ECO600: Economics and Finance for Business

ICMS
Cost-cutting strategies

taken from:

Couto, V., Plansky, J., Caglar, D. 2017. Fit for Growth: A Guide to Strategic Cost Cutting, Restructuring and Renewal. New Jersey: Wiley
hbr.org (see Harvard Business Review items in ‘Additional Resources’, Week 3)
IOMA. 2006. Cost Reduction and Control: Best Practices. New Jersey: Wiley
Kapp. K.W. 1978. The Social Cost of Business Enterprise. Nottingham: Spokesman
Leinwand, P., Mainardi, C. and Kleiner, A. 2016. Strategy That Works. Boston: Harvard Business Review Press
https://www.americanexpress.com/us/small-business/openforum/articles/10-simple-ways-to-cut-business-costs/
https://www.moneycrashers.com/cost-cutting-ideas-small-business-expenses/

1. Incidental expenses: cut discretionary, comfort and non-mission-critical perks and activities (e.g., plush
chairs, holiday parties, event tickets, reimbursement for part-time studies)
2. Consolidate: combine remaining activities like training days and celebrations into single events
3. Leave vacant positions unfilled (get remaining staff to carry out the tasks, if its fair and they are willing)
4. Restructure the jobs of less than fully-busy people (combine jobs) and deal with underperformers whom you
don’t want to fire because its unpleasant to do so (reduce headcount/number of workers)
5. Reduce supervisors: after initial period, supervisory costs can be reduce: reduce number of hours devoted to
it by 10% each year
6. Miscellaneous spending: stop spending on unnecessary stationery or computers
7. Hold down pay increases: if it is above market rate, hold average pay increase to 1-2% lower than last year’s
average
8. Reuse rejected cost-saving ideas that were rejected before because of constraints or priorities (e.g., IT
resources were tied up elsewhere)
9. Eliminate any work, jobs or projects for which the cost exceeds its value (even if it does have some value)
10. Eliminate coordinators and liaisons between departments
11. Reduce excessive service levels: too many staff members working on writing reports that could be
eliminated (e.g., clerks)
12. Change process: shift to electronic methods if you use people to process forms or information repetitively
13. Remove exceptions to the norm: eliminate special cases (e.g., high-maintenance customers who make work
more complex or costly than the value they give you)
14. Timing: shift time of day, week or month to do certain work to save cost; do work in batches rather than on
a ‘first in, first out’ basis; coordinate parallel activities together (e.g., chopping and preparing vegetables in a
restaurant kitchen, and throwing away the rubbish); incentivise employees to complete work quickly
15. Outsource to get jobs done more efficiently
16. Eliminate low-value meetings
17. Unnecessary contingency or emergency preparations
18. Eliminate unnecessary programs (special deals, activities not related to core business etc.) and focus on core
competencies
19. In general, (i) eliminate waste and duplication, (ii) implement best practices, (iii) introduce technology where
its effective (e.g., using the Internet or software and digitise)
20. Compensate/pay based on performance rather than merit/qualification
21. Training costs: cut it by training over the Internet or getting workers who were already trained elsewhere
22. Cut inventory cost and manage cost of supplier side (switch to low cost supplier, suppliers who are located
closer, trim demand for raw material, avoid making many small orders etc.)
23. Consider designing for quality but maintaining just “good enough” quality or performance
24. Sell waste: leftover cardboards, metal etc. instead of sending it for recycling
25. Marketing/advertising: Increase social media use and reduce traditional marketing, and network more and
advertise less (clients or customers might hire or buy a business with a face they recognise)
26. Shift costs onto others (e.g., customers: make them bring their own bags and save by not buying plastic
bags; suppliers: let them keep the goods in their warehouses, order when necessary)
27. Save electricity and heating innovatively: e.g., use thermostats, LED lights, eliminating unnecessary lighting,
power of machinery/equipment during after hours

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 ECO600: Economics and Finance for Business
ICMS

Other articles on saving costs

There are many other resources on managing costs. The following articles are a selection. They do not only provide
tips on cost-saving measures, but some of them also caution you about how cost-saving at all cost can be
detrimental to your business.

How to reduce costs - NAB

https://www.nab.com.au/business/small-business/cashflow-planning-and-tax/how-to-reduce-costs

The Good, the bad and the ugly of cost cutting – Forbes Magazine

https://www.forbes.com/sites/ianaltman/2015/03/17/the-good-the-bad-and-the-ugly-of-cost-cutting/#62d2bd9d377b

Seven ways to grow your business by cutting costs – smartcompany.com.au

https://www.smartcompany.com.au/finance/seven-ways-to-grow-your-business-by-cutting-costs/

Cutting costs, and alienating customers – The Sydney Morning Herald

https://www.smh.com.au/business/small-business/cutting-costs-and-alienating-customers-20110228-1bawv.html