Dan Collings

05 August 2020
Topics in this article
  • Cost Optimization

“How do we reduce our costs?” is the question being asked in board rooms across the country right now. The economic impact of the COVID-19 pandemic has rocked businesses, and they are urgently looking at how they can either stem losses, protect margins or create the headroom to invest through cost optimization strategies.

The good news is that for many businesses, external spend will make up a large proportion of their cost base – in some sectors, well above 70%. This means it is possible to make a big difference to the performance of the business, without touching the most valuable asset – it’s people.

Our work with some of the biggest companies in the United States and United Kingdom tells us that external supplier costs can typically be reduced by between 8% and 15%. For many companies, that means millions of dollars of potential savings.

For businesses looking to get serious about seizing the opportunity presented by reducing their external costs and implement cost optimization strategies, there are three areas I recommend looking at.

1. Tackling your existing cost base

Your existing cost base is by far the biggest opportunity to make a difference. I spoke to one business recently who had external costs in the region of $2 billion, which they had yet to start addressing from a cost optimization point of view. The potential savings in a business like this could extend to over $150 million – this is not insignificant.

Even for companies who have already done work to reduce costs, there is now an opportunity to look again in light of the new environment and determine if further savings can be delivered. In many cases, you’ll find that the answer is yes.

2. Re-assessing your COVID-19 spend

As the COVID-19 pandemic emerged, your business likely had to make essential spend decisions that impacted all business units and levels. Whether you debated purchasing additional cloud computing capacity, browsed protective screens for your employees, or explored cleaning and sanitization services, the pandemic brought unprecented change thoughout the world, and leaders had to make changes to cope.

In the need to get these services and products so quickly, it may well be that you didn’t get the best deal or that supply shortages meant temporarily higher prices. There is now an opportunity for businesses to revisit those costs and optimize their spend to deliver savings.

3.Making savings on your future spend

COVID-19 is reshaping how people go about their daily lives and how they interact with businesses. For many companies, this means adapting, and in many cases making investments. To give an example, many businesses are making investments that enable them to accept mobile and contactless payments.

Businesses want to be able to roll-out this technology to their customers who want a contactless experience as quickly as possible, but it needs to be done in a way that maximizes cost savings. For this to happen, you need an understanding of the right solution for your business and what it will cost to achieve it. In some instances, you’ll already have that. In others, you’ll need to look outside your organization for inspiration and execution.

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