Business Bullets - Finance

Businesses are often caught out by threats of economic uncertainty or even outright recession and it is then that they are most likely to embark on a series of drastic cost-cutting measures. Cost control is not a matter of expediency, driven by external events, rather, it should be cultural; a way of operating in good times and bad.

The question is 'how do you ensure that your approach to cost control is thoroughly rooted in the way you do business?'

The starting point

In any organisation, it is essential to recognise overlaps between different departments and functions. Whilst these often create inefficiencies and wastage they also offer scope for improving business performance. However, exclusive focus on obvious areas may only address symptoms and not causes, so improvements tend to be short-term and short-lived. Truly effective cost control practices must be driven deep into the bones of a business.

By analysing all of the core processes that glue a business together (e.g. buying, moving and selling goods) a management team can reorganise, reconfigure or realign them. This will not only squeeze more from the company's resources, it will also provide better control over day-to-day operations and establish a baseline on which to make decisions about cash-flow and investment.

Successful adoption of best practice approaches to cost control requires total commitment to getting teamwork and the basic operating culture of the business right. It's essential that a company is sufficiently nimble to adapt to changing circumstances and investor expectations.

Building flexibility

The first thing is to carefully align people into focused teams. These people must have the right skills and experience, and be trained in using the same methods. This will give the company operational flexibility, as well as meeting staff development needs.

Flexibility also comes from being able to work consistently at pace. By delaying decisions many businesses fall into the trap of resorting to 'cut and run' approaches to cost control
which are forced on them rather than thought through. Successful companies usually
display an ability to think and act decisively and then re-think quickly if a decision proves to be wrong or is made redundant by new circumstances. This can give a competitive edge.

Communicating clearly

Operational agility requires clear and careful communication, both internally and externally. Even the most complex businesses can quickly cut costs if they have robust systems in place for informing the right people of the right facts at the right time. It is worth investing time and effort to ensure those lines of communication are established and properly maintained but it's of limited value unless the company has access to the right information.
Any programme of change will be short-lived unless the people affected by the change are provided with regular, accurate and clear reports of the benefits that change is bringing.

Measuring the value of change

Many organisations fail to audit and authenticate the value of the change they are trying to bring about. What's more, failure to measure and analyse the benefits of change leaves many businesses struggling to track return on investment (ROI), without which, cost control programmes remain a stab in the dark.

Effective project management will ensure that transformation is properly managed, measured and clearly communicated. Whilst systems and business support tools can help it is the understanding and relationships between people working in different teams and functions that determine success.

Companies that get all of these steps right still face one hurdle: developing and sharing a meaningful strategic vision that can be owned by everyone.

A powerful alternative to management by committee is management through commitment, beginning by recognising that one of the leadership team's key responsibilities is to spell out and articulate an easy-to-grasp and passionate vision for the business.

Whilst this may be time and effort-consuming, in the end, a management teams faces a simple choice: meet the cost - human and financial - of preparing, empowering and leading the organisation through fundamental change or risk paying a higher price of running an organisation that is dysfunctional.

The cost of the former may be heavy but the cost of the latter may ultimately be unbearable.