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31/10/ · Cost-cutting Strategy: Expense Category This is the most common method small business owners use to cut their excess costs. It’s simple, the information is generally readily available, and the cost-cutting options are easily cadres.ested Reading Time: 6 mins. With a recent cost survey by Deloitte showing that 88 percent of companies will be pursuing cost-reduction measures over the next 24 months, effective cost strategies have never been in greater demand. As part of Naseba’s ongoing effort to meet this demand, we’ve researched and summarised 10 key strategies to help your organisation cut costs effectively. May 19, · Cost reduction is a process usually used by many companies to cut down their costs and increase their bottom line. The strategies can vary depending on a company’s products or services. Every decision made in the development process of a product will impact cost. Apr 20, · Cost reduction strategies for your business and the three examples cost cutting Our last article talked about the value—an intangible asset—that knowledge workers carry in their heads. It’s the often-undocumented tribal knowledge that “goes down the elevator” with them at the end of each day.
When companies cut costs, they often make across-the-board cuts that are unconnected to their strategy, and fail to make the cuts sustainable. In order to cut costs effectively, companies must connect costs to their strategy. For example, former CEO of Frito-Lay, Roger Enrico, had to make a major investment in product quality to stay competitive. How many cost-cutting initiatives have our companies gone through in the last dozen years?
More important, do we look back on those initiatives as transformative in helping us build success and leading us to growth? When doing research for our book , we found that the main reasons most companies suffer from this syndrome are that they make across-the-board cuts that are unconnected to their strategy, and fail to make the cuts sustainable.
The best-run companies, in contrast, think of cost management as a way to support their strategy, and of cost as precious investment that will fuel their growth. They put their money where their strategy is and continually cut bad costs and redirect resources toward good costs. They base their decisions about where to cut and where to invest on the need to support their greatest strengths: the capabilities that enable them to create unique value for customers.
This important distinction is a way of life at leading companies we have studied, like Amazon, CEMEX, Frito-Lay, Ikea, Lego, and Starbucks. They cut costs to grow stronger. You can see this different approach to cost allocation at work in the way winning companies behave in times of adversity. When Roger Enrico took the helm as CEO of Frito-Lay, in , the company was developing an innovative and distinctive approach to direct-store delivery that would allow it to consistently deliver the right products to the right stores at the right time.
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Maintaining financial health by using cost saving strategies is vital to the success of a company. If finances are bad, business development may be compromised and, later on, it can be difficult to grow, invest and to continue activities. The best and smartest way is to conduct gradual changes, optimizing processes and investing in more efficient strategies. In making a diagnosis of business depth, entrepreneurs often come to the conclusion that the lack of visibility in processes generates large waste.
After all, when employees without autonomy and without a broad view of the business are focused only on their departments, the workflow often balks dependent on a single person or process. Therefore, process optimization is necessary for companies seeking to reduce costs in a sustainable way; it allows a natural reduction in costs taken from gains in quality in the way a company operates and reduces time spent on each activity.
That is, workers produce more in less time and with lower consumption of raw materials. The optimization and systematization of processes are necessary because often, employees can become immersed in tasks and forget to perform possible adjustments, tasks end up being performed inefficiently, which generates higher costs. Check out: Find out how to reduce operating costs. See how this corporate travel company, with the help of BPM , became a cost-cutting example in record time:.
A specialist company in corporate travel management needed software to manage new shared services. With the implementation of BPM, clients could centralize the IT team, all the administrative parts, maintenance, finance, and marketing.
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Amidst the economic turmoil caused by the coronavirus pandemic, many finance leaders and professionals face intense pressure to cut costs hastily. Such stress can lead to mistakes that damage longer-term growth prospects, business relationships, and staff morale. Companies have already fallen into the trap of rushing cost cuts in the latest downturn, said Paul Gardner, ACMA, CGMA, the CEO and CFO of Fresh Accounting, based in Hong Kong and Singapore.
In that situation, cutting costs can become emotional. But we have to avoid emotion by reviewing each cost forensically — for example, around whether it helps retain customers and minimises lost sales. Finance professionals have little time to get this right. During a recession, the average time before companies need a material reduction in overheads is nine months, according to Gartner. Given the severity of the current crisis, finance leaders may be under pressure to cut even faster and deeper.
A quarter of these companies take a uniform, across-the-board approach to cost-cutting, which can result in valuable costs being slashed. Gartner also said rushed cost-cutting is a major cause of strategic errors during a downturn.
