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6 Steps to Reducing Operational Costs
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6 Steps to Reducing Operational Costs

Regardless of the economic environment, organisations will always be seeking to maximise their efficiency and achieve better value for money from their operations. Focus in this area never stops. Every industry is the same in this respect. We all need to improve how we operate to maximise profitability and remain competitive. However, the methods which are typically used to achieve this are often unscientific and arbitrary. Budgets are often reduced without a clear sight of how it will be achieved and the subsequent effect on customer service.

Here are six levers which can be pulled to help focus where improvements may be identified and realised to support better financial performance without compromising quality of service:

1 – Failure Demand Reduction – The starting point, and most important focus, should be identifying the types of demand that are coming into the operation and understanding which are value and which are failure. Failure demand include complaints, escalations, chases etc. that exist from internal and external customers. All of these activities are detrimental to customer experience and require extra operational effort to fulfil. Service operations typically have over 60% of their time and effort focussing on failures. Failure demand can be categorised, root caused and then eliminated. A win-win with less unwanted demand coming in and fewer issues and less confusion for customers.

2 – Waste Reduction – Analysing an end-to-end process allows you to understand all the activities which are performed by different individuals and teams. If this is made visual, people from the organisation can take a step back and view these activities and really challenge how they do things. Does the customer require all of these activities? What activities could be combined, reduced or eliminated? There are always savings identified from these activities and this usually means implementing changes to create more responsive operations and less waiting time for customers.

3 – Optimising Spans of Control – This term relates to the number of subordinates that a manager or supervisor directly controls. Typically, you would expect to see spans of 1:5 throughout all management layers, with 1:10 or 1:12 at frontline manager / staff level. The type of work is important as roles involving repeatable tasks needing less supervision than those performing high discretion activities. Typically, when you analyse an organisation’s structure there are inconsistent spans of control and an opportunity for the organisation to alleviate this.

4 – Performance Management – This may surprise many people, but implementing effective performance management and focussing everyone on the key things will typically improve efficiency by at least 10% and have similar benefits to customer quality measures. This involves having a performance management system in place which everyone understands, focuses on the right things, is transparent, fair and means everyone is accountable for their own actions. Effective performance management helps to give clarity of purpose for every individual.

5 – Work Relocation – Relocating to cheaper locations will never be popular and there are many examples of where this has been unsuccessful. However, I have witnessed some organisations achieve better value for money and also improve their service from using this approach. The key here is to offshore the right type of activities, invest the appropriate time and rigour in the transfer and partner with an experienced internal or external organisation who specialise in those type of operations. The type of activities to be offshored should be repeatable tasks that can be standardised, documented and easily trained out. It is important not to create many handoffs in the end-to-end service as this can happen when multiple activities are relocated. The off-shored operation should have clear measures and a regular performance dialogue to focus on the right things and improve over time.

6 – Reduce Operational Rigidity – Operational rigidity is defined simply as the difference between resource and demand profiles.  It exists in every service business due to the inherent variability in demand, but can however be greatly reduced using the correct approach. Fully reducing rigidity is not a quick fix, however quick wins can often be found through some basic analysis. Some operations are typically better than others with matching resource with demand. It is not a new concept to call centre operations but often less understood and managed in service operations such as finance and procurement.

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