For good reason, “cost reduction” has become a dreaded term in the corporate world! Most often, when faced with sub-par financial performance, the first resort for many organizations is to issue a decree to reduce costs without understanding how this reduction impacts their customers, revenue, operations and employee morale. Typically cost reductions are people focused and what ensues is a short term improvement in costs followed with the same expenses slowly finding their way back into the firm. In essence the organization has put in place a short lived “cost reduction” program; not a sustainable “expense management” discipline.
On the other hand, there are organizations where an expense management discipline runs deep through the corporate DNA. These companies not only focus on their people costs through analysis including spans & layers, organizational “shape” and other headcount related views, they also focus on the cost of their non-compensation supply and demand driven expenses. Their focus is on sustainable cost savings through a comprehensive expense management discipline and not one time cost reductions.
Expense management must be viewed as a functional capability which ensures the firm is operating efficiently and paying the most competitive price for necessary goods and services. Furthermore, this discipline should be aligned with the business goals of the organization including managing demand drivers. For example, is the intent to be a low-cost provider or to provide exceptional customer service? Having this understanding will give insight on how to align spend and manage cost drivers across the enterprise.
Through our next series of blogs, we will examine what it takes to implement expense management capabilities through the lens of people, process and technology. We’ll also discuss how implementing an expense management discipline can enhance your budgeting capabilities and enable zero based budgeting.