If cancelling corporate away days does not provide enough cost savings, what to do next?

Jüri Etverk
PricewaterhouseCoopers Advisors
Estonia

If cancelling corporate away days does not provide enough cost savings, what to do next?

There has been a lot of talk in the media about cutting the state budget but most of the Estonian companies are also currently dealing with exactly the same problem. Below are some thoughts on how to begin increasing your company’s effectiveness as well as examples of how other organisations have done it.

The path to the desired ratio between income and expenses can be divided in three:
Find the money, i.e. preparation of a bird-eye view, curbing unreasonable expenses and minor changes
Get the money, i.e. increasing effectiveness based on in-depth analysis of operations
Keep the money, i.e. innovation and creation of future infrastructure



Where to find the money?

As a first step, the company’s operations can be divided into processes, using an industry-specific standard (e.g. eTOM in telecommunications) or more general descriptions of processes (www.globalbestpractices.com ) depending on possibilities and the company’s distinctive nature. After that, the main inputs, outputs and characteristics of the processes are benchmarked. For example, using the best global practices as reference, a single cash flow specialist is capable of managing ca. 1 billion dollars given a reasonable level of control and in case the cash flow management is centralised at the corporate level.

If it is not possible to obtain necessary information for benchmarking purposes, the task needs to be approached hard-headed or the question needs to be answered “are our efforts worth the outcome obtained?” For example, if 4 people work at the warehouse and they move 10 000 crates of goods a year, does it seem reasonable?

Thus, a bird-eye view provides information with regard to where possible opportunities to improve certain things lie. In most cases, such a task should not take more than one week to complete. Weak cost accounting and management reporting set limitations on it (do you allocate repair expenses and spare parts to a specific car, for example, in order to compare ton-kilometres and the total cost of the machine?). A bird-eye view is not typically suitable for making final decisions, but it helps draw attention to the areas requiring particular attention going forward.

Table 1 provides some simple standard examples of minor changes the implementation of which should lead to enough costs savings to finance one proper “project to increase the company’s effectiveness”.

Let’s assume that you have implemented these minor changes, reduced your cost base by one per cent or half a per cent and concluded that you “cannot get rich by cancelling corporate away days”. What else can be done?

Where to get the money?

It may simply be said that comparison should be made of how others accomplish same things in the same area. Then use their good practices and try to accomplish them better. The solutions include, for example, changing of service levels, better planning of capacity, simplifying processes, switching to outsourcing, avoiding local optimisation and strengthening of control of revenue units over support functions. As companies and their processes are different, we will limit ourselves to only but a few examples in Table 2.

How to keep the money?

As a rule, more pronounced changes dealing with organisational structure and culture, reshaping of processes, changing of IT infrastructure, changing of the portfolio of products and services, etc. may take more than a year to complete. They also require excellent competency for managing change – most of our clients have acknowledged afterwards that the technical side of the project, “how it should be done“ was in the end straightforward but making people believe that it is possible as well as implementation of new work methods is incredibly difficult.

Table 1