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Our last article explored the methods to strategically cut costs in the often-overlooked realm of intangible assets. Why not? Perceiving the potential of knowledge work standardization and associated cost reduction strategies is difficult. Accounting rules mandate that the activities of knowledge workers appear as expenses on the income statement. But these competencies are the most valuable, albeit intangible, assets in the business! Think about that.
The majority of the most valuable assets are being listed, and managed, as expenses. It almost makes your head spin. And so this puts these valuable intangible assets at a severe perceptual strategic cost reduction disadvantage. Assets attract attention. Why, after all, would anyone invest in an expense? Furthermore, expenses are recurring.
This creates the illusion that reducing operating expenses delivers annual savings, year after year. The truth is that this shortsighted cost reduction strategy starves asset productivity.
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In this uncertain, competitive market, every penny should be audited. If you are currently looking for ways to make more money, you have two options to choose from. One is to boost your sales, and the other, reduce your business expenses. However, the first option needs a lot more planning, strategy, and time to make it happen. If you want an easier approach, go with the latter. Most importantly, learn to control your expenditures properly.
Need help? Check out our guide on how you can reduce your costs without compromising on the vital parts of your business operations. If you have a chance, think about changing the location of your business. If your operational needs permit you, you can try moving into a smaller city where the cost for commercial rents is lower compared to big cities. The farther you are from the action, the lower the cost. Alternatively, you can consider switching to a remote work setup.
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Every month, local entrepreneurs in my city get together and share their business experiences. During one such monthly meetup, one of the business owners asked the group an interesting question :. This question made us put our coffee mugs back on the table. It really got everyone thinking. We started sharing our experiences and some really useful strategies started to come out of the discussion. If you are not keeping a record of all your expenses, you should start doing it right now.
A good accounting software can help you categorise expenses and help you take measures to reduce them. I know a company that used to order pizzas every Fridays for the team. When their accountant told them that the annual bill ran into lakhs, the owner was in a rude shock. Sometimes we unconsciously ignore small expenses that can pile up quickly over the period of time. Amit Sinha, the owner of a small business consulting firm in Mumbai, finds that many small-business owners end up with expenses over time that they no longer need.
He recommends reviewing your budget with a magnifying glass and making sure all of your expenses are still necessary. For example, perhaps you purchased a magazine subscription a long time ago that you no one reads. It will help you understand the famous rule and tune your brain to achieve more with less efforts.
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In many cases, companies must initiate either a price cut or a price increase. But initiating price changes should be done right to lead to success. Just initiating price changes without considering possible buyer and competitor reactions can be a regretful mistake. Initiating price cuts may appear easier than imitating price changes. In fact, customer response to price cuts is normally better than to price increases.
On the other hand, price cuts reduce the profit margin for the company. But what situations may lead a firm to consider cutting its prices? One such circumstance is excess capacity, which requires initiating price changes. Another situation is falling demand in the face of strong price competition or a weakening economy.
In such cases, several options exist for the firm to choose from: it may aggressively cut prices to boost sales and market share. But cutting prices is not always the best option: This way of initiating price changes can easily lead to price wars as competitors try to hold on to market share. The company may also cut prices in a drive to dominate the market through lower costs.
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Mar 10, · Across-the-board cuts often backfire. Summary. When companies cut costs, they often make across-the-board cuts that are unconnected to their strategy, and fail to make the cuts sustainable. Feb 26, · Cutting expenses and being cautious in controlling expenditures is imperative for all types of businesses, especially startups. Know what business areas to spend on and where to save. By doing cost-cutting using the above-mentioned tips, you can increase your profit margin and have more funds to invest in improving your products and services.
Insights and Inspiration to Help Grow Your Business. May 09, Is your business in need of cost cutting to ride out a tough time? Consider using these tips to help you make necessary cuts without hurting your company. Even well-run businesses sometimes face the need for cost cutting at times. It might be because of macro problems like recessions, or because of business-specific problems that come up on occasion. You know better than anybody what risks your business faces, and why cost cutting might be necessary.
I’ve been through it with my own business several times, and in the process I’ve learned these three lessons. They’ve helped me keep cost cutting strategic, helping me do the least possible damage to my business’s long-term prospects. I recommend never separating sales from spending in forecasts and projections. Neither exists in a vacuum. Spending can drive a sales forecast. Sales typically depends on drivers such as leads, marketing activities, etc.
A common mistake in cost cutting is cutting spending programs that drive sales without dealing with the cut in sales that results.