Achievement of profitability improvement in a short period is doable, but requires appropriate experience, strategic approach to the problem, agility, regularity and the ability to analyze individual operational processes in the company and work on processes’ particular elements. If we approach our business problem horizontally and construct methods of its solution in the form of a systematically conducted project with an optimally planned schedule, clearly defined, real goals and we appoint people responsible for the implementation of individual steps – success seems to be guaranteed.
This is particularly important in mature large and medium-sized companies that often notice problems in their business too late. One of the overriding principles that you should follow is to start with the implementation of changes when the company is doing well, and not when it is already distressed. If you wait too long, it may turn out to be too late for any major change.
Improvement of the efficiency of each process by few or several dozen percent will translate into improved liquidity and rapid development of the company. Free funds obtained in this way can be used for further investments, new business lines, acquisitions or building financial security cushion for the future. Remember however, that the whole process is not about “cutting off the oxygen” and generating hyper-efficiency in one area that will desable long-term operation of the company, it’s about rational adjustment of costs to its needs, adopted strategy, financial situation of the organization and market conditions.
An example from our own experience:
There was a large telecommunication company with declining profitability and negative results at the operational level. The company’s business problem was caused by many factors, and one of them was the change of key customers strategy who decided to in-source the services offered by the company and another: sales price falling down by several percent year on year. The company has therefore made changes in the management team, looking for fresh ideas and reversal of downward trends. The management team, after a detailed analysis together with several dozen selected employees, identified about 10 key elements requiring changes in various areas and on this basis prepared a new business strategy aimed at extending the range of products offered. It introduced new business lines, changed the way of cooperation with customers and increased the efficiency of operational processes. Some of the implemented changes delivered visible effects (so-called Quick Wins), however, a significant increase in revenue from new business lines is a matter of subsequent reporting periods. In order to stop the further decline in profitability, a cost-effectiveness program was implemented.
The key fact here is to present the moment and the way of implementation of the recovery program. First, the company defined its business strategy, defined where it wants to be in few years (vision) and what is the plan and schedule of achieving this goal. It was only in the next step when a cost analysis was made, with the certainty that the changes would have a positive impact on the company, and would not prevent the implementation of the specific strategy. In addition, it is worth emphasizing that the cost-effectiveness program was not aimed at reducing headcount.
The improvement of cost effectiveness began with the analysis of the current level of expenditures in the administrative areas and all parts of the telecommunications network. We identified all cost items and then assigned to the items: dates of the last price change, type of service, operating process and we determined an indicative, market-based price level. Preliminary market queries were made for some items to verify the market competitiveness of current prices. After this benchmarking process, the goal of cost optimization in the area of the ICT network was set at PLN 12 million, and in the area of administrative expenses at PLN 1.5 million, which accounted for over 20% of total costs related to these areas. However, the company did not care about obtaining one-off savings resulting from shifting costs to subsequent years, but aimed at permanent reduction of the cost base. And even though this goal seemed initially unrealistic, the company managed to achieve the desired effects.
In the area of administrative costs, one analyzed fees related to mobile telecommunication services, car fleet maintenance, insurance, power energy, security and cleaning. The car leasing company and the type of leasing used have been changed. The power energy distribution tariffs and grid connection power for individual facilities have been adjusted. In each case, the existing contracts were renegotiated, and in some cases a change of supplier was made, which resulted in savings of over PLN 1.2 million per year without changing the quality and scope of services provided.
In the case of cost optimization in the area of telecommunications network, the process was very labor-intensive and complicated, because, apart from the simple method of renegotiating some of the costs, it was necessary to perform a detailed analysis of current levels and methodologies of network maintenance, network planning methodology, protection paths, changes in protection schemes, type of devices used, the costs of purchasing new equipment and spare parts storage. Painstaking analysis of transmission and protection paths for tens of thousands of services has been performed, leased lines and multiplexing of transmission lines to higher bit rates were verified. Lease of dark fibers, bidirectional transmission capabilities to one fiber, available capacity of SDH and DWDM systems to which the current services could be switched were analyzed, migration of transmission cards in existing devices was simulated so that full capacity of systems could be used. The released equipment was used in projects for new customers. Despite the complexity of the whole process and many difficulties on the way, just a few months before the end of the project, the savings achieved exceeded the assumed level, and the potential was still estimated at a further PLN 3 million.
It is also worth noting, that at every stage of the project, proper communication within the organization was taken care of, that the cost reduction program was not associated with dismissal of employees. The project objectives, current state of progress of the work, recent activities and the level of the achieved goal were communicated on an ongoing basis. A special information portal was set up and regular meetings with project leaders were organized. The communication and way of proceeding during the project have contributed to a significant improvement in the employees’ influence, their sense of comfort and commitment, and the building of the belief that even seemingly unachievable goals are within their reach.
The implemented program and permanently applied methodologies and canons of proceeding not only improved the financial liquidity and profitability of the company, but also had a significant impact on the optimization of operational and purchasing processes, the method of choosing new devices for the telecommunications network and development of new innovative solutions. In terms of technology and operations, the organization has once again moved the top of companies in its industry.