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Strategic Relations Journal

Issue #70 -- February 3, 2003

Reducing Costs without Compromising You

February already, with new projects ramping up it looks like 2003 will be an exciting year for everyone. When I can, I will take you on a systematic journey through some of the processes they are implementing to build stronger business relationships, it will be great front-line material use can use right away.

This week's lesson continues the recession busting techniques with "Strategic Management Techniques to Reduce Costs in a Recession." While you will gain several tips for addressing a reduction in income, I want you to take away two important concepts: cost reduction is a temporary measure, and not the same as increasing your income even though it creates the same improvements in margin.

What have you done with last week's lesson about retaining key accounts? Account management (those relationships you already have) is the key to getting through any economic challenge. In fact, the harder the times get the more powerful good relationships become. This is why I think this topic is so essential to your relationship success.

Meanwhile, think about what you will do with the customer retention strategies I will share with you in the next lesson of the Strategic Relations Journal. It is the last article in this recession busting series -- unless you request more. I am still looking for comments on your own recession strategies for an upcoming book; each contributor gets a copy of the book and a gift.

Until next time, I am wishing you strong and profitable business relationships.

Cordially yours,

Justin Hitt
Strategic Relations Consultant, Author & Speaker
https://iunctura.com/

Strategic Management Techniques to Reduce Costs in a Recession

By Justin Hitt, Strategic Relations Consultant, https://iunctura.com/

What is the first thing most managers do when money is tight? Obviously, if you spend less money you should be able to survive on less income, however it really matters where you cut costs. Many managers start hacking away on budgets with little fore thought, but here you will learn a strategic approach to reduce costs in any economy.

You can smartly reduce costs without reducing or crippling your ability to gain new income by:

• Understanding what your customer really wants and provide more of it through partners, concentrating primarily on a supporting the buying relationship.
• Asking front line employees if they see any way to reduce waste, rejects, or defective products, without reducing quality.
• Discovering ways to increase your customers order volume per transaction without reducing the number of transactions.
• Improving your operating efficiency by reducing duplication or organizing work flow in your overhead areas.
• Learning how to package processes so they can be done in fewer steps by less experienced staff.
• Enhancing individual employee job proficiency to help them do more in less time.
• Investing in the right tools for the jobs at hand, increasing your output while providing extra value to your customers.
• Testing marketing efforts that have worked well in the past against current efforts, keeping those producing the best results.
• Taking an inventory of best practices you use or should be using to improve business effectiveness, then applying those most likely to reduce costs.
• Seeking direct customer feedback on problems they face, then addressing each issue with the services you provide or can get through partners.
• Concentrating sales effort on past and existing customers who are most likely to need your products or services.
• Using the information you already have customers, seek to improve their experience.
• Implementing a full company recycle/reuse program to reduce material consumption and disposal costs.
• Reducing luxuries from the top down, doing more with less presents a good behavior to model at all levels of the company.
• Using reusable materials instead of dispensable ones especially in areas where such materials are frequently more durable and disposable products are not required.

Becoming a leaner company does not happen overnight, nor should it. To roll out these ideas you must have a clear plan so employees get the right picture. There are stories (too numerous to mention here) of employees taking cost cutting too far. It is almost a universal joke, just look at the series of commercials for Office Depot where the entire company shared the same pen.

How to Implement a Cost Reduction Strategy

Roll out starts with clearly established goals that reflect the company's long-term objectives, but addresses current issues. It must be clear what problem you are solving and that you will reevaluate the solution once objectives are met. Not all cost reduction measures need to become permanent policy.

Seek full employee feedback. Have a period to gather suggestions on reducing costs. Get everyone's ideas anonymously or in work groups by each program area. Compile these ideas and compare them with expert opinion. An itemized list will help you with the next step.

Develop a clear set of actions to apply with points of measure for each. It is important to know if your application is successful. Defining measures of success at this point saves you trouble later. Look for at least three measures that demonstrate (a) the implementation is on track, (b) how much progress you have made, and (c) what a successful implementation looks like.

With actions in hand, start a series of implementation with periodic reviews scheduled to check progress. You will want to be able to adjust your direction as you get closer to improving your situation -- or stop if cost reductions are hurting your companies ability to serve customers.

Finally, after a period of implementation, review your progress looking for successes and reward those who have contributed. The more you reinforce positive contributions the more likely you will get more of them. Cost reduction is not always welcome, but this step at least makes it a little easier.

Warning about Cost Reduction Measures

Cost reduction measures can go wild if not properly implemented. While much of these tips sound good on paper, you will find implementation to be the biggest challenge you will face. Here are some important things to remember before you start:

• Your employees hold secrets you need to become a more effective company, their feedback is critical to your success.
• In order to have buy-in, you will need to request and use employee feedback from those who will experience the cost reductions.
• Cost reduction efforts are a temporary solution for a short-term problem, regularly reevaluate whether you should continue their implementation.
• Some cost reduction measures can improve a company's future competitiveness and may continue after the situation improves.
• Always consider how a cost reduction will affect your ability to market, sell, or serve new customers, do not cripple your own effectiveness to save a dollar.

Why would you want to implement a cost reduction program in a recession or slow economy? Reducing costs while improving your ability to produce income is good anytime, but in a recession, it helps you deal with less income without depleting cash reserves.

A smart and strategic approach to cost reduction prevents reactionary stances many managers take on budget issues during challenging times. This proactive approach can help you improve your company for the long-term while addressing short-term market problems. Where can you reduce your costs today, while improving your ability to generate income?

© 2003 Justin Hitt, All rights reserved.
/ recession-busting | profitable-customers /

Justin Hitt is a strategic relations consultant and the author of "How to Get more Profits by Cultivating Your Best Customers". Clients include business owners and executives of medium to large companies worldwide. He can be reached at https://iunctura.com/

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