Reach deep —- it’s not enough to cut costs and head count

Across virtually all industries, market dynamics have changed significantly. We read about the impacts in daily headlines of job and cost cuts. Instead of reckless cost cutting and layoffs, however, company executives should seek to improve business processes, changing their operations to find new efficiencies —- and possibly new revenue sources.

You see, during these lean times, companies can look within to change and improve business processes in order to save money. It’s the ultimate in “do it better,” in order to make more money. Whether you are a small business or a $50 billion one, the technique is the same: Improve core operational processes to get the same or a better level of service or output with less cost.

What are four tactics that can be used? Standardization, integration, centralization and optimization. Every industry has specific nuances and areas that are more ripe for improvement than others, but some core operational process improvement themes resonate across industries.

How have local companies and companies across the nation done this? Many big corporations have formed so-called “transformation teams” tasked with direct financial improvement of the company. Sometimes working in conjunction with outside professional services firms, these teams are charged with changing corporate structures and processes that have been ignored for years. The change requires a focused effort, an understanding that consensus is not always possible and, most of all, committed leadership in the C-suite.

Digging a bit deeper into our list of four ways to improve operational efficiency makes them clearer.

Standardization

Standardization seems obvious, but many large companies are just beginning to focus on reducing operating costs and providing a consistent customer experience. In a more robust economy, standardization is viewed as an innovation killer at corporate offices seen as running counter to the autonomy necessary to serve local markets. The answer is to only deploy standardization specifically in areas where disparity in process drives up cost.

Integration

Integration is typically associated with technology, but it is equally important on the business process side of things. For instance, within a customer life cycle, many systems and processes are involved, from customer acquisition to service or product delivery, billing and customer service. The ideal situation is to have a seamlessly integrated set of systems and processes to support the full customer life cycle. Over time, companies have built specialized applications and processes to support new product offerings, regulatory changes, company growth or acquisitions. As an example, many of the banks in the news are suffering from a cost structure that is way out of line. The primary reason is years of acquisitions that took place without integrating technology and business processes. They often do this with the intent to integrate at a later time.

Centralization

Centralization is a next logical step. Whether part of an overall shared services initiative or not, the core theme of centralization or regionalization is to remove redundancy and achieve economies of scale. Simply put, you want to perform like functions in fewer locations. And, again, it may seem intuitive that the challenges are technical and process-oriented. However, the true barrier to effective centralization is company culture: The people dynamics that are involved with change management.

Optimization

Once companies go through the transformational challenges related to standardization, integration and centralization, it is essential to optimize performance toward maximizing value.

For sustainable improvement, it is imperative to continuously streamline systems and processes while building a structured change-management process focused on return on investment. The key is to find the right balance among quality, cost and speed to market. It falls to corporate leaders to drive sustainable improvement. In particular, diligence in assessing the opportunities to improve core processes, fully developing a true business case with defined ROIs, and ensuring that reduced costs actually result is critical for transforming today’s businesses —- and making them viable for the future.

Operational

Again, operational change is an alternative to simply “cutting costs” through reductions in force, layoffs, closing divisions, shutting offices and redlining other expenses. Operational issues being laid bare by declining revenues have been building for years. Fixing them may be the real key to pull us out of the mayhem. Companies that focus solely on reducing costs and head count will likely experience an endless cycle of quality issues and declining revenues. That ultimately leads to more pressure to reduce costs again in the future.

> Brad Shepard is a co-founding partner of Innovar Partners, an operational efficiency consulting firm in Atlanta. The company’s Web site is www.innovarpartners.com.