A comprehensive, easy to use 188 page manual containing scores of worksheets and notes. The contents follow the
business plan outline, and have been rigorously tested during years of
training throughout the world. The Ibis business plan manual is delivered in Word format, so that users can complete the worksheets and transfer them into the body of their own business plan.
Background
Cost cutting, cost reduction, consolidation or cost management have become central planning topics in all competitive markets. An established company in a maturing market is likely to see the best return from investments in cost cutting but this has to be balanced with investments that will grow the top line typically a mixture of selling more to existing clients (market penetration) finding new clients both locally and internationally (market development) and creating new profitable products and services (product development). This mix of strategies has been referred to as the golden circle:
Consolidation improving cash flows which can be used to invest in building profitable sales in existing markets (market penetration);
More profitable home market sales enabling investment in the existing product/ service mix in new markets (market development);
More profitable sales in home and new markets enabling investment in new products and services which can then be transferred to existing distribution channels (product development).
The temptation is often to look for major, single solutions with the obvious nuclear option of outsourcing, and/or dramatic cuts in personnel. This has surface advantages, but often creates crucial competitive problems. The main areas of concern are:
The impact on core competence;
The decreased speed of response to market demands;
Increased problems of quality control;
Vulnerability to supplier default.
Often companies by attempting to make big changes miss the advantages of applying a continuous cost management discipline.
Such a continuous cost management programme is a key component of risk management as it provides a mechanism for improving high risk components. It will also improve various components of
competitive advantage.
Continuous cost management as part of planning
A step by step approach will create an environment where cost management is continuously incorporated in company decision making. One such approach is used by Ibis in their planning and monitoring systems for company development:
Ensure that business plan incorporates free cash flow component so that opportunities for cost cutting can be optimised;
Establish planning and monitoring teams based around knowledge centres;
Within the knowledge centers allocate rotating responsibility for cost management either on individual or team basis;
Create rotating responsibility within senior management to act as central focus for cost management initiatives (an ideal tool for succession planning as it will introduce specialist management in one area to all company functions and operational climate);
Use the existing information system to create operational monitoring modules which establish current base line performance and existing expenditure together with a structured methodology to collect and disseminate cost cutting ideas;
Incorporate benchmarks and key performance indicators (including project and budget ratios);
Review objectives against requirements of balanced scorecard;
Establish investment appraisal standards IRR/NPV;
Identify cost savings and levels of return (and other elements of a consolidation strategy);
Identify returns from other strategic options and balance within overall portfolio of withdrawal, market penetration, market development and product development;
Incorporate into cash flow and financial forecasts;
Link into key performance indicators on module by module basis;
Review against balanced scorecard objectives;
Reinforce by linking cost management as part of bonus calculation;
Monitor implementation and deal with variances through contingency planning.
A step by step process is part of the development of expert
systems. The important elements are included under 6 headings:
Creating the right structures for cost cutting;
Integrating cost cutting into planning;
Building and maintaining the information system for effective cost cutting;
Identifying the potential cost cutting options;
Creating the cost cutting programme;
Reviewing its effectiveness.
In the early stages of such a programme, the best returns will be from internal cost cutting initiatives indeed some very effective cost cutting ideas have virtually no cost, and very high returns. Once these have been achieved, other initiatives will compete with other options for investment.
As cost cutting programmes often cross traditional organisational boundaries, it often makes sense to allocate specific individuals with the responsibility for identifying and implementing such initiatives. Ibis has found that a rotational responsibility works well within many organisations, and is valuable as part of an overall management development plan (as is new product development, new venture management, personnel management, mergers and acquisitions). This is formalised in a new standard operating procedure labelled SCORE Simplify, Cut, Operational Redundancies and Excesses.
Building a data bank of cost cutting ideas
Each industry will have different cost structures and opportunities, but there are many common ideas that work across sectors and countries. Ibis had identified over
330 possibilities for reducing cost and improving productivity by the end of
2011.
Some examples of this long list illustrate the opportunities that companies have to cut costs and reduce the requirement for major surgery.
