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So you need to cut costs? Here's how...

Derek Hirst, Flowers Gallery

You're heading a department and have been ordered in no uncertain terms to cut administrative costs by 10%, 20% or 30%. That's the hypothetical – but not uncommon – scenario discussed by Kevin P. Coyne, Shawn T. Coyne, and Edward J. Coyne, Sr in Harvard Business Review.
 
The Coynes offer some guidelines:
 

  • 10% savings can be made by incremental ideas with minimal impact on other departments.
  •  20% savings can be made with redesign or reorganisation ideas (often eliminating the lowest-value activities) with moderate impact on other departments.
  •  30% savings can be made with cross-department and programme-elimination ideas – but these have the most potential to be disruptive to the organisation.

 
10% REDUCTIONS
 
The Coynes suggest the following incremental ideas for 10% savings:
 
1. Consolidating incidentals. Combine activities and events across multiple departments, also cross-scheduling outside resources (facilities, trainers etc).
 
2. Taking overdue personnel actions. Restructure the jobs of people who aren't fully busy and lose the underperformers.

3. Making reductions in department management spending. The authors estimate that you should be able to cut the number of supervision hours by approximately 10% each year providing that the department's duties remain basically unchanged and there has been little turnover.
 
4. Getting control over 'miscellaneous' spending. Between 15% and 20% of spending in most departments will not have been managed closely, so take control of it and see what savings can be made.
 
5. Holding down pay rises. Check with human resources to gauge your employees' pay relative to the marketplace. As long as they are not underpaid, cut salary increases in the department to 1% or 2% less than the company's average from the previous year.
 
6. Re-examining rejected cost-saving ideas. Re-propose any productivity-enhancing suggestions that were rejected in the past because of other priorities or previous constraints.
 
20% REDUCTIONS
 
The Coynes advise that it is possible to achieve 20% savings with the following redesign ideas:
 
1. Talking to your counterparties. If the duties of your department involve services for other groups in the organisation, it could be that your efforts are exceeding value and might not be justified after all. Look for opportunities to eliminate unnecessary liaisons and coordinators, and reduce excessive service levels.
 
2. Changing the process. Administrative processes often outlive their efficiency or effectiveness. Look for savings that could be made through reduced business requirements or switching from manual to electronic processes. Changes in shifts and hours could also be useful.
 
3. Moving away from a 'belt and braces' philosophy. Look at where you are wasting resources by being overcautious about scenarios that are unlikely to occur.
 
30% REDUCTIONS

These cross-department and programme-elimination ideas have the potential to achieve savings of 30% or possibly even more, according the authors:
 
1. Coordinating parallel activities. Sometimes, separate departments conduct similar activities or make the same purchases independently.

If that's the case, coordination could make significant savings, especially through negotiation with suppliers.

2. Shifting the burden to the location that's most efficient Use 'budget season' to explore the possibility of shifting spending to another department that is more capable of bearing the load.
 
3. Eliminating duplicated analysis. It's not uncommon for multiple departments to analyse the same data, so savings can be made by eliminating unnecessary duplication where it occurs.
 
4. Eliminating meetings and forums with low value. Organise a cross-department audit of all regularly scheduled meetings to identify any which could be redirected, consolidated or eliminated.
 
5. Restructuring or cutting cross-department activities. Don't be afraid to tackle even the "sacred cows". You might be surprised at the added efficiency that the changes bring, as well as the reduced cost.
 
6. Eliminating programmes. Start with the least valuable ones to minimise the pain.
 
7. Reducing the burden you put on others If you find ways in which other departments are overserving yours, let them know. Seek their opinions and pinpoint the areas where you could do without their help.

Source
When You’ve Got to Cut Costs – Now
Kevin P. Coyne, Shawn T. Coyne and Edward J. Coyne, Sr.
Harvard Business Review

 

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