In uncertain business climates, countless organizations focus on traditional belt-tightening and layoffs. At times, layoffs may be called for to meet the changing needs of the market; however, because of how the business environment has evolved in recent years, traditional forms of cost cutting don’t “cut it.”
Questions we should be asking are, “Are we cost cutting with an eye to the short term? Or are we cost cutting to yield long-lasting results, allowing us to be innovative and nimble?” We need to rethink how we approach cost cutting so that we can accelerate growth, foster innovation, and bring enduring results to our businesses. The goal is not necessarily to cut costs per se; the goal is to build a lean, efficient organization that not only cuts costs but also improves operations for the long term.
One temptation is to assign cost-cutting to departments. However, many departments cut costs and make improvements without seeing how the “improvement” may have negative downstream consequences. Additionally, the complex business environment we now face calls for a more holistic, deeper-dive approach that functional areas may not be able to achieve without a much broader view.
For optimal cost cutting, evaluate the use of cross-functional, cross-silo structures. It is possible to cut costs significantly and improve the performance of the organization with a cross-functional approach–both temporary project structures and permanent cross-functional, flatter organizational alignment structures. A key concept is that there don’t have to be a lot of people on the teams. Conversely, the right people need to be on the teams. In other words, you can have fewer people per improvement or per process even if you elect to have more teams working on multiple improvements at the same time.
Temporary cross-functional structures include cross-silo problem solving, process improvement, or new product development teams, to name a few. In forming these teams, you want to ensure that the teams are representative of the functions in the processes being improved. Many initiatives fall short because they don’t go far enough to include people and perspectives of the macro-process—upstream and downstream functional areas. One client organization, to reduce turnover, formed cross functional (and cross-hierarchical) teams to quickly address and correct prioritized issues that had been uncovered by employee complaints and surveys. The location achieved remarkable, rapid, enduring results by using these short-term blitz teams, supported by leadership. Additionally, the location cut annualized turnover by 75% within 10 months, a significant cost reduction in Year One. The thoughtful, strategic approach allowed the company to sustain the results in subsequent years.
Cross-silo structures can also be permanent. A large organization was experiencing poor performance–having missed their new product development target by 80%. The new, permanent cross-functional structure we put in place consisted of cross-silo new product development teams including representatives from R&D, Legal, Sales and Marketing, and Manufacturing. In this case, the overall structure became permanent although each new product development team was temporary (in place only until the product was developed, launched, and tracked). With the new structure, within 9 months, the organization cut time for new product development by two thirds. The organization significantly cut costs per product developed while also increasing capacity, with fewer people.
Cross functional alignments allow you to flatten the organization and provide a path forward for streamlining operations and reducing costs.
For true innovation in cost cutting, organizations should also be evaluating AI tools to support teams and improvements. AI is not just for finance, HR, and Marketing. There are well established tools available for AI-driven process automation, vendor analysis, vendor negotiation, predictive maintenance in manufacturing, robotics integration, and the use of AI algorithms to analyze, adjust, and improve processes.
It’s time to become creative with our cost cutting. We can’t afford short term results without building long term capability to accelerate growth.
For a complimentary, 60-minute brainstorming session or for more information on helping your organization cut costs while improving operational performance, please contact me or message me in LinkedIn.