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Top tips: 18 cost cutting ideas

Published
by
Business Link
on 11 September, 2008
in Finance and Strategy & Operations
. 1 Comment

If cash-flow is an issue, or you are just looking for ways to cut costs to boost profitability, here’s our collection of money saving ideas.

We’re really keen to hear your views, so if you have your own cost-cutting tip please share it with our readers. You can comment directly on this article or email us.

Also check out last month’s tips to help you frame the right mindset for cost-cutting.

Master your finances
An in-depth, up-to-date awareness of your financial position is crucial. Use financial tools to help you keep track. If your finger is firmly on the financial pulse you’ll be more able to identify cost rises (such as rising energy costs, interest or currency rates) and react to them quickly.

Make every penny count
It’s easy to get wrapped up in the big costs and forget about the little ones. Go through every budget line-by-line, examining each individual cost. For each, identify waste and areas where costs can be trimmed.

Set goals
Once you’ve identified areas for potential cost savings, set reduction targets. Be ambitious but also be realistic, so you don’t impact the quality and effectiveness of your operations.

Consult your employees
Every employee - from top to bottom - has their own area of expertise. Ask them to look within their world and identify where money is wasted and how costs could be cut. (Make sure your cost-cutting moves are seen as positive steps to avoid waste rather than desperate attempts to raise cash.)

Pick your battles
The adage goes that 80 per cent of your sales come from 20 per cent of your customers. Identify high-value customers and make it your priority keep them loyal. Cut costs by exhausting less resources on your least valuable customers.

Shop around
Suppliers - from gas companies to professional services firms - might be reducing prices to boost sales, so shop around to find the best value. Your current suppliers might also be open to price negotiations to retain your loyal custom. (Read about negotiation).

Save energy
Calculate your carbon footprint and work out ways to cut it (which could be as simple as turning monitors off standby at night). Every tonne of carbon cut saves the environment and saves your money.

Get people talking
Customer recommendations and word-of-mouth are powerful marketing tools. If you have a satisfied and loyal customer base, figuring out ways to get them talking (such as refer a friend schemes or viral email campaigns) could help cut other more costly acquisition marketing activities.

Review your IT
Look at open source or hosted cloud software services as a way to reduce IT hardware/software costs. Go paperless; a paperless office could cut your stationary costs and help save the environment.

Enable mobile working
Nowadays, many employees who regularly attend off-site meetings are equipped with portable computers. Adding the ability to get online - via mobile broadband connections, for example - could enable employees to work remotely in-between meetings, minimising travel expenses.

Tighten up your supply chain
Work with suppliers, partners (and potentially customers) to improve supply chain management. This could lead to better managed logistics, increased process efficiencies or a reduction in waste or stock / raw material requirements.

Cut recruitment costs
Your current employees might already know the perfect candidate, so try referral schemes to source job applicants. Recruit direct (but be sure your recruitment practices are up to scratch) and/or advertise on online job sites. Recruit internally by developing existing staff into new roles.

Work with students
Students crave experience, are hungry to do well, and come from their studies brimming with ideas. They are a valuable, cost-effective talent pool.

Show employees you care
If employees feel valued they are more likely to be motivated, productive and loyal. That translates into increased efficiencies and reduced recruitment costs.

Offer benefits in kind
If you can’t afford to give pay rises, explore benefits in kind instead. You could offer benefits such as gym membership, luncheon vouchers or health insurance; or you could even distribute share capital to key talent.

Conduct virtual meetings
Use voice over IP, webcams or video-conferencing to conduct virtual meetings. Explore online collaborative tools which let participants simultaneously work on documents in real time. Such services offer benefits which counter-act the lack of face to face contact, and also help minimise travel costs.

Bootstrap projects
The term bootstrapping is often used to characterise how many ‘dot com’ ventures develop new, early-stage ideas. It’s the art of proving a concept with next to no cash, and usually encourages lots of imagination and ingenuity. Not a suitable approach for all projects, but for some, it may reduce risk, minimise cost and spur innovation.

