Cost-cutting has become a priority for most businesses today.

But most enterprises do it the wrong way. They choose the wrong area to cut costs and become uncompetitive or suffer severe damage to their growth and vitality.

In most enterprises, the first target for cost-cutting is discretionary spending.  This is a mistake.

Popular imagination associates discretionary spending with non-essential items or luxuries. But many investments that deliver long-term growth and success come under discretionary spending.

For instance, research and development, technology upgrades, and marketing are all discretionary spending. In today’s uncertain and fluid business environment, such investments are the bedrock for future success. These investments also become essential for survival.

For instance, research and investment may not yield any immediate bottom-line improvements. But cutting R&D stifles innovation. Without innovation, the enterprise cannot differentiate from competitors and will soon face obsolescence.

Identifying and eliminating waste reduces costs and enables the workforce to do more with less. The spin-off benefits include better control and faster time to market. The business becomes more competitive.

Here are the ways to reduce waste to cut costs and make the business more competitive.

Cut Waste in Value Delivery Processes

Most enterprises grow organically. In the process, inefficiencies creep in. Many enterprises remain attuned to the old ways of work. They have not realised the efficiency improvements made possible by digitisation.

Inefficiencies always exist across the value chain. The top areas prone to waste include risk management practices, analysis, and unnecessary meetings.

Many enterprises introduce some paperwork or measures for specific situations. The situation that necessitated the same may have long gone, but the onerous paperwork remains.

For instance, most enterprises rely on extensive planning to manage risk. Planning involves filing reports and an elaborate approval process. Today, rapid iteration, testing and feedback reduce the need for extensive planning. In fact, extensive planning may become counterproductive in the fast-changing business environment. When enterprises shift to rapid iteration models, they may not completely do away with the paperwork and approval process.

Likewise, many managers analyse more data than necessary, leading to analysis paralysis. Gathering and analysing more data causes delays and leads to diminishing returns. Making decisions with the available information optimises the process and reduces waste.

Meetings had their relevance in the pre-Internet days. But most meetings are big-time wasters in today’s digital era. Physical meetings are, in fact, disruptive to today’s knowledge workers. The time spent in meetings often leads to costly delays in launching a product or engaging with a customer. Automated reports replace status update meetings. Tracking tools replace check-in meetings. Asynchronous chat and collaboration options replace most physical meetings.

Adopt Lean Practices

Lean practices cut waste by shedding activities that do not add value to the customer. Some of the popular lean concepts to cut waste include:

• Value stream mapping maps each step in a process. The visual insight makes it easy to cut redundant steps and overcome bottlenecks. 
• Standardised procedures and checklists ensure consistency and reduce errors. It minimises the need for rework.
• Organising physical workspaces and digital files streamlines information flow. Employees spend less time and effort seeking information.

Scalability goes hand-in-hand with lean. Scalable cloud-based systems allow businesses to shed resources when they do not need them, such as during the off-season or a slump. Yet they can scale back during busy holiday seasons or when the economic climate improves.

Invest in Automation

Automation is costly. But the investment delivers high ROI by eliminating waste and speeding up processes.

Rule-based automation replaces manual bureaucracy and repetitive toil. For instance, automated policy enforcement replaces the human gatekeeper and makes processes accurate. For instance, automated systems track products in real time. This identifies defects as soon as they occur, reducing waste from faulty products.

Robots and automated guided vehicles optimise warehouse storage space and reduce handling errors. Their use in production eliminates material waste.

Automated systems use sensors and analysis to predict equipment downtime. Pre-empting breakdowns avoids waste from repairs.

Automated order processing reduces errors in order fulfilment.  

Real-time tracking of logistics allows proactive identification of supply chain bottlenecks. Timely interventions reduce waste from delays or lost shipments.

Digital forms and electronic data collection replace paper-based processes. This eliminates paper waste.

Automated invoice processing reduces manual data entry and errors.  

Automated workflows ensure compliance without layers of human oversight.

Gen AI takes automation to the next level by bringing even many cognitive tasks within the scope of automation.

Simplify 

Most enterprises underestimate the cost of complexity. The costs to manage a sprawling product portfolio, convoluted processes, and outdated technology add up. These complexities increase administrative overhead. It also leads to higher error rates and slows down decision-making. The implications include lost productivity and missed opportunities.

Making processes simple can assume the form of:

• Streamlining the organisational structure and reporting relationships. A flat organisational structure reduces bureaucratic and administrative waste.
• Ensuring seamless data flow between enterprise systems through robust APIs or native integrations.
• Mobile apps offer the workforce easy access to all the functionalities they need. Neat interfaces further simplify things. 

A good example is HP’s 2019 cost transformation that simplified the product portfolio. The company eliminated an entire organisation layer to get closer to customers. They centralised R&D for process efficiency. They also optimised its real estate footprint, creating more efficient digital workspaces. These moves saved more than $1.3 billion in annual costs.

Connect Costs to Outcomes

Waste reduction effort often fails as the decision-makers are not the ones executing the initiatives.  The management may set targets and roll out initiatives. But the execution fails if employees remain non-committed to the initiatives.

Effective targeting of waste depends on connecting costs to outcomes.

Translate waste reduction targets into concrete financial terms. For instance, clarify how reducing paper usage by a certain amount translates to specific cost savings.

Connect waste reduction to things that matter to employees. For instance, explain how reducing energy consumption creates a healthier environment for everyone.

Empower and incentivise the workforce to motivate them in waste identification and reduction.

IKEA offers an example of connecting costs to outcomes to reduce waste. The company connects product design and all activities to customer outcomes. Employees get a free hand to pursue any cost-saving as long as it does not affect the merchandise quality, or the customer experience. Designers work to reduce the materials and size of packing and put more pieces into a container.

Pay Attention to the Culture

Eliminating waste often requires cultural change. For instance, sustained adoption of lean principles requires a mindset change. Forcing lean through edits and threats will only deliver limited and short-term success.

If change has to work, it should start at the top. The onus is on executives to be frugal and display waste-conscious behaviours.

Another initiative to force a culture change that promotes eliminating waste include:

• Empowering employees to speak up on seeing evidence of waste anywhere. Such an initiative can become part of a system for continuous improvement.
• Gamification of waste discovery. Introduce competitions and challenges around waste reduction. Track progress and celebrate successes.
• Spreading awareness of waste through metrics and progress charts
• Designing sustainable products. A sustainable approach may involve using less material, easier disassembly, and/or recycling.

Tackle the Root Cause

Most enterprises consider their activities sacrosanct. They make only incremental adjustments. Such tinkering and also one-off approaches only deliver short-term benefits. The eliminated waste soon accumulates again.

Sustainable cost reduction requires identifying the root cause of the issues that lead to waste and tackling it head-on. It requires a holistic look into systems, product lines, and operational processes.

A problem in one area can create inefficiencies and waste in others. For instance, a company may try to overcome high storage costs by offloading items and shedding some warehouse real estate. But such an approach may only treat the symptom. The root cause could be poor inventory management. The storage costs will remain high if inventory management is not optimised.

Transformative cost-cutting often requires changes in technology, operating models, and ways of work. Achieving the same is challenging, but the results make the effort worth it.