In the whirlwind of today's transformative global economy, the past 24 months have taken us on quite a rollercoaster ride. We’ve witnessed a transition from an economy of COVID-19 where shortages were rampant and demand weak into a new phase which we call "growth's great pause", a period where interest rates are high, demand is transitioning from products to services, and capital is more constrained. Layoffs and corporate restructuring have become a regular feature across industries, leaving companies and their leaders with the not-so-pleasant task of tightening their fiscal belts and embarking on a quest for cost savings to counterbalance wobbly consumer demand. But tackling these challenges can’t just be about cutting costs, this isn't merely about reducing expenses. Instead, it's about crafting a lean, agile, and more efficient organization, ready to navigate the roads ahead. I recently had the opportunity to chat with a client who was grappling with the challenges of creating a more nimble and lower cost structure in his business. Here are a few beacons of wisdom we discussed on how to optimize costs while maintaining flexibility in his business.
Beacon 1: Analyze Your Critical Processes to Improve Speed and Costs
Through understanding the actual work and steps that go into delivering your products and services to your customers, you can better align against what your customer values. Conducting a detailed activity analysis is a lot like planning a road trip. In the 80s, embarking on such an adventure meant unfolding a physical map across the kitchen table. Selecting the best route required detailed analysis of the different ways to reach the destination, marking out possible detours, rest stops, and interesting landmarks.
In the context of your business, activity analysis involves a very detailed exercise of mapping out what specific steps and work are completed to deliver a product or service to customers. Then, just like discarding unnecessary detours on a road trip, the goal is to identify and remove the steps and work that don’t add any value to the delivery of that product or service. This process is focused more on the nuts and bolts of delivering your products and services rather than on "management".
What’s important is to always focus on the end customer experience and to continually prioritize where to focus, based on the value that each step adds to a customer. It’s important not to fall into the trap of “mapping the process for mapping's sake”, but rather for each discovery, ask: can I remove this or change this and still make it better for the customer?
Beacon 2: Adopt New Software - Selectively
Stepping into the modern business environment can sometimes feel like shifting from a manual transmission car into a high-tech, autonomous vehicle. Similar to features like cruise control and distance sensors that make a car easier to drive and safer, business automation through selective software adoption can reduces errors, increases process cycle times and frees up employees to focus on higher-value work and can be more productive. But selecting the right tools for your organization is key.
Low-code tools , like Bubble.io, has opened a new world of accessible automation for companies. Low-code tools simplify the development of web applications by minimizing the need for extensive hand-coding. Users can visually design and develop their applications using pre-built components and workflows, which greatly speeds up the process and makes it more accessible to non-technical users. Low code tools also offer features like hosting, database management, and integrations with other services, making it a comprehensive platform for app creation. The primary benefits of low code tools are (1) they speed up the time to define and deploy applications, and (2) they allow companies to automate quickly in critical areas that can add value with rapid Agile development and deployment sprints.
Companies who adopt both process automation tools and integrate 'clean data' across the enterprise see large benefits. Organizations can for the first-time leverage platforms like Microsoft's Power Automate and Zapier to link data across their systems with a few clicks and at low costs. Cloud-enabled 'clean data' solutions from companies like Snowflake are revolutionizing the storing, cleaning, and sharing of data across industries and functions like supply chains like never before.
Beacon 3: Upskill Your Team through Swing Capacity
As the CEO, you want to build the best team possible to achieve the company’s goals. For each addition to the team, you should be asking yourself – “Does this hire raise the average performance of my team”.
It's a constant balancing act of understanding individual proficiencies and the overall impact on the team's effectiveness working together. Consider conducting an inventory of your team's skillsets, systematically identifying each member's strengths and weaknesses, and discerning ways to enhance their expertise. Then evaluate them as a team.
As you review your findings, ask yourself these questions: Are there gaps? Can the team be trained? Could we benefit from
By outsourcing certain tasks to contractors, you're accessing specialized, niche expertise on an as-needed basis. You convert a potential fixed cost into a variable one, thus ensuring you're only paying for the precise skill and time required for a particular task.
The goal is not just to fill a seat or check off a list of qualifications. Instead, it's about augmenting the team's capabilities and creating an environment where each member can thrive and contribute positively. In cases where it's more advantageous, outsourcing certain tasks to specialists becomes a strategic decision just like taking your car to a mechanic to fix a check engine light, instead of trying to do it yourself.
Beacon 4: Proactively manage your supply chain
During the COVID-19 Pandemic (2020-22), supply chain management took center stage for most companies. Since 2000, companies invested time and money to ‘lean out’ their supply chains, making them more ‘just-in-time’ with lower inventory levels and making supply chains highly responsive to demand signals. When COVID started, many workers in factories were displaced, as factories worked to stop the spread of the virus and, in some cases, stopped operations entirely. These stoppages caused companies to scramble to replace suppliers with new firms, develop workarounds related to lower supply volumes, and adopt other emergency measures.
What did we learn from the COVID-19 pandemic in terms of supply chain resiliency and management and what are the implications for managers today?
First, companies need to map out their supply chains in detail, with an emphasis on contingency planning and minimizing single points of failure in their supply chains.
Second, managers need to invest in automation (and likely legal agreements) to require that suppliers provide timely information about their production schedules and commitments across the supply chain. New cloud-based technologies are giving managers visibility into their supply chain like never before and new AI tools are also improving the predictability of supply for managers who invest in these capabilities.
Third, managers and CFOs alike need to strike a new and better balance between their goals around just-in-time inventory management (which focuses on keeping inventory levels low in the supply chain) and supply chain continuity (where you explicitly keep inventory levels reserved so you don’t have supply chain stock outs). As the adage goes, “Saving costs is important and should be rigorously pursued, but not having supply can be catastrophic to revenue generation and business health”.
