Spend it as if it's your own money – mastering cost management culture
At home, when asked whether spending this amount on that ‘thing’ is acceptable, we tend to err on the side of caution. As the bank of Dad, I find a straight 'no' is generally the best response – but that has never worked yet!
Repeating the mantra 'spend it as if it's your own money' is useful and effective advice, however – and it should apply in business just as it does in the domestic sphere.
But how many companies encourage this approach to spending across their businesses?
With 88% of CFOs believing that cost reduction should be a business strategy priority in 2020 it's no surprise that the decision making on cost management is often left to a chosen few, who are burdened by an ever-increasing administrative process of requests, escalations, approvals and paperwork.
I fully understand some readers will assert that this is a necessary evil. Having it any other way would mean no control over anything, no process or visibility – anarchy will rule, risks will be too great, businesses will collapse.
But is that really true?
Let's look at this another way. What are the most important things in any business? Customers - be they internal or external. We don’t instruct our employees not to talk to customers without having sign-off first. It would be very difficult and laborious to conduct business this way.
So, we allow employees to engage with our most precious assets, where harming these relationships really could bring an enterprise down. Granted, we train employees, guide them, reward them and nurture a company culture that they want to be a part of.
Then why can’t we apply the same process to managing the costs of the business? It's time you considered what your businesses cost culture is, how your employees engage with it, and whether they feel empowered to perform and grow within it.
What's your cost management style?
Having worked with hundreds of businesses over the past 25 years, helping them to manage and reduce costs, I have come across very few who have a defined cost management culture. The majority fit into one or more of these styles:
- Centrally managed – no authority or autonomy outside the few, autocratic with little staff engagement
- Predictable – no matter what has happened so far, quarter four brings a travel ban and crackdown on ‘non-critical’ spend
- Spend it or lose it – linked to the predictable - spend that budget before Q4 arrives
- Siloed – care only about their own priorities rather than the business
- No focus – leaders are rewarded for other objectives (service delivery, revenues etc.) and efficiencies are not widely recognised and/or rewarded
How then, could business change? How can you define, implement and lead a new cost culture for your business?
Get support from the top
Firstly, any cost culture shift has to be a business decision. The senior executives genuinely have to care, to see the benefit. Then they need to lead the change.
A senior executive (CxO) should sponsor the initiative and a direct report should be appointed to lead a cross-functional team that is empowered and accountable for optimising business costs. This team works in in the context of end-to-end business processes – using a framework to define the objectives and priorities of the program.
Four key initiatives will help to drive this change, but they do need the change-management ‘wrap’ around to ensure success. Businesses should:
- Empower all employees and make them responsible for managing costs – give them the tools, the visibility, train them, guide them and reward them for good behaviour
- Enact policies and evangelise best practices
- Build working groups – use peer pressure to manage and improve
- Link cost management to unit prices – everyone can see the impact on your business
Forcing this culture of cost management, will automatically stimulate continuous improvement, as your teams look to ‘break’ the traditional approaches and introduce new, more efficient, processes into your business.
Start with small steps
Where a company-wide culture change isn't currently viable, there are 5 things any business or department leader can implement right now to start the process of better cost management. These are:
- Basic cost visibility for all – give stakeholders (and/or users) dashboards and alerts into relevant spending;
- Allocate costs between departments – define a taxonomy and start allocating ‘central’ costs to departments, budget holders, even end-users;
- Optimise – ask, 'what assets do I currently have and am I using them?' Transfer them before buying more;
- Save money on what you use – ask, 'am I on the best contract for my usage, can I switch things off?';
- Link spending to your business metric – determine your top-line metric (what the CxO cares about) and determine how to apportion your costs to this metric. Then measure it.
Above all, start a cost management group. Even if it isn’t remitted across the wider business under a CxO sponsored initiative, you can initialise a group to look at the costs that are under your control.
Mastering cost management culture is all about making employees, departments and senior teams work together. It affords trust and responsibility, asking everyone to consider if they're spending it like it's their own.
To talk to us about any of the information in this blog, please contact email@example.com. We’d love to hear from you.
Ian Yates – Director, Barcanet