5 Ways To Cut Costs and Boost Revenues
In this economy, CEOs are looking to accomplish two things: increase revenue and reduce costs. For many, controlling and reducing costs is an afterthought; sometimes a distraction. Costs directly associated with revenue are typically monitored very closely. These include the cost of materials, sales, and labor. However, some costs that are associated with “running the business” such as accounting functions (e.g. payroll, A/P, A/R), human resource management, and records management can be easily ignored. Not controlling or monitoring these indirect costs typically leads to a snowball of problems, such as increasing waste, risk of fraud, inflated labor costs, and higher opportunity costs. Here are five ways a CEO or business owner can better manage and reduce their indirect costs:
1. Apply a “Method” to the Madness
One of the first things to do to gain control of an activity you or your business is performing is to apply a methodology or system to that activity. For example, instead of just shuffling through a random, unorganized stack of papers each time you are looking for something specific, you might sort the papers alphabetically by topic. Applying this system helps you find things in a matter of seconds rather than minutes. Multiply that savings over each time you look for something and you begin to see that something as simple as alphabetizing papers can save you money. Applying a standard method to a business activity is called “business process management” or BPM.
Automation doesn’t mean implementing robots or spending massive amounts of capital on large complex computer systems. Implementing an automated process can be as simple as building a macro in an Excel spreadsheet, or it can be as complex as implementing an entire new document imaging platform. In either case, similar to applying a “method to the madness”, you should be able to identify where time and/or materials are being saved and translate that into dollars.
Technology is the means to automation, but should not be confused with automation. Technology allows you to capture information at a scale that is unachievable in a manual process. Using the right technology for the right job should improve quality, increase speed and reduce waste. Technology should not be limited as ‘just the engine’ that drives work through the process improvement steps; it can also be used to introduce work into the system (e.g. scanning a paper document or receiving an email) and exit the work from the system (e.g. print fulfillment or output data interfacing). The right technology should make life easier for your employees and begin to compile valuable information on how well your company is performing both its core and administrative processes.
Information is key to process improvement, and having it at your fingertips so that you can identify key patterns and trends to determine the cost trajectory for your processes is critical. As a CEO, you are already familiar with doing this type of monitoring with financial data, market data, and when reading key performance indicators of your core business.
Information about all the processes in your business should be available to all the stakeholders in your organization, allowing them to perform the same analysis you would do for your business as a whole, but at a level that matches their area of responsibility. Now your stakeholders are empowered to make informed decisions on meaningful process change. They can see the benefits (or lack thereof) of those changes, beginning the process of driving out process defects and cost.
Sometimes it can be difficult for a CEO to relinquish some control over certain processes. How many times have you said, “All expenditures exceeding $1000 must have my approval.”, or “I must approve all new hire requisitions”? Doing this diminishes the agility of your company; letting your managers do their jobs, lets you do yours. Relinquishing ownership to your managers is much easier to do when method, technology, and monitoring are in place.
These ways of managing costs are time-tested. There are many methodologies on the market you can implement as well as software/hardware solutions that will provide you with the information necessary to more effectively run your business. As the CEO, it is up to you to initiate the process of change.
This blog post is an abridgment. Download the full IAG white paper, 5 Ways A CEO or Business Owner Can Reduce Costs, below.