Deloitte LLP has released the paper, “Seven Secrets to Downturn Survival.” We’ll take the seven steps a couple at a time over the next few weeks.
Step 1: Decide how much cost improvement is needed. When it comes to reducing costs, Deloitte writes, one size does not fit all. Different companies have different needs. The main variables are the breadth of change needed and the time available to take action and capture value.
Companies that are facing severe margin pressure and other urgent problems have a greater need to reduce costs through a wide range of cost levers such as direct and indirect spending, infrastructure, balance sheet, cash flow and financial restructuring.
Healthy companies, on the other hand, can afford to focus on incremental process improvement or look for strategic opportunities to capitalize on their strength by investing in long-term structural improvement.
Step 2: Start with the obvious. For many companies, according to Deloitte, immediate cost savings can come from streamlining general and administrative functions and aggressively tackling external spending (the materials and services a company buys).
“Even companies that believe their external spend is as good as it can get may find additional opportunities to save during a downturn,” Deloitte writes. “After all, suppliers that are hungry for business have a greater incentive to bargain.”
Finally, Deloitte notes that general and administrative functions don’t have a direct impact on customers or day-to-day business operations, so it is easier to make changes without disrupting the business or putting customer relationships at risk.
More next week.