Cost cutting

I'm always surprised when people suggest that cost cutting measures mean an organisation is getting desperate.

Check out this comment from Matt White, where he paraphrases a Telegraph article suggesting that a Citi is doing everything it can to save pence rather than pounds.

The Telegraph article reports the following:

• That "staff should print black and white and on double sided paper". We've been doing that for ages already here at my bank, and it makes both business and environmental sense. Most of the prints people do are wasted anyway. And if you want colour, what's wrong with taking your laptop along to the meeting and using a projector?
• That staff should recruit using "low and no-fee sources such as job boards and employee referrals". Again, such sensible advice. My own experience is that most candidates look for jobs online now anyway. And recruitment firms are almost always less effective than activating a personal network to get the person you need. I have not hired anyone outside my network for about three years, and don't intend to start.

Matt finishes off his post by asking "any more ridiculous/desperate money saving schemes?"

As an innovator, I have to tell you, Matt, that finding small savings, and doing it often enough can mount up to some pretty big numbers. The fact of the matter is that my innovation function spends most of its time doing that. Small savings pay the bills. And they are predictable.

Unlike big strategic plays, which you can only afford after the bills are paid.

I don't find any of the measures suggested by Citi to be ridiculous in the least. Neither are they desperate.

I think what most people don't necessarily reflect on is that cost cutting is a very important part of the business cycle. When you are building, building, building, you often ignore minor costs because they are distracting to the main strategic goal.

Sooner or later though, managers have time to turn their attention to tuning what they've build. They try to optimise (which is what cost cutting really is), so as to make their organisations more efficient.

Naturally, though, reporting that employees have to give up colour printing and soap in their cafeterias is great, interesting reading.

However, my bet is that most people can see through to what is really going on. Cost cutting is nothing sinister. Banks spend their whole lives doing it, in good times and bad, and it is sensible business practice.

Comments

[bankelele]

cost cutting is part of a normal business cycle, but Citgroup are under the spot-light so such moves on their part are magnified

[Neil Robinson]

Corporate waste and needless overspend is a curse in any large enterprise, that I'm the first to admit. but value is more important.

Cost cutting only works when it's endemic to a company's philosophy; not just a soft-target PR blitzkrieg, when bigger areas of extravagance go unchallenged.

Aren't the measures detailed here a bit like telling the CEO's chauffeur to smoke a cheaper brand of cigarettes while the CEO still takes the 2-block ride in his S-Class Merc followed by 2 bodyguards?

A cost saving, sure, but who did the maths?

Paper at meetings. Sigh.

Given that the average meeting of 8 attendees for one hour costs £500 in lost productivity (figures available on demand) is the £2.00 saving on B+W v Colour meeting notes really significant?

How many meetings did it take to decide that?

OK, here's my meeting plan. Give each department an interactive whiteboard. Before each meeting, post the meeting notes to it. Each attendee writes his comments on the whiteboard (two or more can play) and saves it to their collaborative workspace (what do you mean, you haven't got one?)

Come the day of the meeting, anyone who hasn't written on the board, doesn't care about the item under discussion. Don't invite them. Money saved!

At the meeting run the interactive whiteboard playback. Each person comments on their notes. They will be thinking hard, not dosing off. After the meeting those notes are posted into the team collaborative space. See, no paper at all.

You also get a free assessment of every person's real worth for free.

One final thought. What is worth more, adding value or saving cost?

Saving cost can only go are far as there is value to be cut. Something that costs £100 can only be cut to zero.

Adding value continues with no limit. Which way would you go to be more profitable?

You have to be innovative to add value, but you only have to be ruthless to cut costs...

[Thomas Barker]

I expect this is to prepare for the inevitable begging of money from the US gov (again).

Neil's right. Forcing a 5-10% reduction in certain costs is a quick way for management to look tough, but significant savings only come from changing the way you work. Trite and unactionable, but true :-)

There's no way that just cost cutting would let a traditional broker have as low a cost base as iDealing or selftrade for example.

[Brennan Meadowcroft]

I believe cost cutting is important; afterall, the central point of a firm is to maximize profit whether from innovation or finding efficiency within a business model.

