When times are hard, the cry always goes up to cut costs. It’s not the best place to start.
Over the past century or more, economists have come to realize that in a downturn, if you cut and cut again, your economy will simply shrink. In selective ways, you have to take risks, and spend money in order to give an economy the capacity to recover and grow.
The same applies to individual businesses. The commercial battlefield is littered with the corpses of those who have cut too hard, too often. During the 1990s, for instance, Britain’s formerly nationalized steelmaker, British Steel, doggedly insisted on cutting costs year after year – with the result that it put some of its own suppliers out of business, thereby incurring extra costs and sewing the seeds of its own demise.
One problem is the language we use. We should talk about saving money, not cutting costs. If you think only about cutting, it is hard to be creative. And it is possible to be creative about saving money. More than possible, it’s essential.
If you need to save money urgently, gather your senior management team together, take them away somewhere and have a no-holds-barred brainstorming session. You need ideas, and you get more of them when you have a variety of different perspectives. That’s what I do, anyway.
One thing you must do is to look at those costs that are often thought of as “fixed”. Take property, for example. If you own your property, you can sell it and lease it back to generate capital; if you rent, you can still devise a commercial plan that allows for a workable renegotiation. Regus has a number of high-profile clients who have abandoned fixed office space in favor of our flexible workspaces and found that not only do they save money on overheads, they also make productivity gains, as people make better use of their time.
Take a fresh look at your relationships with suppliers. You should be working with them as partners, looking for mutual benefit. It’s not hard to find common goals. Electronic ordering and invoicing, for instance, saves time, paper and money. But buyer and supplier have to ensure that their systems are compatible. So get to know them a bit better, keep your contracts flexible, and don’t commit to a fixed rate for a certain product or service for more than a year at a time. It will often suit you both to re-examine your terms of business in the light of market developments.
We always need to look at people. Sooner or later, most organizations in search of economies will look at headcount. It’s the wrong target. You shouldn’t be looking at headcount, but at productivity. If people are sufficiently productive – and in many cases you can calculate that an individual is a net source of profit for the company – then why would you let them go?
In order to make employees more productive, you have to take them into your confidence and be prepared to embrace new working practices. Some people could do much of their work from home or be closer to their customers – which can mean they cost less in terms of office space, not to mention their own commuting time. Use videoconferencing so you don’t have the expense of planes, trains and automobiles. Ask them how they would like to work and contribute to economies – making it their problem and not only the company’s.
Finally, you need to look at your corporate culture. Think about all the little things you can do to promote an energy-saving, money-saving, environment-friendly atmosphere at work. Encourage people to cycle and recycle. Don’t print emails unless you have to. Turn everything off at the end of the working day, unplug televisions and chargers (which consume a ridiculous amount of electricity), keep doors and windows closed if the air-conditioning is on, and turn heating down a notch or two as well.
These things are mostly common sense, but they set the right tone – one of mutual respect and consideration – while making a real contribution to keeping costs down.
In the course of exploring these and other possibilities, you may find you need to spend money in order to make savings over the longer term. Spend money on streamlining processes or investing in smarter systems and your initial outlay may soon be recouped by a reduction in your company’s permanent cost base. Perhaps you should outsource some back-office or non-core processes to low-cost countries. Or make a tactical promotional offer at the right time and in a carefully selected market, you might steal a march on the competition.
When it comes to hiring and paying staff, there’s one good thing about tough economic times – they make more talent available. So when you find good people, pay them well and treat them well. And don’t neglect training; whether you’re talking about new recruits or veterans, if they can learn to get more done with less, you’ll be making a net gain.
My attitude to spending is the same regardless of the state of the markets. When someone comes to me asking to spend money on something, I always ask: “Would you spend it if it was your money?”
If people answer no, or hesitate too long, they won’t find me reaching into my pocket. But if they say “yes, because…”, then I’ll be listening closely. The secret of success is to spend money on the right things at the right time – and there’s no better time than when competitors are retreating.
Whatever the economic pressures, you have to retain a long-term view. You have to give yourself the chance to grow, to be in position to take advantage when markets pick up.
A leader’s job is to create and foster a sustainable business for the long term. That depends crucially upon making your investments and divestments as selective and strategic as each other.