Cost optimization doesnt need to cost your organization its ambition

Cost optimization doesnt need to cost your organization its ambition

Markets in the Middle East have presented greater challenges to private and public organizations in recent times. And challenging markets always prompt organizational soul-searching.

But there are two ways of responding to market pressure. Some firms emphasize cost cutting to the point that they cannibalize their own assets and emerge weakened when the market turns. Others use tightening markets as the impetus for organizational change and optimization that sees them emerge leaner, meaner, fitter and ready to grab market share from competitors. In the end, only one of these options results in sustainable performance.

Regional markets taking on tougher challenges

Middle Eastern markets have had to deal with a combination of geopolitical uncertainties and a fall in oil prices that began in 2014 due in part to a slowdown in Chinese energy consumption but largely due to excessive capacity brought online by Americas shale oil revolution.

And yet, the oil price has recovered somewhat in recent weeks and market fundamentals remain strong. Organizations need to ride out this period and emerge from it as stronger performers in their respective playing fields. But how?

Diverging approaches to dealing with economic pressure

At the risk of sounding simplistic, there are two approaches to responding to tougher market environments. The first sees firms cutting back on spend in adhoc fashion. Headcounts go down, as do marketing, training and organizational development budgets. This slash-and-burn approach can staunch cost haemorrhage in the very short term. But in the medium term, firms may find that theyve divested of the human capital, innovation programs and organizational excellence practices needed to set themselves apart, diminishing their strengths along with costs.

The other approach is more reasoned but bolder. Performance leaders take a challenging market as an opportunity to reorganize and get the house in order. They actually start investing in strategy formulation, human capital development, and organizational optimization. They conduct careful analysis to establish better cost structures and conduct rationalization where needed. But importantly, they continue investing in their future.

This strategy generally leads to leaner and better organisations fixated on performance, and able to grab market share from competitors.

The bottom line is that while tightening markets require cost cutting, the exercise can be turned into an empowering transformation. Firms can shed unnecessary flab while focusing their attention on high-growth areas and business lines essential for the future.

How to turn words into action

Theory can get quite messy when confronted with reality. Its easy enough to talk about prioritising growth and investment in the future while simultaneously shedding costs. But how can this be instituted practically in real life?

At MENTOR, we spent years helping organizations transform and optimize. And that expertise has helped us come up with a framework that can turn economic squeezes into liberating exercises in innovation. Here are some pointers.

First, go holistic: Many firms delve deep into silos to try and cut overheads. They count printer paper and man-hours. This approach is usually ineffective in the long run. We propose just the opposite. Sit down with C-level decision-makers and board members and ensure that everyone agrees on the firm future direction, areas of growth, and exciting market opportunities. Then, start focusing funds in that direction while trimming elsewhere.

Always prioritize: Similar to the point above, but worth reemphasizing. Many firms try cutting costs evenly in the face of economic pressure a strategy that is ultimately futile. Always protect and even expand high-value business areas, while pruning others.

Remember your core team: Irish academic Charles Handy came up with the Shamrock organization model an early recognition of the fact that people are important. Picture your firm as a three-leafed clover. Each leaf represents a type of workforce. The first leaf is your professional core workers and managers. The second is non-core workers, while the third is your contingent workforce. When looking at downsizing, protect your professional core, because that institutional knowledge forms the essence of who you are and what you offer as a firm. Focus on trimming the other leaves instead.

Dont fire and rehire: The global recession of 2008 was a textbook case study in kneejerk firing and rehiring. HR departments, under strict instructions to slash costs, let vast swathes of people go - only to realize months later that those employees were essential to keeping the business running at a reasonable level of performance. They either had to be enticed back, or replacements had to be found and retrained.

Think longer term: Its tempting to see an economic challenge as a tactical skirmish to be won. But organizational leaders have a longer-term mission. The aim isnt just to persist today, but also win tomorrow. And that means taking a non-myopic stance on human capital development and organizational optimization.

Public sector organizations in the region for instance need to ensure that cost cutting measures not work against broader national objectives, such as ambitious transformation and nationalization plans.

To compete globally and diversify from oil-based economies, countries like the UAE and Saudi Arabia are aiming to create a larger and better trained National workforce. This large-scale on-boarding of Nationals, many at entry level positions, will need substantial training and mentoring. Employee down-sizing efforts should therefore take into account the need to preserve institutional knowledge and retain employees who are an internal learning resource.

When all the above guidelines are take into consideration, both public organizations and private businesses can be well on their way to achieving the golden dream of optimization: the ability to maximize performance while minimizing costs. So that when the market winds turn in a more favorable direction, theyll be at the helm, helping power their ships through calmer seas of commerce.

Get in touch to discuss implementing cost optimization in your organization.