Unfortunately, cost cutting is not always that... Sure, they have managed to reduce expenses but what is the true effect on productivity when the employees look at what is removed from them versus what is removed from those in charge?

[Colin Henderson]

Cost cutting and expense management is an essential part of running a business. However, one example I have seen is elimination of water coolers. Hmmm 900 branches times $30 vs hydrated staff.

On the other hand printers are grossly over used, and those costs times 900 branches is enormous.

Anyhow, some sensible thought is needed. However expense management is a reality for households and businesses, and people who react with such negative comments and apparently no thought, are out of touch with reality. Its all about seeing things in context.

On a related note, the nature of the cuts relative to innovation/ branches/ internet/ legacy systems can tell a lot about a company/ bank.

[James Gardner]

Thomas and Neil:

Small, emergent companies will always have smaller cost bases relative to their bigger competitors. That is why they are nimble, and able to take low margin customers when a big institution can't. You are correct in saying that even taking out 10% of the cost wouldn't get them anywhere near the cost base of a newer player.

But 10% of the cost base of a bank is likely to be some orders of magnitude greater than the entire operating budget of such companies.

Cost cutting *is* about changing the way you work.

The trick, of course, is to find the way to do it without making employees feel undervalued. One wants to be careful with the watercoolers.

[Dave Birch]

Isn't what Citi are doing more in the realm of theatre than business? If they never ever printed anything ever again in any Citi office anywhere in the world, the savings would be inconsequential compared to bad loans they made to third world countries or sub-prime mortgages or whatever. Or have I got the maths wrong? Citi lost $10 BILLION in the fourth quarter.

[Neil Robinson]

James, aren't you jumping between percentages and cost here to simply reinforce a fatally flawed argument?

A 10% cut is a 10% cut regardless of the company size because percentages are relative to the overall balance sheet.

If a small business shifted from colour to black and white printing, the savings would be insignificant relative to its overall spend.

In a large enterprise the same action appears to produce more savings, but its really exactly the same as the small company, relative to its overall cost base.

Let's go back to one of your own examples. The soap.

Imagine a struggling small business employing 3 people is £20,000 overdrawn. It's bank says "OK, what are you doing to improve things?"

They say "I've stopped buying soap for my washroom."

Pause for laughter.

A big enterprise facing a £200 Million loss meets its shareholders. "What is the board doing to about improving our balance sheet?"

"We've stopped buying soap for the junior washrooms."

Pause for a vote of no confidence.

Cost cutting in the absence of value add is the last refuge of the intellectually destitute. No one shrinks to success.

Corporate or corner shop, operating costs are all relative. Think about it.

I guess we should be thankful. They could be suggesting the staff use both sides of the toilet paper... that's a 50% saving.

[Dave Birch]

"They could be suggesting the staff use both sides of the toilet paper... that's a 50% saving."

I promise, PROMISE, I will suggest this in a real meeting with real management consultants!!

[v.srinivas]

cost cutting in banking sector has become a challenging task for bankers internationally. now every bank tries to cut down their operating cost by shutting down unprofitable branches. in India ICICI bank has started shunting down their unproductive units especially in small towns and transferring human force to various cities where huge business. in India ICICI is the pioneer in this way and other banks also follow the same foots steps of ICICI.

[v.srinivas]

cost cutting in banking sector has become a challenging task for bankers internationally. now every bank tries to cut down their operating cost by shutting down unprofitable branches. in India ICICI bank has started shunting down their unproductive units especially in small towns and transferring human force to various cities where huge business. in India ICICI is the pioneer in this way and other banks also follow the same foot steps of ICICI.
here are the some recommendations to cost cutting.
1. first employees should know that they are the key players for better performance and to enhance profits. hence, they try to cut down unnecessary charges .
2. review the performance of each employees and his salary and preks. compare his benefits and business renderned by him. anlayse his cost to the company and business achievsed by the employees. if there is any adverse , ask him to cope up his business.
3. maintain a proper customer relationship management mechanism and offer high quality services to the customer. each employee must recognize customer is boss. he alone brings you profits.so give more importance to customer service.
4. avoid unnecessary strikes .
5.

[v.srinivas]

i would like to share my views in this column.
thank you