One of the primary reasons for automating a business, aside from saving your own time as a business owner/manager, is to cut costs.
Whether it’s a case of avoiding financial difficulty or simply an attempt to boost margins, all good businesses look to reduce costs where they can.
In this post, I will propose a step-by-step formula by which you, as a business owner/manager, can follow to effectively reduce some of the costs that your business incurs – whatever business it may be.
Step 1 – Identify inefficiencies and their root cause
Inefficiency is the number one cause of excessive business costs.
Granted, in many businesses, there are numerous variables that can impact how efficient their operations actually are, and admittedly, some variables are completely out of their control.
The weather, for instance, can have a huge impact on a number of businesses and industries. If you run a courier company, heavy snow could cause delays in delivering items and thus large backlogs of orders when the snow finally clears – meaning staff must work weekends (and thus accumulate overtime) to clear this backlog, which isn’t cost-effective for the organization.
But, even in areas where you have little control, there are still ways to lessen the impact of environmental variables on business efficiency (which I will show you in the next few steps).
In the above example of the courier and the severe weather having an impact on efficiency, it is clear to see what the root cause of the problem is. However, in other cases, the root cause maybe a little less clear. Take this scenario, for example:
Work targets set to staff are not being achieved – even when monetary incentives are provided.
This means, your staff isn’t achieving as much or being as productive, as you thought they would be – leading to unachieved goals and targets.
Staff can be very complex creatures, and it’s not an area I like to call myself a specialist in – generally I opt for IT-based, outsourced, or automated solutions, and don’t resort to setting on staff unless it is completely unavoidable – the frailties of human nature in itself (sickness, lateness, self-interested) can lead to business inefficiencies.
So, in this situation, the root cause of staff underperforming may actually be to do with the nature of the incentive itself. They may be looking for something that rewards them with more authority or recognition as opposed to immediate financial benefits.
Step 2 – Address, or prepare better for these inefficiencies
Once you understand your business inefficiencies, you are 90% of the way to solving them. Step 2 is the easy part.
Using the example of the courier firm again, one measure they could introduce could be to offer better-equipped vehicles to their staff (with snow chains, 4WD vehicles, etc.) and communicate longer lead-times to customers despatching items with them so that the backlog can be more smoothly managed and anticipated.
With the example of underperforming staff, the obvious response to this would be to introduce different incentives and perhaps even split-test these amongst employees to see which work the best.
If all incentives fail, it is almost certain that your targets are simply too unrealistic and need modifying.
Incentives can be a complex area, and you have to ensure that the incentives you introduce are for the benefit of the organization’s goals and objectives, rather than your staff members’ individual goals and objectives.
An incentive, say, in a call center to reach a certain number of calls each day, may not be that beneficial to the company itself as staff will rush calls and not properly qualify leads, just so that they can hit their call quota and receive their bonus.
Perhaps look at automating or outsourcing certain tasks to allow your staff to focus more on value-adding activities.
For instance, an internet retailer could introduce an extensive FAQs page on their website, and an automated Live Support function that gives customers accurate ‘canned’ replies to filter out the bulk of inquiries made by customers. This will free the company’s human resources to focus on things that help to develop and grow the business, rather than just maintain day-to-day activities.
Ultimately, we have to accept that most business environments contain too many variables to achieve anywhere near 100% efficiency. However, this doesn’t mean that you can’t achieve, say, 70, 80, or 90 percent efficiency.
Of course, there are also other ways to achieve cost savings in your business – not just ones that lead to greater efficiency.
Economies of scale that can be gained from suppliers for buying in larger quantities can help boost overall profitability (although the benefits of this extra profit must be balanced with the impacts this has on cash flow). Having suppliers compete for your custom is also another great way to squeeze down your costs – don’t just deal with one supplier.
Even something as simple as being more frugal with your business expenditures can help cut costs – use comparison websites for prices on office stationery, or look for lower-cost premises to rent or buy (unless you’re a customer-facing business, you don’t need a flash designer office – it adds no value to the products or services you offer your customers).
In fact, here is a quick list of cost-saving things you could try for your business:
- Cut travel costs – No longer do most businesses have to travel the length of the country to attend meetings with customers and suppliers. In this information age, you can hold video conferences and still have all the ability to communicate and interact as you would do in a physical meeting.
- Go green – If you have company cars, there are a number of great hybrid and electric vehicles available, providing you with significant cost savings in a World of ever-increasing fuel costs. You can even find electric vans now!