Innovate
A new idea (or an old idea that is new to you) which solves a costly problem could help improve the cost-efficiency of your processes. Innovation could also improve the quality of your products and services, delivering competitive advantage.

Marketing : focus on value

Published
by
Business Link
on 11 September, 2008
in Sales & Marketing
. 0 Comments

Marketing budgets are prime candidates for cost-cutting during times of economic hardship. It’s an expensive pastime, and unless marketing delivers specific and measurable results, it’s hard to justify its existence.

At the same time, some businesses significantly increase their marketing spend during downturn. Costly, yes, but it’s what brings in customers and bolsters the bottom-line.

Marketers can certainly cite evidence to justify their existence during downturn. Research conducted by business publisher McGraw-Hill during the 1980s recession found that companies increasing marketing spend saw up to 256 per cent sales growth over companies that curbed promotional activity. It is, after all, logical to think that as wallets shrink and consumer needs change, more must be done to drive sales.

Trigger-happy marketing seems to be getting popular as times get tough again. Recent research from the Open University’s Small Enterprise Research Team indicates that 49 per cent of the 700 businesses surveyed believe increasing marketing spend is key to beating the downturn. 42 per cent of businesses also planned to refocus their businesses to push into new markets.

But wait, one minute, before spending more on marketing… Just as economic downturn affects you and your marketing budget, it affects consumers too. It impacts their wallets and their minds. As a result, it’s important to re-evaluate your understanding of consumers, and re-think the way you speak to them. Important enough that you should do it now, before increasing marketing spend.

When consumers - of the domestic or corporate variety - decide whether to buy a product or service, they weigh up the costs against the value proposition that marketers’ put before them. Price and value may also be compared with competitor offerings. In doing so, consumers judge what value their purchase would deliver, and then decide whether and where to buy.

The customer value proposition represents the collection of benefits you offer in return for payment for your goods or services. It might laud your superior quality or highlight your unbeatable prices, or present specific benefits such as ‘our energy efficient kettle saves the environment and saves you money’.

During healthier economic times, focussing your values on superior quality or innovative design might have drawn customers through your doors. Today, those same customers might be feeling the pinch, and may intrinsically look for more financially orientated values. This doesn’t necessarily mean you should cut prices, just that your value proposition could more explicitly focus on the financial values of purchase. That innovative kettle might be expensive, but if it saves the earth and saves you a few pounds on energy bills, it might still appeal to even the cost-conscious consumer.

In essence, it’s about getting into the minds of today’s consumer, and re-evaluating your value proposition within that context. It’s about experiencing economic downturn through the eyes of your audience, and understanding how the current climate changes their needs and their perceptions of your brand.

Of course, none of this obliges you to change your value proposition. Your audience may not exhibit changing needs resulting from economic conditions. Or, you may decide that repositioning your values would devalue your brand; a dynamic which could be hard to reverse in the long-term. Nevertheless, an awareness of your value proposition and how it sits in today’s marketplace may help you understand and anticipate the economic and environmental influences affecting your sales and marketing.

Re-thinking your value proposition can also help you engage with new market segments or increase market share. A simple value proposition that assures superior quality but also focusses on financially-orientated values could, for example, allow you to better engage with market segments that previously dismissed your products or services as too costly. To emphasise again: it’s not about price, it’s about what values and benefits you focus on when you talk to consumers.

At the beginning of this article we talked about the virtues of spending more on marketing during economic slowdown, and uncovered that a sizeable percentage of businesses are planning to do just that as a key tactic in beating downturn. If re-thinking - and where necessary re-defining - your value proposition leads to more relevant marketing, the extra money you inject into the task will pay dividends. That alone could help you survive downturn, but also help you draw customers away from competitors, move into new market segments, or expand your market share.

One choice quote concludes this discussion nicely… Mary Beth West, Chief Marketing Officer at Kraft Foods, talking specifically about marketing tips during economic downturn, commented that: “Once you’ve figured out that value proposition, redefined… Spend into it. Because unless they hear about it, it’s not going to make a difference.”

Re-thinking your value proposition might seem like a challenge. But give it a minute, because it might be what makes your extra marketing efforts successful.

