Leadership - 5 Ways to Reduce Costs

The market indicator numbers are bleak and getting more bleak with each passing week. We are no longer surprised when firms announce massive layoffs, Sun Microsystems being the most recent company in the technology industry to make such an announcement. Our own government is wearing us down with its bailout strategies that don’t require firms, or even whole industries, to perform self-reflection on what went wrong and how to prevent it from occurring again in the future.  Instead, we throw good money after bad and expect the same results. This is the definition of insanity, and clearly the global market has gone crazy. With grousing one must also offer suggestions for improvements. I offer the following five suggestions to help firms get the global economy back on track.

1.     Reduce capital expenditures.

There is a multitude of ways to reduce capital costs.  For example, stop buying hardware.  By the time a firm purchases a given piece of hardware, loads the software and gets it implemented in the production environment the item is approaching Moore’s Law 18-month cycle of obsolescence.  Unless you are purchasing on the bleeding edge of technology chances are good the device is near obsolescence as soon as it is purchased.  Lease the equipment, use a service provider or run the process in the cloud.  There are several options to avoiding hardware acquisitions.  Be creative and find the best solution for your firm.

2.    Reduce the real estate footprint.

Why do companies feel a need to have a large physical presence? The logic behind this is so old school, so Industrial Era.  The 21st century business model is supposed to be one of lean and nimble.  I’m not advocating total corporate site elimination, but cut it by at least half and enjoy the improved cash flow. If the company absolutely must see its workers, consider workspace sharing.  Most knowledge workers can work from anywhere, so let them.  Seek to reduce entire buildings through consolidation and workspace sharing. This eliminates the cost of supporting a physical building, which is substantial.

3.     Streamline IT functions.

There is no reason for a firm to have to support four or five different models of laptops, innumerable mobile devices, three software revision levels, and the list goes on.  Standardize to improve efficiencies. Don't purchase the new devices for those out of specification, lease them.  In this manner, everyone gets upgrades on defined business cycles.  Additional benefits of streamlining include faster technology implementations, improved interoperability, and expedited decision making based on a standardized set of parameters.

4.    Seek exponential improvements.

A company is not going to change everything overnight.  However, with practical application, a firm can take advantage of incrementalization, building on prior improvements.  List all of the areas where the company can realize improved capital flows.  Prioritize the list with the easiest to execute undertaken first.  Incrementalization can be executed horizontally across lines of business or vertically by department.  Each successive gain builds on the prior, allowing companies to rein in spending and get control of its cash flow without having to resort to the knee jerk reaction of headcount reduction. Layoffs may be the swiftest way to change cash flow, but it certainly isn’t the brightest solution.

5.    Change how the business conducts its business.

A firm should focus on its core business and seek to use experts in areas outside of its core.  There is no good business reason to have an internal marketing group, human resources or even payroll.  These functions should be handed off to expert organizations that can perform the functions faster and at lower costs. By using outside firms a company can tap into emerging ideas on how to improve execution. Just as your firm seeks to be innovative in its offers, outside organizations also seek to be creative and fresh in their areas of expertise. By using an outside firm for non-core business processes your company can take advantage of rapidly changing market creativity without being bogged down in the day-to-day activities of execution.

 There are many ways a firm can react to the current market conditions. Those companies that approach the situation as one of opportunity to make substantive changes in the way business gets done will end up being stronger over the long run. The market will eventually turn around and when it does, the firms that retained employees and made sustainable business execution changes will find themselves as the market leaders.