As a financial guy, I've always felt there's no time like the present to start cutting costs. When business is bad, cost-cutting helps a company take better advantage of the joyful time. But I've
also found that mere penny-pinching measures won't do the job. At times, I've thought that my own tightfisted cost-control efforts were roughly equivalent to squeezing a fistful of mud. The harder
I squeezed, the more I saw slithering out from between my fingers.
So, in addition to encouraging financial discipline, I make it apractice to look for pockets of waste in a company. And I look for these among the "cost drivers" --the activities that influence the
spending of money. Often these activities not only stand in the way of success, they are simply irrelevant, and they should be eliminated. If you're interested in doing a search of your own, I've
found the following areas a good place to start.
Number of transactions...In his book Managing for Results, Peter F. Drucker suggests taking
a hard look at transactions within a company. Revenues are proportionate to the number of transactions.
In practical terms, this means that a very effective way to cut costs is to cut the number of transactions. In the early '70s, for example, I was the chief financial officer of a cash-poor company that was purchased by Dana Corp. Suddenly, the accompanying cash infusion caused the number of our accounts-payable transactions to plummet. We had 30 days' worth of invoices to track and file, not 90 or more. One check could pay for dozens of invoices at a time, not just for one invoice as we found the cash. And the hours of telephone calls with angry vendors stopped when we started to pay on time. Suddenly, therefore, my accounts-payable costs plummeted
A manager at one of Dana's divisions told me how a change in policy had affected its transactions in a different way. For years, he said, his division's direct-sales force had submitted detailed reports for each sales call. By actual survey, half of a peddler's working day was spent completing these call reports. But when the division simplified its reporting requirements, the sales force could spend nearly twice as much time selling. This change effectively doubled the size of the sales force and cut the cost per call by half.
Therefore, when you look for waste among your transactions, you'll find at least two ways to eliminate it. First, you may find ways to reduce the number of transactions, and thus the overhead costs needed to process them. Second, you may find ways to make each transaction less time-consuming, allowing the same number of people to start performing a larger number of transactions.