6 ways to cut costs (but not the fun)
Belt-tightener. Hatchet-man. Grinch.
Early on in my career, I learned the many nicknames attributed to people like me who lead expense reduction efforts in organizations—some not fit for widely read corporate publications such as this. Though unfairly stereotyped as a penny-pinching “no-man,” I’m not surprised by the negative connotations most people have when it comes to cost management. From the stories I’ve heard, more often than not, expense management efforts swing between extremes: weak and ineffective or inquisition-like witch hunts.
When First West decided 12 months ago to execute on expense management, Launi, Tom and the other First West leaders knew that neither approach would work well in a fiscally-focussed yet values-based organization like First West.
Over the past nine months, the credit union has undergone a significant transformation in engaging its 1,400 team members and large community of suppliers in their view on cost reduction. In just a short time, we have been able to permanently reduce our variable spend by over two per cent.
The key to our success: knowing why we’re doing it. Many organizations start at the wrong reference point. They cut expenses to improve their financial statements. We do so that we can reinvest that capital in our customers—the members of our credit union—not just a temporary trim to boost the bottom line in the short-term. The more we reduce our expenses, the more we can invest in innovative products like our new Simply Free Account™ or our Referral Perks program™. It means we can be more competitive in our rates and give more to community initiatives.
So how does an organization create engagement around cost-cutting—minus the fear? Here are six simple things to consider for making this happen.
Offer negotiation expertise to leaders.
Let’s face it: Quibbling over dollars with a supplier is not something that most managers enjoy doing. And what’s more, some leaders just aren’t very good at negotiation, but have no other alternative but to do so. We realized that with the hundreds of contracts and major purchasing decisions that occur in a business our size, it’s important that we achieve the biggest value for the business that we can. So one of the first things we began offering leaders in our organization was negotiation services. Depending on their circumstances, leaders could enlist the services of our in-house negotiation experts to do everything, from negotiating an entire contract or purchase, to seeking alternatives, or even reviewing proposed arrangements from a fresh perspective. This simple approach has helped us shed hundreds of thousands from the expense column and secured as good or better solutions for our business.
Engage the crowd, reward their ideas
Expense reduction initiatives generally have a negative perception, so it’s critical to change that. Consider getting all your people involved in the effort by creating s safe place for them to share ideas and propose solutions. To put the icing on the cake, reward those whose ideas are implemented.
We did this with our “Save $1 Million” campaign. More than just a suggestion box approach, the internal campaign encouraged team members to identify opportunities and solutions, with iPads up for grabs for implemented solutions. The response was great and the best ideas, not surprisingly, were expense reductions that no corporate committee or executive action team would have identified. The best ideas came from team members who knew where the real opportunities were.
Lead with laughter
I’ve already noted the importance of changing the negative perception of expense reduction. And I don’t know about you, but I’ve never been inspired by the typical corporate cost-cutting endeavour, featuring the ubiquitous progress thermometer.
Humour is another powerful tool at your disposal for shifting the stigma attached to expense reduction initiatives. Though we were dead serious about cutting costs, we chose to disarm negative perceptions and get people onside through a bit of levity and laughter. We created a video series and YouTube channel around a persona called the Expense Enforcer who “lays the smack down” on wasters. Amidst the fun, the overarching message was clear: everyone in the organization, regardless of title, is responsible for expense management. The series was a hit with our employees, inspiring cost-cutting ideas, loads of water cooler conversations and two-thumbs-up reviews.
Go to market
Reviewing contracts and going to RFP more frequently than in the past has been one of the main ways in which we’ve reduced our expenses this past year. With the right tools and perspective, it hasn’t been a negative or burdensome effort. Quite the opposite. It’s given us opportunity to pause, reflect on what we’re seeking through a partnership with a supplier and then ensure we’re asking them for the right things. We’ve found there are a number of benefits to this process:
- Our suppliers are able to adjust to meet genuine needs.
- Our suppliers have the opportunity to identify new ways they can contribute value to our company—opportunities that may not have emerged if we hadn’t reviewed the contract regularly.
Knowing what we really need, our suppliers are able to sharpen their pencils to bring down costs or offer us greater buying power. We’re able to pass those savings and efficiencies on to our members and thereby strengthen our business and relationship with our supplier.
When everyone brings their best to the table, the contract review and RFP process can really be a positive, winning approach for those involved.
Take a customer value perspective, rather than a seek-and-slash approach.
It’s possible to find opportunities for expense reduction if you look at things from the other side—the customer’s side. You may find things a little surprising over there. Like your customers are not really getting the full value they deserve.
Take for example mailed account statements. They’re a significant cost, waste and risk for us—especially when you consider the production, printing and mailing effort associated with the tens of thousands of statements we produce and issue every month. Not to mention the likelihood they’ll just get tucked away in a shoebox in the member’s closet—only to face the shredder in the end.
So we asked ourselves if there’s a better way. While we’ve offered e-statements for several years now, we launched a campaign to measurably convert members over to e-statements. While we’ve offered e-statements for several years now, just this March we launched a campaign to measurably convert members over to e-statements. Already we’ve seen an uptick in conversions—in the last six months we’ve had the equivalent of 50 members converting to e-statements each and every day. Members benefit with faster, more secure online access to their statements. The credit union wins with lower environmental impact and reduced production costs.
Review and consolidate
Relationships evolve over time—particularly business relationships with key suppliers. One way we were able to cut costs and complexity was to review and consolidate the contracts we had with one of our key suppliers. Through mergers and changing business scenarios and needs, we ended up holding over 300 contracts with one of our supply partners. We hadn’t intended to have so many contracts—but over time that’s how things came to be.
It was difficult for our suppliers to manage so many contracts—and nearly impossible for us. So we de-cluttered—we reviewed updated and consolidated our agreements with this supplier. We moved from 300 contracts to three. In doing so, we also consolidated our purchasing power and were able to enjoy significantly greater cost benefits for the organization as a whole. We didn’t change the supplier—we just managed the relationship better.
Reducing expenses is not always a pleasurable task. But we’ve seen firsthand that hundreds of thousands in savings can be achieved simply through engagement, common-sense approaches and a dash of fun.