What’s the best way to reduce costs? Change the company mindset
“Our target is to reduce costs by x%”. How often has this been said?
Usually, the target is set from above and does not take into consideration the operational complexity of the business unit in question, or any previous efforts to address the challenge.
Zero-based budgeting is a better approach because it naturally addresses waste to reduce a company’s operating costs. That’s because it starts with a zero budget with costs needing to be justified for each new period. The budget is then based on actual needs instead of being tied to a previous figure. When successfully implemented, zero-based budgeting greatly improves long-term cost management.
Yet companies can and should go further. Running a cost efficiency programme in parallel with zero-based budgeting is an effective way to generate immediate savings and establish a leaner, healthier business.
What if? Challenging a company’s norms
While zero-based budgeting asks the question why an expense is needed, at NTT DATA we ask organisations “what if?” We believe that cost efficiency should follow a pragmatic, cyclical process that challenges how the company operates, which helps identify potential improvements.
This approach uses our knowledge and experience to investigate a variety of potential scenarios and challenge the modus operandi to explore new options. Supported by our ’Discover, Visualise and Optimise’ approach, we work jointly with our clients to define a roadmap of changes, both quick-wins and long-term solutions in line with the company’s strategic and operational priorities. Business cases are also created to support the identified initiatives and map out the best ways to reduce costs and optimise processes.
We identify initiatives from a mix of proven solutions, such as outsourcing specific operations or inventory optimisation, and new technologies and methodologies, such as Artificial Intelligence and Machine Learning, intelligent automation or Shadow IT.
Involve employees from day one
However, and this is important, companies need to involve their employees to develop a pool of ideas for potential savings. It is essential to communicate the programme’s importance and vision to employees right from the start to win their buy-in. Early engagement will generate a wider set of practical opportunities that will form the basis for the roadmap of initiatives. This is the first step towards the adoption of a cost reduction programme.
In the long-term, the objective is to create a new mind-set and change the culture of the organisation. How can you measure the success of this kind of programme? We believe it is when employees proactively bring forward new ideas and initiatives to reduce costs.
Reducing costs is the first step to becoming a more efficient company. Yet to be truly successful, companies should ensure their culture has adapted to the increasingly complex and technology-driven environment that is in place today.
At NTT DATA, we can help you establish and drive a successful operating efficiency programme to deliver significant and sustainable savings.
To find out more, please contact us at contact_uk@nttdata.com