As the slowing economy hit home, the pressure on broking businesses to cut costs will be greater than ever. In the first of two opinion pieces, Phil Harkness, vice president of management consultants A.T. Kearney Australia shares his experiences in helping companies achieve significant and sustainable cost reductions
As the slowing economy hit home, the pressure on broking businesses to cut costs will be greater than ever. In the first of two opinion pieces, Phil Harkness, vice president of management consultants A.T. Kearney Australia shares his experiences in helping companies achieve significant and sustainable cost reductions
There are plenty of strategies available to companies that are serious about cost reduction and when done well, such strategies need not have a negative impact on the company; instead, these can help it to become leaner, more nimble and more competitive.
Overhead reduction: applying process not panic
There are several components to a company's overheads, and one of the biggest of these is employee costs. That means when a directive comes to cut budgets, managers often take the path of job cuts to achieve those savings.
In many cases this is done hastily and in an ad hoc way, with the result that the volume of work remains the same, only with fewer people to undertake it. The consequences are predictable: a workforce resentful of its increased workload, lower engagement levels and reduced productivity. In most cases the costs creep back over time as the reductions are not sustainable.
The other downside of such an approach is that when each department is ordered to scale back their budget to the same extent, those with a leaner and more efficient team feel the impact more keenly, while those carrying extra 'fat' can afford to lose some of it - thus being rewarded for inefficiency.
So it's easy to see how such an approach encourages department heads to resist running lean during the good times, so that they can cope with cuts in the tougher times.
The solution is therefore to take a more strategic approach: applying a scalpel to the company rather than a hatchet. By understanding from the bottom up what the work is, what the outputs are and which people deliver them, it is possible to identify where savings can be made sensibly.
Take an analytical view
The first step is to take an analytical view. Break down work processes into their separate activities and analyse the distribution of time, resources and outputs. Then determine who receives these outputs downstream and how they are used.
This process yields detailed data about how every outcome in the company is achieved, which can then be used to determine the value or importance of the output and hence where greater efficiencies can be made.
At this point it becomes much easier to see opportunities for simplifying processes, removing redundant tasks and eliminating the duplications that often exist in large, complex organisations.
But these insights must then be developed into a detailed, staged implementation plan, which is where the real challenge lies.
A good plan avoids the necessity of a 'Black Friday' type of lay-off announcement, along with its damaging images of staff walking out clutching their belongings in a box. Such an approach is poisonous for company culture and reputation, and doesn't generally achieve long term results. The alternative is a considered, phased approach that reduces the pressure on remaining staff and the trauma experienced by departing staff.
Moreover, the savings to be made by this process are significant - up to 20% cost reduction is not uncommon. And unlike a panic-driven 'slash and burn' approach, the process makes the company genuinely more efficient and able to sustain a smaller cost base over the long term.
Phil Harkness' second opinion piece on cost cutting will appear in Australian Broker 9.2
