Most SMB CEOs around the world are fighting a daily battle that effects crucial decision-making, this battle is the fight against the reduction of daily operational costs. When overheads are high, the organisation is forced to operate on thin margins thereby reducing profitability. But, for the economies of scale to work its magic, you must invest! Well, the saying money makes money is true after all. The trick is to invest in your core business extensively. Yet, how can you reduce operational costs? Here are a few things you can consider to make a cost cut stick.
Outsourcing jobs that fall outside the realm of your core business competencies not only garners immense amount of time but also immense profits that arise from the focus on the core competency. Outsourcing jobs will make it easier, efficient, and faster and often times much cheaper as well. To give you a little more clarity, let’s assume this hypothetical situation. Imagine your core competency lies in the manufacturing of glass. A great website that would attract your buyers like a magic mirror is not a harmful ask. If outsourced, you could get the results you desire without much trouble. However, if you decide to make one yourself you would be wasting one of the most important commodities you possess, which is your time. In another scenario, if you decide to recruit an in-house web developer you will be increasing your operational costs, and if the output is below standard, well there isn’t much you can do. The best solution would therefore be to outsource the jobs that fall outside your domain expertise.
Another way to reduce operational costs is to automate any task that is prone to human error. Tasks that are of a repetitive nature that does not add any human-value in the business can be automated. Automating business processes allows you to break into the market faster and provide quick customer service. When the prices remain flat it helps the margin to improve considerably. Although software comes with a high upfront cost, the long-term benefits of automation will definitely help in scaling the business. Automation can help free up ample amount of time to help individuals concentrate on their core business.
According to a study conducted in 2017 by PwC, the 21st CEO Survey, revealed that one in four executives made a decision to make a cut across the board. This process would inadvertently lead to making the organisation weaker. The simple trick is to invest in areas that make your organisation unique, invest in your USP’s and moreover invest in your critical direction of the business, while cutting costs everywhere else. Organisations can meet their financial goals by investing in value-creating activities and cutting costs in the other areas. A strategic approach to cost-cutting is required as it is extremely crucial to determine where a cost cut with will adversely affect the business. Cutting costs equally across all departments of the organisation might sound like the most sane and fair decision. However, CEOs need to make a more strategic game plan on this front.
Often, what goes unnoticed is that a small change could have a large consequence. Organisations need to understand the fine line between reducing costs and maintaining resources for future scalability of the organisation. The company must segment its operations based on high-value and high-complexity issues from the low-value ones.