When You’ve Got to Cut Costs

You can follow the advice in the HBR article that outlines some things you can do when you’ve got to cut costs, but only if you do it very carefully. In short, the practical guide to reducing overhead offers up six tips that will reduce your costs, but only if implemented properly as a couple of them will actually increase costs if implemented incorrectly. This post will discuss the six cost savings ideas offered up by the article and the right way to go about them.

  1. Consolidate Incidentals

    By the time cost-cutting becomes a must, the company has already done away with most discretionary spending and non-critical perks and activities and further cuts would be difficult, if not dangerous. (Such as slashing the training budget when you need highly capable staff.) In this situation, look for further savings through the consolidation of incidental spending. For example, hold training events and trade shows on the same day(s) and cross-schedule the use of outside resources across departments.

  2. Take Overdue Personnel Actions

    Restructure the jobs of any individuals who are not fully engaged, confront under-performers, and eliminate the dead-weight or problem personnel. Be careful not to overburden already fully engaged resources, assign responsibilities that the resource isn’t trained for, or eliminate too many positions at once. Not only can each of these actions can cause resentment, but the latter can have those who remain fearing for their job security and looking elsewhere.

  3. Reduce Spending on Department Management

    Many administrative departments will use as much as 20% of their budgets on supervision and coordination. If staff are competent and capable, and if responsibilities haven’t changed much in a year, supervision and coordination is probably costing more than it’s saving. In this case, supervision can be reduced by at least 10%, if not more. Just be careful to appropriately re-assign duties or confusion will set in.

  4. Gain Control of “Miscellaneous” Spending

    Given that even the best organizations tend to max out at 75% to 80% of Spend Under Management, it’s almost always possible to find 15% to 20% of spending that hasn’t been managed closely which is ripe with savings opportunities. It could be supplies, telecom, or electronics devices.

  5. Hold Down Pay Increases

    Specifically, limit pay increases to top performers and award additional compensation based on performance, giving the top performers the bigger cut. Cutting pay increases across the board or eliminating bonuses will alienate top performers, the 20% of staff who are responsible for 80% of the bottom line contribution.

  6. Repropose Rejected Cost-Savings Ideas

    Chances are that a number of good cost savings ideas were rejected over the past few years because of constraints, other priorities, or required investment. Review them and select those with a short-term ROI.

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