In September 2016, Straits Times reported that according to Monetary Authority of Singapore (MAS)’s latest quarterly survey, it is expected that the Singapore economy will grow 1.8 per cent in 2017. This is notably slower compared to their June forecast of 2.1 per cent. Coupled with the looming uncertainties as a result of the newly elected American government and many other factors, Singapore companies are increasingly starting to feel the pinch. As a result, many are considering downsizing and finding ways and means to tighten their belt. However, it is imperative that Management have the right attitude, objective and strategy to minimise unnecessary negative impacts. Through this article, I would like to share the right way to cut costs.
- Determine a suitable savings goal
Management needs to determine a realistic savings goal that the company can achieve taking into account the business environment and climate they are operating in as well as the product offerings they offer, especially in relation to their competitors.
- Examine existing cost structure and differentiate between good costs which are value-adding (good) and bad costs which are not value-adding
Management, supported by their Accounting and Finance Department, needs to understand their existing cost structure. For each expense/ General Ledger (GL) code, Management needs to fully understand the nature and usage so as to determine whether that expense will value add the company’s external (customers) and/or internal (staff) stakeholders. Management can start by trimming off those non value-adding costs first. After which, Management can proceed to review the discretionary and miscellaneous costs. Identify programs which can be temporarily put on hold or miscellaneous costs which might be slightly excessive.
- Review existing processes and operations
Management, supported by their middle management, should review their current business model. Management should start by focusing on key processes that will add value to both external and/or internal stakeholders. From there, Management should identify potential areas which can be streamlined and business units which can be combined or restructured to achieve better efficiency, economies of scale and thus more cost savings. In addition, Management should also consider investing in Technology so as to reduce manpower cost in the long run while improving productivity of each staff. While an initial investment which seem daunting in critical times like this, Management needs to bear in mind that this is a long-term investment and there will be returns on this investment if implemented properly.
- Review existing manpower allocation
Management should take this opportunity to “trim away the excess”. To start, Management can identify staff that constantly underperforms, idles or look-busy but are in fact not. This is a time where Management should relook at potential dismissals which might have been shelved off for various such as kindness and fear that the staff will be unhappy or morale will be affected. After which, Management can look out for unnecessary liaison positions which might not add significant value but incur recurring fixed costs.
- Build a cost-optimisation culture
Management needs to understand that cost cutting should not be a once-off exercise. In order to get maximum results, cost cutting should be a continuous process and attitude that all staff regardless of position should adopt. Savings goal should be adjusted according to the relevant period and cost cutting strategy should be regularly reviewed and updated to suit the savings goal. In addition, it is also pertinent that Staff understands the rationale, importance and need for cost cutting so that they will adopt the right attitude and help the company achieve its goal. Management can motivate staff by incentivising them either through public recognition or other ways appropriate.
Through the steps detailed above, I hope that I have made cost cutting more structured for your company.