Beacon 5: Lean Process Improvement
Lean process improvement is about mapping out the entirety of a process, then identifying and cutting out the non-value-adding elements – think about when you used to have to map a road trip with no knowledge of traffic or road closures, but now we have apps that can find the best route, even if it isn’t technically the shortest. The goal of Lean process improvement is to enhance efficiency and eliminate waste within a workflow, thereby creating more value for customers with fewer resources. The benefits of Lean typically include fast process time, fewer errors, and lower costs of delivery. Lean projects are typically approached using an agile methodology, which prioritizes short, focused efforts to solve limited
business problems within a three-month timeframe. Over time, these 'lean bursts' taken collectively provide immense value to companies. Lean process improvement revolves around the core principle of diminishing variability and amplifying throughput.
Lean's goal is to streamline the operations of your business, just as you would streamline the supply chain or manufacturing process. By minimizing handoffs and reducing the time spent on non-essential tasks, you can expedite cycle times and boost overall throughput. This focus on eliminating waste and enhancing efficiency leads to increased productivity, cost savings, and improved customer satisfaction, positioning your business for long-term success.
A real-world illustration can be seen in automated customer service calls that cut costs, shorten response times, and improve the customer experience. In this way, lean process improvement is like packing for a road trip today - fitting in maximum value with minimum waste.
Beacon 6: Procurement and Supplier Management
Procurement holds the key to unlocking significant cost savings, which ultimately impacts a company’s cash flow positively.
To begin procurement optimization, it is critically important for companies to evaluate their historical spending. A big part of this review involves not just capturing the spending by supplier but also categorizing the spending into specific buckets, often called ‘commodity categories’. For example, let’s say you have transactions for laptop and desktop computer purchases across eight different OEMs globally. It’s not enough to capture this spend in the aggregate, you also need to summarize by laptop spend, desktop spending, and perhaps even based on categories like ‘basic PC’ or ‘advanced PC’.
Once you have your spending data properly categorized, you can then focus on the main actions needed to optimize and reduce your procured spend. Procurement involves two critical actions: consolidating suppliers for better per-unit costs based on increasing volume and negotiating longer-term agreements.
Consolidating suppliers allows businesses to capitalize on their purchasing power, securing more competitive pricing due to the increased volume of their orders. By streamlining their supplier base, they eliminate unnecessary complexities and drive down costs. It’s not about purchasing more units in total, it’s about leveraging the volume you currently use and negotiating with each supplier, to get prices down in your favor, but still leaving enough diversification of suppliers to not be at risk.
Negotiating longer-term agreements with suppliers is equally vital. Establishing longer-term partnerships provides stability, reduces procurement-related risks, and opens the door to improved pricing and favorable contract terms. This proactive approach to procurement enables businesses to achieve greater cost predictability and enhanced financial performance.
Like many areas of value creation, it is important to define a robust process around procurement optimization and to evaluate and adopt appropriate software tools to reduce manual work, improve the timeliness of data availability, reduce errors, and allow for more time for considerations around supplier strategies and negotiations. New software and cloud-based tools are being introduced into the procurement function, and keeping current is an important consideration for any procurement practitioner.
Strategic procurement practices have the power to revolutionize a business's financial performance. By consolidating suppliers, negotiating longer-term agreements, and constantly seeking cost efficiencies, businesses can unlock substantial cost savings, boost profitability, and position themselves for long-term success in a competitive market.
Beacon 7: Evaluate Your Organizational Structure and How You Manage People
Imagine your organization as a multi-layered structure, with various levels of management. Spans and Layers analysis aims to strike the right balance between these layers and the spans of control within them. In business, as on our road trip, too many layers can lead to inefficiencies, bureaucracy, and slow decision-making. On the other hand, too wide spans of control can stretch managers too thin, hindering their ability to provide effective guidance. This evolution mirrors how businesses should think about organizational structure.
By conducting a systematic evaluation of reporting lines, decision-making processes, and information flows, businesses can identify opportunities for consolidation, streamlining operations, and empowering employees at all levels. This kind of analysis promotes agility, improves decision-making speed, and ensures information flows seamlessly throughout the organization.
In the end, the goal is to create an environment where every member of the organization knows their role and plays it at the right time, just like a well-coordinated road trip. Everyone has their part to play, but modern tools and clear role definition help to make sure that the journey goes as smoothly and efficiently as possible.
The Journey Ahead
The journey of cost optimization and value creation requires companies to strategically navigate their way through this terrain and remember that with every economic twist and turn companies are presented with challenges, but also opportunities for growth. Just as any road trip requires planning, careful resource allocation, and adaptability, businesses must continually refine their strategies and practices.
Navigating the complex landscape of a rapidly evolving global economy requires businesses to be proactive, innovative, and resilient. Faced with unpredictable market fluctuations and rising challenges, companies must adopt a strategic approach to cost optimization, ensuring they continue to provide value to customers and shareholders, while emerging stronger and adaptable.
A holistic approach should include refining critical processes, leveraging technological advancements, and focusing on efficiency. Modern tools such as low-code applications, process automation, and data integration platforms are no longer options, but necessities, playing a key role in operational agility. Alongside this, businesses must also re-evaluate their talent management strategies, and know that they can utilize the power of outsourcing for specialized skills while creating a dynamic, cost-efficient workforce.
The emphasis should not merely be on survival but on resilience, adaptability, and a commitment to consistent quality delivery. While the road ahead may be steep and filled with unknowns, strategic foresight and perseverance can transform these potential hurdles into steppingstones towards growth and operational excellence.
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