Voice over Internet Protocol (VOIP). The growing penetration of broadband availability within most organisations, has made VOIP an obvious method for cost management. Companies that have implemented this technology have seen telephone costs dive savings of 40-60% are common especially in those companies with heavy long distance voice traffic.
Open source software. The increasing sophistication of open source software has made this a more and more viable option. Research suggests that IT costs can be significantly reduced by adopting this approach with savings through licence costs, but also through a major reduction in maintenance more than offsetting the higher initial training costs. One survey suggested a 50% reduction in such costs though experience suggests that it is lower in most organisations.
Improving meeting management. Surveys suggest that supervisors and managers spend an average of 10% of their working life in meetings where many spend their time thinking of holidays and leisure. Introducing a SOP to improve meeting management has a dramatic effect on productivity not only at least halving the time spent in meetings, but also making meetings themselves more effective.
Recruitment appraisal. Treating recruitment as an investment appraisal technique can dramatically reduce labour overhead costs. With an average 7% annual staff turnover, enterprises can improve productivity on a step by step basis using this methodology.
Bonus systems. Focusing the bonus system on the overall company objectives defined within the balanced scorecard has been shown to significantly increase long run profitability by focusing bonus payments on real returns.
Service provider contracts. There are often significant advantages in entering into medium term contracts with service providers for power, water, waste management, insurance, cleaning, security, telecommunications, or facilities management. First they focus the enterprise on defining exactly what level of service is required. Secondly they enable competitive quotes to be gained from a variety of potential providers.
Special units. Many centralised organisations or enterprises create more and more special units as a solution to specific problems. Their effectiveness is often limited; they are resource intensive; they cause major monitoring problems, reduce personnel flexibility, and they often are a source of major conflict within the rest of the enterprise. Transferring all the functions of the special unit(s) back into the strategic business units and their constitutent knowledge centers will enable the enterprise to focus its service at the operational level and to achieve major cost savings. Specific and major problems can then be addressed by the creation of teams from several strategic business units, which also has the advantage of management development for the team leaders.
Web usage management. The growth of social media has led to an increase in web misuse during office hours. Incorporating acceptable web usage practice within the code of conduct (best suggestion is to limit private use to mid day break period) and monitoring web usage with relevant software has been shown to significantly reduce misuse and improve productivity.
Ideas day. A regular ideas day, when both ideas from suppliers (existing or potential) and from within the company will add to the existing employee suggestion scheme (itself one of the most valuable cost cutting tools any company can introduce). Short presentations (twenty minutes at most) allow for 12-15 ideas to be presented to company management in a morning session. Returns from such sessions are impressive as well as providing a training ground for presentation skills for company employees.
Standardisation review. A regular company wide review of
standardisation options will provide valuable cost saving ideas from
components, raw materials, vehicles, to operating procedures.
The knowledge centre as a means of rapidly introducing effective cost management
The Ibis planning platform concentrates on the creation and maintenance of knowledge centres
within the enterprise. These then become involved in parallel planning, through the use of project management and investment appraisal, rapidly developing skills to handle small or medium scale cost cutting programmes within there area of expertise.
The best options will be identified during the development of the business plan through the creation of
key performance indicators, benchmarks and targets, coupled with a detailed
competitive analysis.
These options will then be converted into projects and incorporated into the business monitoring system, with regular reviews of project performance (normally monthly) and assessment of levels of success in the planning effectiveness review.
An emphasis on cost cutting and cost management can be further strengthened by the introduction of a balanced scorecard, including a cost management component (such as budget ratio) which is linked to the operational or knowledge centre bonus system. Where this has been introduced, controls on expenditure and project based initiatives to reduce costs become much more commonplace.
More information on the way in which Ibis can contribute to your business plan development is provided at
Advantage Ibis
More information on the Ibis approach is also available on
the FAQ page..
If you are an established business you can find an on-line quiz to analyse your business planning and control development
HERE
If you are a start up business you can find an on-line quiz to analyse your business planning and control development
HERE
