The art of cost cutting

One of the most challenging aspects any manager faces is the conflicting demands of having to both raise revenues and cut costs. Whether it is in banking, garments, tourism, retail, healthcare – or whatever - anyone in a position of authority or responsibility in a company will always be faced with these opposing objectives to some degree. Welcome to the world of running a business!
Raising revenues is all about marketing and sales. This article however is about cutting costs and that is all about efficiency & motivation of the workforce, the application of technology – and keeping a careful eye on every single cent – or poisha – that flows in and out of the business.  
The Japanese have turned this process into a science which has been exported around the world. It is called “Kaizan”; a process of continuous improvement that requires every employee constantly to look at every possible way to improve the production process and cut costs. (Hmm, have you ever wondered why the world is full of Japanese products?!)  
So let's look at these three areas - workforce, technology and business expenses - individually

Staff/workforce
In order to control or even cut costs, the first step any manager must make is to ensure the productivity of the employees is maximized (productivity = output per worker).  This is what so many books on management are all about: How do you get an employee to work hard when no one is watching them?
The first step is about meritocracy. Making sure that the person with the most ability is put into the right position.  This sounds easy but across most of South Asia this does not happen frequently enough. Instead people are often hired and promoted due to family connections or some other favoritism.  Of course, employers are free to hire as they choose but as long as nepotism and favoritism is applied then the outcome will almost always be low productivity and high costs. Instead, an efficient company must adopt a rigorous recruitment and selection process.  When the right person is in the right position (ie, their talents abilities and character match the job requirement) managers are blessed with few problems and labour costs remain low.
Companies should first establish a wide pool from which to recruit candidates. That must then be followed by trained interviewers who can pose tricky but interesting questions that uncover the candidate's ability, character and suitability for the position. It is beyond the scope of this article to list the sort of methods and questions a company should ask. However, there is a wealth of resources available on the internet and in books to educate a management team on an effective recruitment, interview and selection process.
Of course, once the right person is hired they must be trained and motivated.  Again, an unfortunate “kiss up/kick down” management style is seen in too many organizations which significantly reduce productivity. Instead of selecting the right people (i.e., a “round peg into round hole”) followed by effective training, delegation and trust, senior management often micro-manages and criticizes employees. In efficient companies, employees are provided with clear targets and a sense of purpose then they are allowed to achieve their objectives with sufficient autonomy. When that is allowed to happen properly, productivity really rises (and labor costs fall!)
Technology
The single greatest force that has propelled productivity in the west over the past century or two has been the application of machinery and technology in the production process.  Humans have brains; brains should be used for creativity, original design and our infinite capacity to apply intelligence to the products and services we make and use. If a company really seeks to cut costs, it must replace the humans doing menial, repetitive tasks with machines. Machines don't have “bad days'. They don't phone in sick, show up late or suffer from boredom and sloppiness or countless other physical or emotional problems which hinder output and productivity.  Once again, this is something that is simple – but not easy. Sourcing the right machinery, selecting the right software and/or adapting the right technology are infernally difficult tasks for management to undertake.  However, there is no getting around this. Even employers in a country with an enormous workforce and cheap labor have to recognize that costs will only ever be manageable when machines replace labor for menial and repetitive tasks. Companies everywhere - from Europe to China - have faced this issue and have managed it well, to their enormous benefit.

Managing expenditures
You may think that few employees need to be told how to be careful about costs! However, more money is probably lost here through bad management of expenditures than any other single factor.  Countless crore are lost daily due to “slippage” (which is the difference between the real price of a trade and the reported price). The problem of course often lies in cash transactions. Any company serious about controlling costs must ensure that it moves on to a verifiable system of electronic payments which substantially reduces the money lost to human “interference”.
A competitive company must always be prepared to change suppliers, regardless of length or strength of its existing relationship. Of course, a supplier cannot be judged on price alone – it must be measured on overall value – but suppliers that fail to provide the “most for the least” have to be replaced by those who can.  A dynamic economy must always give new competitors the chance.
Finally though, nothing can replace the value that a senior manager with a real sense of ownership brings to the process of expenditure management. The dedicated, experienced accounts manager, who oversees a process whereby all the company's receipts, costs and expenditures are assessed and reviewed, is simply beyond value.

The writer is the Principal of Regent College, Dhaka. Prior to his career in education, he was an investment banker in London for 20 years and was a Senior Vice President at HSBC.