The Challenges of Thinking Outside the Box to Reduce Costs

Businesses know that long term cost reduction and expense management are critical to financial stability. The achievements of yesterday are no longer adequate in today's economic climate. Today's leaders seek innovative solutions to support these objectives.

That support is sought in one of two areas: either from inside the organization or from the outside (consulting firms). Consulting firms provide objective advice and access to highly specialized expertise. The valued advisor assembles industry "best practices" and from them, creates transferable solutions.

The consulting business is a 10 billion dollar industry that is used universally throughout the world. However, using a consulting firm to reduce administrative costs is still in its birth stage and companies are just starting to realize the advantages.

The following three-step process necessary to achieve identifiable results is based on over a decade of examining actual administrative cost savings practices across a broadly diverse group of enterprises.

Step 1 is to get past denial. Insanity is defined as doing the same thing over and over and expecting a different result. We all have to face the reality that collaboration is mandatory for success. Listed below are some of the objections that arise in response to proposed administrative cost reduction:

* "Outside vendors may damage the relationship with my current vendors." - Studies prove that paying a higher price for service does not necessarily provide better service. Instead, better service is achieved through strong contract language, new business opportunities, and insistence that vendors earn your daily business.
* Fear of looking bad - Employees who seek individual indispensability over universal organizational performance will be concerned that the use of an outside resource is an indication of their incompetence. It is critical for employees to see the value of an external organization to support continued learning. Effective management of this area can actually support job security.
* "I should be the expert; that's why they hired me." - Competitive organizations hire not for specified expertise, but for the ability to perform the required function successfully. Few great leaders can claim to be experts across the broad range of functions over which they reign; an effective leader knows when to defer to the expertise of others.
* Fear of change - This is both an individual and organizational natural response to adaptation. Fearing change puts any organization at a competitive disadvantage; as change is inevitable and ultimately necessary for long-term productivity and survival.
* "I will have my team refocus on these areas." - Insisting that your teams need to refocus its efforts rarely yields real results. Companies now are learning to do more with fewer people.
* Underestimating project difficulty/complexity - When analyzing a project outside of an organization's core competency, it is easy to misjudge the actual effort by overlooking key elements and variables. Knowledge and understanding of these details are generally within the expertise levels of those investing in ongoing specialization.

Step 2 is to identify who can help.

* Industry knowledge, purchasing power, verification and vendor service support, and technology resources are the four key components in finding a successful partner.
* Before working with a consultant, it is important to request a free analysis to identify your potential opportunity. This analysis will allow you to identify the consultant's quality of work, the consultant's area of expertise and the potential savings.
* Focus on results rather than activity. Results-based consultants will bill for savings produced. An activity-based company will bill hourly or upfront with no performance guarantees. This will save your company little, and in some cases, could actually increase expenses.
* Define results through mutually agreed-upon objectives and a detailed reporting process. The level of detail demonstrates the level of accountability.
* Using the same-vendor/same-service. A same-vendor and same-service policy must be the consultant's first savings option. To avoid legal disputes with the consultant, the customer must be guaranteed final choice on all options.
* Avoid consultants that offer consortiums. Consortiums do not guarantee savings, as business buying trends are not all the same. In addition, vendors are typically compensating the owner of the agreement of the consortium. Validate your options. Make sure that the savings paid to the consultant are the savings you have implemented. Be wary of consultants who charge for higher savings opportunities that were not implemented.
* Select a consultant who will truly be a partner and integrates well with your team's culture.

Step 3 is to validate actual results.

* Contract negotiations are just a part of the process. Administrative expenses range in accuracy, so it is critical to select a partner who will monitor results closely and accept accountability for achieving the agreed-upon results.
* Verify results monthly or quarterly to secure savings. Require a reconciliation if your volume changes due to business conditions.
* Savings should not decrease the level of service you receive. It is important to ensure that your consultant manages service and maintains current levels of satisfaction.

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The Challenges of Thinking Outside the Box to Reduce Costs