More info - Sales & marketing: the basics

HR focus

Published
by
Business Link
on 11 September, 2008
in HR & People Development
. 0 Comments

This month: What employees look for in a perfect boss; Six million sue their employers; New national minimum wages rates in October.

The perfect boss

Research from the Learning and Skills Council shows that a commitment to training and professional development tops the list of employee wants. In contrast, employees are less engaged by  bosses attempts to create a relaxed and social working environment.

The survey, which questioned over 2000 people, found that 61 per cent of employees “want to work for an employer who demonstrates a commitment to training”. Over half of respondents believe the perfect boss is “someone who believes in their employees’ futures by encouraging professional development”. This shows that employees aren’t just hungry for training, but hungry for a boss who genuinely sees value in employee development.

In addition, 60 percent of respondents highlighted the importance of a boss giving credit for great ideas, which underlines an employee’s need to feel respected and valued by bosses and peers.

Less wholehearted gestures are far less valued, according to the research; just 17 per cent of respondents were engaged by a boss who regularly organises subsidised social events, and only 19 per cent of employees were interested in bosses who let them leave early on a Friday.

These finding show that - on the whole - employees value bosses who are genuinely committed to their professional development. And whilst gestures such as social events and early Friday finishes may not go unappreciated, they do not act as a substitute for a committed, development focussed boss.

Training is clearly a big issue for employees, and employers would do well to remember that. But it’s also important to ensure that training is considered and implemented with the business’s interests in mind. As previously discussed, it’s important to consider the various expectations for training, from employees’ needs through to the ’strategic expectations’ of the business itself. We also discussed how pinning down the strategic needs of a business can be achieved through a training needs analysis.

By satisfying the training and development needs of both the employee and the business, the perfect boss can offer universal benefit for all.

In November (following our October Legislation Update special edition), we’ll explore e-learning; a tool which offers cost-effective benefits for all, from directors to assistants.

More info:

Fit the training to your needs

Find out more about skills and training

Six million sue their employers

Recent YouGov research indicates that 11.8 million UK employees have suffered from an illness or injury caused by their job in the past year. An astonishing 6 million have sued their employer as a result.

One-quarter of employees taken ill suffered from stress and anxiety, and another quarter from back problems. Importantly, such conditions are not typical to a particular industry sector or job role, indicating that a wide range of businesses are susceptible to illness or injury of these types.

54 per cent of the total 11.8 million sufferers - which equates to 6 million people - have subsequently sued their employers.

Such widespread litigation suggests employees are becoming more willing or able to sue their employers. This may be because suing is easier to do these days, but it may also be because employees are becoming increasingly aware of an employer’s responsibility to their employees. Looking at the figures, it seems apparent that the majority of sufferers believed their illness or injury was due to employers shirking their responsibilities. If that’s the case, it’s right that employers should pay the price.

This trend underlines the importance of risk management in the workplace. Risk assessments ensure employees’ health and well-being are safeguarded, thus reducing the potential for illness or injury from the outset. Fulfilling such obligations - and crucially, correctly documenting them - are important steps for prevention but also for proving legal responsibilities have been met.

Protection, in the form of liability insurance, also ensures your business can deal with costs and compensation claims arising from a legal dispute. If you employ people it is most likely that liability insurance is legal requirement.

More info:

Risk assessment

Liability insurance

New National Minimum Wages Rates, 1 October 2008

Revised national minimum wage rates come into force on 1 October 2008.

For pay reference periods* beginning on or after 1 October 2008, employers must pay eligible workers the following:

•    £5.73 an hour to adult workers aged 22 and above
•    £4.77 an hour to workers aged 18-21 - the development rate
•    £3.53 an hour to workers aged below 18 who are no longer of compulsory school age
•    £4.46 per day as the daily accommodation offset.

More info on the changes - New NMW Rates - October 2008

More info - Understanding National Minimum Wage Law

*What is the Pay Reference Period?

The pay reference period is the basis of calculating whether the national minimum wage is being paid to an employee.

