Cost optimization is a continual effort that aligns the need for cost reduction with the broader goal of maximizing business value.
The additional pressures created by worldwide economic difficulties only increase the value of cost optimization. As an example, PricewaterhouseCoopers predicted significant drops in GDP for major economic powers across the globe in the next year. While this assumed contraction is relatively mild, it’s a clear indication that the economy will slow down in a noticeable way and could take some time to recover.
Businesses that take a carefully planned approach to short- and long-term cost optimization can complete two key objectives:
- Lowering their financial obligations during a period of reduced economic activity.
- Taking that action in a way that supports business value, keeping the company’s performance and reputation strong.
Let’s look at how to efficiently strategize both short- and long-term cost optimization.
Building an effective cost optimization strategy in the short term
Businesses that face disruptions to revenue must act with urgency – but not at the expense of their core operations or their business identity.
Even with short-term financial goals that must be addressed, companies need to remember that cost optimization ultimately leads to an increase in business value – not only lowered costs. Slashing and burning budgets without careful planning can provide short-term economic relief but can also lead to a variety of negative consequences.
Broadly speaking, strategies for cost reduction can be divided into three basic categories:
- Focus on short-term savings.
- Emphasis on long-term improvements.
- Mixture of short- and long-term goals.
The short-term approach is, in most cases, only useful if a company must reduce expenditures in as little time as possible to keep its doors open.
To achieve the best possible results outside of a worst-case scenario, companies need to strike a balance between quick changes and longer, more transformative ones.
Such a strategy can involve investment in the implementation of new tools and systems – including cost comparison and management tools for suppliers or enhanced reviews of budget allocation and utilization – that ultimately lead to lower costs. Spending money to save money is a viable strategy, one that can have a delayed but more substantial payoff.
Spending money to save money is a viable strategy, one that can have a delayed but more substantial payoff.
The longer view of cost optimization
Gartner highlighted 10 potential focus areas for cost optimization, with each having a benefit to operations along with easing budgetary obligations. An optimized approach dedicates funds to the places where they can provide the best return. Changes shouldn’t dramatically impact customers through a reduction in the quality of service.
Long-term cost optimization emphasizes business development and growth. That means removing extraneous items from a budget, but it also incorporates targeted spending on proven solutions, such as a comprehensive business transformation platform, that will ultimately lead to more efficient and effective operations.
Fast changes can set the stage for improvements in the future
The need for short-term cost optimization is part of the broader strategy for holistic improvement.
However, the current economic climate means many businesses have to quickly find avenues for savings. Companies in this position can take steps to maximize their return by identifying cost reductions that won’t lead to significant negative influences on their core offerings or relationships with customers. A mindful approach to short-term cost optimization helps to set the stage for more future-facing efforts.
The most beneficial cost optimization efforts involve a long-term mindset for positive changes, while taking opportunities for reducing financial obligations early on. Bringing these two principles together can help companies adapt to current challenges – whether specific to their company, industry or the economy as a whole – without losing sight of the more substantial and beneficial objectives of long-term cost optimization.
Finding the right partner to assist in your optimization efforts is a critical and early step in the process of overhauling budgets for quick wins and identifying changes that can take months or even years to provide a valuable benefit. Shibumi provides a cloud-based business optimization and transformation solution that provides valuable support in a number of areas:
- Accelerating results by empowering teams to act with clear, actionable goals in mind.
- Reducing risks by providing deep insight and visibility into delays, dependencies, risks and off-target metrics.
- Sustaining benefits by managing value delivery, building team engagement and developing long-term governance.
To learn more, request a free demonstration of Shibumi today.