Why cost optimisation matters
Gary Thompson, Transformation Consultant and member of the Definia Associate Community, shares insights on how cost optimisation can benefit your organisation and offers practical advice for getting started.
There you are, sitting on the Board of Directors, collectively responsible for corporate objectives including:
- Improving gross profit margins and bottom-line results
- Driving growth by increasing sales, expanding markets and outpacing the competition, and
- Ensuring day-to-day operations of the business run efficiently.
However, since the Covid-19 pandemic, organisations have faced global disruption and uncertainty, both commercially and politically. This is especially true in the UK, where the transition of government has caused a change in ideology, direction and business support over the past year. These challenges have made the targets of company leaders harder to hit.
In this article, I’ll explore how cost optimisation can help businesses achieve key financial goals, including improving margins, enhancing profits and increasing operational efficiency.
What is cost optimisation?
In my experience, if a client mentions cost optimisation to me, they usually mean cutting spending by slashing business expenses and unnecessary costs to maintain profitability in times of shrinking revenues.
Trimming the fat from within a corporate cost structure? Quick, bring in the accountants!
It’s clear that cost optimisation covers a multitude of approaches to ensure cost efficiency and increase the bottom line. To find the right approach, you must understand the objectives: what are you trying to achieve from a cost optimisation exercise? Is it…
- To do less with less resource or effort?
- To do the same with less resource or effort?
- To do more with the same resource or effort?
- Or the real utopia – the “Ta-Dah” moment – to do more with less resource or effort?
A bit too simplistic? Maybe, but achieving each of these varying outcomes would leverage a different approach, depending on your specific needs and circumstances.
Your secret weapon: Process optimisation
There are several approaches you can take to optimise costs in your organisation, but one area that is often overlooked is the optimisation of the processes you use.
This involves analysing and improving your business processes to increase efficiency, productivity, and reduce costs. Process optimisation is not difficult; it involves identifying current processes, analysing them, and making necessary improvements. However, if not tackled methodically and aligned into the corporate strategy, the exercise can become messy and iterative.
The aims are simple: to eliminate unnecessary steps in a process, reduce the number of people involved, or automate a process to reduce human error and increase efficiency. The importance of process optimisation cannot be overstated, as other benefits can flow from the same exercise, helping organisations achieve:
- Increased efficiency and productivity.
- Reduced actions that add no value
- Enhanced resource utilisation.
- Improved customer satisfaction (enhancing speed and reducing errors in the customer journey, as well as enhancing the overall experience).
All of this leads to reduced costs and increased profits.
Fix first, automate later: The two-phased approach that actually works
To get the maximum value out of a process, I often take a two-phased approach: fix first, automate later. Starting with tackling process improvement, cost reductions can be achieved by:
- Identifying and eliminating waste
- Standardising processes where possible, to increase predictability and efficiency
- Reducing the cycle time of processes to increase productivity
- Implementing lean methodologies to increase efficiency
- Removing barriers to information flow and knowledge sharing
- Improving quality control to reduce rework and increase efficiency
- Optimising resource utilisation to reduce costs
- Implementing continuous improvement processes to sustain the improvements achieved
Making it stick: Automation and consolidation
The improvement phase would be followed with initiatives to automate internal processes and workflows, including automating outstanding manual processes to reduce human error and increase efficiency.
One further process optimisation route is to bring together similar activities from across the organisation under a common governance, for example, consolidating your accounting activities into one centre, or providing a common billing system. This concept is not for everyone, but for a geographically challenged or industrial conglomerate, consolidation can bring further benefits in process standardisation, which will reap further cost saving when you automate those costs.
Five further places to find hidden savings
Additional target areas to optimise costs and spend include:
- Outsourcing in-house provided services: For example, outsourcing office cleaning to a facilities management company, instead of employing your own cleaners, reduces the associated cost of directly employing them.
- Developing or enhancing your operating model to enable it and your workforce to adapt to changing demand or ways of working promotes greater resilience.
- Reviewing overall overhead spend: This includes spending on areas such as training, entertainment, travel policies, as well as streamlining the review and governance process to decrease spending on these types of expenses.
- Reviewing overall supply chain spend: The objective here is to extract maximum value at a reduced cost with the same or better quality, e.g., gaining lower prices through consolidating buying power.
- Matching supply with demand by phasing out some of what you do and repurposing assets, such as existing technology, processes and tools, into something that generates better value, such as ceasing production of products that are past their sell by date and fail to serve the customer’s changing needs.
Key takeaways
As a business operations improvement guy, my initial focus is always on processes, because they are the heartbeat of an organisation. Process efficiency and effectiveness are key drivers of cost reduction and optimisation, but they also have other indirect benefits in areas including customer satisfaction.
Ready to to supercharge your cost optimisation strategy? Stay tuned for the next instalment of this series, where I’ll unpack business process optimisation, covering process improvement, automation and consolidation through Shared Service models. It’s where efficiency meets impact — don’t miss it!
How Definia can help
Your business faces unprecedented challenges, but within every challenge lies opportunity. If your organisation is ready to unlock cost savings through strategic process optimisation, get in touch with us today.