The pay reference period is usually the interval at which an employee is paid, i.e. daily, weekly or monthly. For the purpose of calculating the national minimum wage, a pay reference period can be no longer than one month.
Pay allocated to a pay reference period includes:

  • pay received during that period; and
  • pay earned in that period, which is not received until the next period. This may include overtime, bonus or commission payments earned but not paid until the next period. If payments are delayed by more than one pay reference period, they cannot be referred back to the period it was earned, so should be counted in the period it is paid.

Employers do not have to pay the minimum wage for each hour worked - employees must be paid the minimum wage on average for the time worked in the pay reference period.

More Info - The Pay Reference Period

Top tips - cost-cutting

Published
by
Business Link
on 14 August, 2008
in Finance
. 1 Comment

We began compiling a list of practical cost-cutting tips, but quickly realised that any cost-saving measures should be considered prudently, with an objective, forward-thinking frame of mind… With that in mind, here’s our top tips for framing the right mindset for cost-cutting.

Next month we’ll publish our list of practical cost-cutting tips.

In the meantime, if you’d like to share your own practical cost-cutting tips please email us .

Think prudently… Sound judgement and an eye to the future are crucial to effective cost-cutting. Every action has a reaction, so carefully consider what impact cost-saving measures may have later on. Careful, prudent thinking means every penny is spent - or saved - cautiously and confidently.

Waste not want not… Waste is an evil you can do without. It’s often hard to find, and sometimes harder to stamp out. But ultimately: it serves no purpose and it costs you money. Even incredibly wealthy companies (like Google, for example) are obsessed with eliminating waste from their processes and operations. Why? Because it’s the number one most effective way to cut costs without cutting quality. By definition, waste adds nothing, so taking it away is a win-win. Being conscious of this fact when cost-cutting might help you distinguish between valuable and detrimental cost-saving measures.

Cost-cutting equals competitive advantage… Cost cutting might be a necessity now, but learn to do it effectively and it’ll become a competitive advantage in the future. Effective cost-cutting (such as the elimination of waste) lets you offer more competitive prices to customers and helps maximise profits and financial resources for future development. Short term spending curbs may be a necessity now, but think about how you can make sustainable savings that allow your business to become more competitive in the long-term.

Create a positive mindset… Permeating a positive mindset amongst your employees makes cost-cutting an opportunity and not a threat. You might need to cut costs to survive, but look at it another way: you need to cut costs to be more successful. It’s a subtle but valuable distinction. For example, employees might feel more motivated to cut costs if they believe such actions contribute to a company’s long-term competitive advantage and success, rather than just short-term survival.

The cost of not spending… Sometimes, not spending comes at a greater cost than you initially realise. Let’s say you adopt a do-it-yourself approach to marketing to avoid out-sourcing the task to an external agency. It may save money upfront, but at what cost? You run the danger of failing to attract new customers because you’re bad at marketing, thus losing more revenue in the process. In addition, you run the risk of taking your mind off your day job, which might further damage your business. By evaluating the ‘real’ cost of not spending, you can more effectively decide if cost-cutting measures are counter-intuitive. You may still find areas where you can cut costs, but sometimes, the best way to save money is to spend it.

The cost and benefit… Every pound offers a varying degree of benefit depending on how you spend it. £100 spent on a buffet lunch might seem like a waste, unless it bolsters staff morale and productivity during your monthly meeting. But then, that’s £1,200 spent on lunches over the whole year. That money could be spent on an annual away-day which helps foster a more productive team dynamic. Both offer similar benefits, so both are arguably valid costs. But which offers the most benefit? If you can measure the distinct benefits associated with distinct costs, you can begin to make more balanced, cost-effective spending comparisons, and thus more accurately decide where the precious pounds should and should not go.

Think opportunity cost… Every pound you spend denies you interest payments you would have received if you’d left that pound in the bank. Spending a pound on one thing also denies you the opportunity to spend it on something else, that might have delivered more benefits. An appreciation of opportunity cost may help you focus spending decisions in the right places, which will ultimately help you cut costs.

