Transforming for the New Normal (Part 4)
Transforming Financially – Optimising Rather than Cutting Costs to Help with Stretched Resources
Missed part three on Flexibility in Business Transformation – and Why this Needs to Go Beyond Agile? See it here.
When the extent of the pandemic began to take its toll, the knee-jerk response of many businesses was to cut costs – left, right, and centre. Because of the sense of urgency and panic, it was in some cases impossible to consider the longer-term implications, which inevitably had a detrimental effect.
It’s important for businesses to be aware that cost optimisation is by no means the same thing as cost-cutting – there are very clear differences between the two.
Cost optimisation is a continuous process, a strategy to help with balancing cost reduction with maximising business value.
Benchmarking is useful to gather information on the measures and best practices that should be built into your cost optimisation strategy, to ensure your organisation has a clear path of action for improving performance.
Cost optimisation may include negotiating the best pricing and terms for business purchases, or streamlining and simplifying your organisational processes and services.
It’s not just about looking at the biggest areas of cost, and cutting these out.
I pointed out in the last article in this series that we need to be aware of both long-term goals and short-term risks in business transformation during the current crisis. But when it comes to financial transformation, focusing too much on the short-term may cause the wrong decisions to be made.
As I mention in How to successfully launch your business transformation, my mantra is ‘begin with the end in mind’ (BWTEIM) – and it’s important to bear in mind here to ensure resources aren’t being cut in areas which add long-term value to your business.
Building a longer-term cost management strategy to ensure resilience and survival going forwards is key here.
For successful strategic cost management it may be useful to think of spending as an investment. This means making decisions based on the strategic vision of a company and their internal capabilities to deliver value from that investment – building a long-term, sustainable competitive advantage rather than focusing too much on improving the bottom line of a single financial year.
It’s crucial that within your team, roles and responsibilities are clear and defined, with costs being managed as part of an overall corporate strategy. Effective communication also builds deeper understanding of the reasons behind this strategy, and how this benefits the organisation as a whole.
Would you like further insight on building and developing your team, and assigning roles? Click here.
For more details of how we’ve helped previous clients achieve considerable savings, take a look at the case studies in our Work section.
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