Most companies are tempted to cut back office services and staff across the board when costs increase dramatically and performance drops.
In studying various companies and working with various clients, we have found that strategically trimming and redesigning the back office areas is actually better in not only reducing costs but improving performance, efficiencies and effectiveness.
There are three techniques that can be used to acheive cost reductions, improved performance while improving efficiencies and effectiveness:
- Reduce activities
- Re-engineer processes and
- Restructure the entire back office
Reducing activities is fairly easy to implement. It is usually involves reducing the number of reports that need to be generated or talking to internal customers on what activties are not value added and no longer need to be performed. The other option is to create an internal ‘pricing system’ to allow departments to ‘feel’ the cost of providing those services. The idea behind this is to leverage “market forces” to ensure that only the most efficient, high value activities are provided internally.
Re-engineering processes requires more thought and planning. It also requires a company to ‘look under the hood’ to it’s core processes and studying each activity in the process to determine if its value added and whether or not it can be automated. This work also requires some cost analysis to determine the current cost of the process as well as options to reduce those costs. This type of work is more difficult to do because it requires dedicated resources who have process and technology expertice. However, it does generate higher, sustainable savings as opposed to just reducing work loads.
Restructuring the back office is the most complex to complete but has the largest impact of all. This work requires an 360 degree evaluation of the back office in order to determine the ability to consolidate functions or even outsource and offshore them. However, we have seen cost savings of upwards of 50% to some of our clients in addition to better service levels and increased sales.
All three techniques do generate savings at different degrees. However, as a leader, you need to understand and determine the degree of change your organization is comfortable with. If you feel you can ‘cross the chasm’ through restructuring, then go for it. The pay offs are enormous.