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Cost Control Is An Important Antidote in Corporate Turnaround

Unnecessary cost is always your Number One enemy. You must attack every cost item, justify and challenge it.

Most firms start out small and lean. Over time, some of them put on fat as they grow and prosper. Corporate fats result from the accumulation of unnecessary and excessive or out-of-date business practices. It also places excessive and opulent perks and benefits of employees and shareholders ahead of customers' interests. Ultimately, it fails to provide sustained value to customers. Corporate fats can also be in the fiber of the culture. It is not my money but the company's is a common nonchalant attitude adopted by many in the fat culture that accepts wasteful work styles and attitudes as the norms. Culture becomes fat when they support individual needs at the expense of the firm or when they are no longer suitable for the new environment. A successful firm can become smug and take the easy way out and curtail product innovation and customer satisfaction. A culture is unsuitable for the new environment when it perpetuates hierarchical and top down decision-making when the marketplace requires creativity, flexibility and adaptability. Any first-year business student will know how to cut costs. The key here is how the costs can be cut to restore financial health in the short term without hurting the ailing company in the long term. The turnaround manager should discuss the pertinent details with the respective department managers, soliciting their advice early in the exercise as this can improve remarkably the chance for full cooperation and success. Sometimes, staff can offer valuable suggestions that can save time or money or both for the company. Remember, this is not the time to create unnecessary stress by finger pointing. The key is to foster a conducive environment for problem solving, establish solidarity and put everybody's self-interest to work for future gains. Sometimes, cost reduction can be achieved through streamlining procedures and operations. Through this, duplication and inefficient methodologies can be pared down to a minimum. In some instances, similar or more superior results are achieved through outsourcing. Outsourcing provides you with the advantage of being able to focus on those areas that are vital to the company's operations, instead of being distracted by things that have little impact on the company's success. People-related expenses can be reduced remarkably through cross-fertilisation of multi-disciplinary skills. For instance, the secretary can be trained to perform business analysis and report writing, apart from the normal secretarial duties of typing and organising the boss' activities. Thus, productivity can be improved by deploying staff to perform high value-added duties. Michael Dell created a formula: Keep prices low through cost controls, not by cutting quality or features. The company uses just-in-time manufacturing techniques, meaning that the systems it sells are basically built to order at the time they have ordered, which keeps inventory costs low. Its Web site currently has some 80,000 support and service items available directly to its customers, cutting down on the number of paid staff needed to handle support issues. And by using the Internet as a direct link to its customers, Dell has eliminated the added costs of a manufacturer-distributor-retailer network. These innovative strategies hit the mark. Within a year, Dell's Internet sales had reached $1 million per day. In 1999, Dell opened its own online superstore, Gigabuys and Internet sales reached $30 million per day. If that is not proof enough of the company's success, Dell's business plan is the one most copied by up-and-coming e-business companies. Unnecessary cost is always your Number One enemy. You must attack every cost item, justify and challenge it. Whether your company is in trouble or not, cost is a real threat that can kill you even if you are able to come up with better products. If the cost of your product is your competitor's selling price, you cannot stay in business for long.

Author:Mike Teng Category:Corporate Published:24-Oct-2004 Tags: cost cutting, corporate turnaround, change management, restructuring