Know your priorities… Every pound you spend either contributes to your priorities or detracts focus away from them. Think back over your key objectives and justify spending and cost-cutting decisions within that context. If cost-cutting is needed, weigh up factors such as cost/benefits, opportunity cost and ‘the cost of not spending’ within the context of your organisational objectives. Doing this helps achieve focus and direction when cost-cutting measures are inevitable.

Negotiation

Published
by
Business Link
on 14 August, 2008
in HR & People Development and Management & Leadership
. 0 Comments

Two ways to negotiate a bigger and better slice of the pie…

Understand your opponent

It’s long been said that understanding one’s opponent is key to effective negotiations. Getting to know your adversary helps identify what they want, but also what they are willing to give.

Recent research supports this assertion, but argues that successfully understanding your opponent means getting to know the head, and not the heart.

The research, led by psychologist Adam Galinsky of US-based Kellogg School of Management, draws its findings from three case studies examining the relationship between successful negotiations and a negotiator’s approach to understanding his opponent. In its findings, the study makes a clear distinction between two approaches: perspective taking and empathising. The former approach fosters more effective outcomes for both parties, while the latter tends to hinder mutually beneficial negotiations, the study argues.

The research defines perspective takers as “able to step outside the constraints of their own immediate, biased frames of reference”. Perspective taking focusses on unbiased, objective and rational judgements about an opponents interests, thoughts and likely behaviours. Showing empathy “leads individuals to violate norms of equity and equality and to provide preferential treatments”. Empathising permits greater sympathy and compassion, and creates an overbearing desire to make an opponent happy.

The study’s author, Adam Galinsky, concludes: “Negotiators give themselves an advantage by thinking about what is motivating the other party, by getting inside their head… Perspective-taking gives you insights into how to structure a deal that can benefit both parties. But unfortunately in negotiations, empathising makes you more concerned about making the other party happy, which can sometimes come at your own expense.”

The difference between both approaches is subtle, but crucial. In essence, it’s about distinguishing between what an opponent is thinking and feeling. Wandering too far towards an opponent’s emotional needs serves only to weaken your position in negotiations, resulting in a one-sided outcome. Perspective taking is more objective, and helps deliver more mutually beneficial outcomes.

Size up the pie

In a negotiation, each participant has a “bottom line”. This represents, for example, the most a party is willing to pay for something or the least they are willing to sell something for. The space between the bottom line of each opponent in negotiations is often referred to as the “bargaining zone” or “pie”. It represents the range of value available to negotiate over.

Knowing your opponent’s bottom line lets you size up the pie. Your negotiations can then focus on finding a optimum negotiating point which gives you a good or fair slice of that pie. The challenge: your opponent won’t reveal their bottom line, so sizing up the pie is a matter of judgement or guesswork.

Herein lies the danger, so says recent research by professor George Wu (University of Chicago School of Business) and Richard P. Larrick (Duke University). Wu and Larrick argue that costly mistakes can be made when sizing up the pie; mistakes which are hard to detect, and therefore hard to learn from.

Misjudging an opponent’s bottom line poses varying degrees of danger depending on how far off your guess is. Modestly ambitious expectations are likely to be naturally corrected during the negotiation process, but wildly ambitious demands may be aggressively opposed and could irreparably damage negotiations. As a consequence, Wu and Karrick argue, we tend to make less ambitious demands in the first place - reducing the size of the pie to begin with. To avoid being perceived as greedy or unreasonably demanding, we make modest assumptions about an opponent’s bottom line, and thus the size of the pie available.

This approach helps avoid the dangers of overestimating an opponent’s bottom line, but as a consequence you end up negotiating over a smaller pie. Your opponent may concede a larger slice of that smaller pie, but that slice may ultimately be less than you could have negotiated, had you judged the pie to be bigger.

Sizing up the pie is a complex challenge for negotiators, and it’s not an exact science. Experience and learning from previous mistakes counts for a lot. But ultimately it’s down to sound judgement, which cannot easily be taught. Of course, judgement can easily be strengthened with adequate, well-reasoned preparation. As discussed earlier: getting inside your opponent’s head (and not their heart) helps identify their key motivations and wants, which could allow you to better judge their bottom line, and thus the size of the pie available.

More info - Developing a negotiating strategy

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