Small and Medium-scale enterprises (MSMEs) are the backbone of a developing economy. However, many enterprises cannot maximise their potential due to challenges that affect their sustainability, as shown in 2021 research by the FATE Foundation, which states that only 20.2% of MSMEs had existed for more than five years. Although many factors contribute to this, a prominent contributor is the lack of profitability and cash flow constraints that lead to business closure.
An imbalanced relationship between expenses and income has led to business failure and bankruptcy for many organisations. According to Legal Jobs, an international research platform, 5% of bankruptcies result from mismanagement of funds and conscious or unconscious reckless spending. For many MSMEs in today’s economy, the chances of experiencing this fate are higher due to high overhead costs and unoptimised operations. As such, it is essential that business leaders adopt cost optimisation techniques.
Cost optimisation involves continuous efforts to maximise spending and get the best value for money and cuts across every area of your business – it is more than just cost-cutting and expense slashes.
It is worthy to note that cost optimisation is not the last resort in response to external pressures such as financial distress, fluctuating foreign exchange rates, downward pressure on revenue or prices, changing consumer needs, intensifying competition, the need to fund growth or strengthen the balance sheet and pressure from shareholders. Cost optimisation is a strategic process that is part of the daily running of an organisation, and its consciousness should be integrated into organisational culture.
The COVID-19 pandemic is a classic example of the impact external factors can have on businesses and another justification to get the most out of their spending. Similarly, the “post-COVID” world has been riddled with uncertainty stemming from changes in global politics, economics and consumer behaviour. As small businesses adapt to these new pressures and more challenging economic times, here are some tips on optimising cost-effectively.
Strategies to Driving Cost Optimisation
The importance of planning in a business cannot be overstressed. Before venturing into the strategies for organisational cost optimisation, it is important to note that no optimisation plan should be created in isolation from organisational strategy and plans. Your plans and strategic goals determine your business’s operations, so an effective cost optimisation plan cannot be created without consulting and leveraging strategy.
By identifying organisational priorities, it is important create an optimisation plan aligned with your goals to increase chances of success. Once this is done, the tips below will help your business maximise its resources and improve sustainability
Technology is the application of science to make life easier. In our world today, we are surrounded by various forms of technology that have been designed to enhance business performance and make work easier. When utilised optimally, these tools and applications can also save resources such as time and money.
Using modern technology allows MSMEs to reduce traditional overhead and operational costs. For example, traditional meeting systems that require all parties to be at a physical venue can be replaced using virtual meeting applications like Zoom, Google Meets and Microsoft Teams. Similarly, organisations can save on stationery costs by adopting more reliable digital filing systems with cloud storage.
Gone are the days when productivity was measured by the number of hours personnel spent at their desk. Today, employee output should be the baseline for productivity. This can also be tracked and enhanced by using and providing your staff with cost-effective, sometimes free, modern technology and tools.
2. Outside the Box Marketing
An effective marketing strategy helps generate profit, some brands are getting it right. However, an effective marketing strategy does not always need to be expensive.
As an MSME, it is imperative to learn to identify and utilise cheaper alternatives to the traditional marketing tools and platforms that saturates the Nigerian landscape. This can start with simple solutions like SEO optimisation for your business website, social media marketing, and influencer marketing. Remember that it is not the cost of ann advert that sells, but the quality of the story and products.
3. Embrace the Gig Economy
COVID-19 and remote working further accelerated the growth of the gig economy. This has led to more people willingly taking on freelance jobs to fulfil certain organisational tasks and functions. However, despite this trend being on the rise globally, the Nigerian market is yet to maximise the opportunities this presents. For an MSME, these opportunities can be the difference between excessive staff costs and profitability.
Properly utilising freelancers can help your organisation be more efficient, without the burden of wages and salaries. And the good news is that you can track productivity and keep staff accountable using modern technology.
4. Embrace Best Practice Work Ethics
Outside the technical ways to optimise cost, the simple adoption of best practice ethics such as time management, teamwork and budgeting are also ways to reduce unnecessary expenses and increase organisational profitability.
A stitch in time saves nine; in the same light executing tasks to time and specification can save the organisation from costs related to delays. Time management methods such as prioritising and setting SMART goals can ensure successful implementation and cost savings.
Similarly, maintaining a high-quality standard of service or production will also prevent repetitions and complaints from clients.
It is pertinent to note that cost optimisation is a multidimensional approach that can be applied in various areas of business, including digital transformation and digitalisation, operations, people management, supply chain management, technology and business transformation.
It involves organisations taking deliberate steps to identify optimisable areas and plan towards increasing efficiency. It also requires agility and early adoption of initiatives and interventions that will create a culture of cost-effectiveness across your organisation.
It is never too late to start your cost optimisation journey; all you need to do is make the decision and begin the process. Working with a trusted strategic partner, such as pcl., will ensure that your optimisation goals are well-tailored and implemented based on your business needs and the economic environment.