vary those targets by area, there are three things that your organization can do to maximize the value of any effort undertaken:
First, encourage participation. The people best positioned to determine how to be more efficient are your managers and staff. However, in most organizations there are many 'barriers' that prevent their ideas from being surfaced and considered. The organizational structure itself and the 'silos' that people work in both contribute to these barriers. Putting a process in place that encourages managers and staff to participate and collaborate to develop ideas for improvement is central to achieving your objectives internally. The process should also drive ideas through to decision making and implementation. Our experience is that organizations are completely capable of generating hundreds, even thousands, of good ideas that can result in dramatic financial impact.
Second, use the right software. Microsoft Excel is a great tool. It's also probably one of the most overused tools as well. Your organization needs the ability to track status, understand realized savings vs. target, identify problems early and generate roll-up reports without having to request, track, maintain version control of, and consolidate reports from across the organization. In our experience, this is one of the biggest frustrations that people responsible for coordinating cost reduction efforts have. Typically, everyone involved is working on cost reduction in addition to their full-time jobs. Using static tools like Excel doesn't help much when senior management wants a status update tomorrow morning.
Third, build an organizational capability. If all you do is cut costs, the organization will look back on the effort as a negative event. However, if you reduce your expenses using a process that gets people involved and changes the way decisions get made, people will remember that this difficult period was one in which organizational capabilities were strengthened. At the right time, these same processes can also be used to grow revenue and support innovation.
Many companies suffer as the result of a poorly executed cost reduction effort. While they achieve their financial objectives, morale declines, cuts go too far into organizational muscle and processes don't change. People just work harder.
However, done well, managers and staff will see that things really changed and that the company has new capabilities. These capabilities give the organization a voice and lead to a continuous improvement process in which everyone can participate. This should be the goal, and it is achievable. - 15266
In this article, we won't be addressing how you determine your financial objectives. Whether you focus company-wide, within specific functional areas, set percentage targets or vary those targets by area, there are three things that your organization can do to maximize the value of any effort undertaken:
First, encourage participation. The people best positioned to determine how to be more efficient are your managers and staff. However, in most organizations there are many 'barriers' that prevent their ideas from being surfaced and considered. The organizational structure itself and the 'silos' that people work in both contribute to these barriers. Putting a process in place that encourages managers and staff to participate and collaborate to develop ideas for improvement is central to achieving your objectives internally. The process should also drive ideas through to decision making and implementation. Our experience is that organizations are completely capable of generating hundreds, even thousands, of good ideas that can result in dramatic financial impact.
Second, use the right software. Microsoft Excel is a great tool. It's also probably one of the most overused tools as well. Your organization needs the ability to track status, understand realized savings vs. target, identify problems early and generate roll-up reports without having to request, track, maintain version control of, and consolidate reports from across the organization. In our experience, this is one of the biggest frustrations that people responsible for coordinating cost reduction efforts have. Typically, everyone involved is working on cost reduction in addition to their full-time jobs. Using static tools like Excel doesn't help much when senior management wants a status update tomorrow morning.
Third, build an organizational capability. If all you do is cut costs, the organization will look back on the effort as a negative event. However, if you reduce your expenses using a process that gets people involved and changes the way decisions get made, people will remember that this difficult period was one in which organizational capabilities were strengthened. At the right time, these same processes can also be used to grow revenue and support innovation.
Many companies suffer as the result of a poorly executed cost reduction effort. While they achieve their financial objectives, morale declines, cuts go too far into organizational muscle and processes don't change. People just work harder.
However, done well, managers and staff will see that things really changed and that the company has new capabilities. These capabilities give the organization a voice and lead to a continuous improvement process in which everyone can participate. This should be the goal, and it is achievable. - 15266
About the Author:
George Swetlitz is the founder and Managing Partner of Insight Results LLC, a management consulting firm that works with companies of all sizes on cost reduction initiatives. Visit the Insight Results website for more information on effective cost reduction initiatives or to see a video of e-Impact, our program management software.
