How To Avoid Crisis-led Cost Cutting

Last Updated Dec 16, 2009 5:11 AM EST

How would you change your business if your profits were cut by 50% overnight?

I was working with an executive team last week, helping them to create focus and alignment around their agenda for the next 12-18 months. During our discussion it became apparent that the business has a potential problem that, in the worst case, could halve their profits.

Unsurprisingly the team had done some work to determine how they could reduce their costs if the worst case was to happen. Despite recent actions they had already taken to offset the effects of the recession, the exercise helped them discover several interesting and exciting new ways in which they could more than cover the potential shortfall.

And here's the interesting thing: many, if not most of the ideas can be applied to the existing business whether or not the worse case happens.

So why do business leaders wait until there is a real crisis before taking the steps necessary to create a more valuable, higher performing company, and what can be done about it?

Here are five proactive steps to help you and your organisation stay on top of your cost base:

  1. Have an owner's mindset. Business owners do not allow unnecessary costs to take root and this attitude, if shared across a business, can add significantly to performance and profits. The best way for your team to have an owner's mindset is for you to lead by example. This means communicating its vital importance, holding yourself publicly accountable, following up on ideas and being relentless in execution.
  2. Have a vision, not just a crisis. People will not act on bad news alone. You must also be able to share a view of how removing these costs will help you and the organisation build a better future for customers, employees, partners and shareholders.
  3. Ensure top-level alignment. Employees can smell a split executive team from 100 paces. I was once involved in a cost reduction exercise where half the executive team only gave it lip service. Unsurprisingly, little real change was delivered and, as a result, a much tougher programme had to be introduced â€"- including some leadership changes -â€" 12 months later.
  4. Share the real story. If people have valuable information, they are much more likely to take action. So, what are the metrics that you use across your business? How do you create transparency around your unnecessary costs? And how do you establish accountabilities for cost and performance?
  5. Keep raising the bar. In the modern business world of continuous and unpredictable change, merely maintaining a particular cost standard means that you will be going backwards. You must, instead, expect to increase your operational efficiency and reduce costs relentlessly. This means creating a routine of proactive cost management. Think of it as establishing a new health and fitness regime, and avoid it becoming a series of crash diets.
What ways have you adopted to drive unnecessary costs out of your business?
(Pic: normanack cc2.0)
  • Stuart Cross

    Stuart Cross is a founder of Morgan Cross Consulting, which helps companies find new ways to drive substantial, profitable growth. His clients include Alliance Boots, Avon and PricewaterhouseCoopers.