Hot Tip: Set Cost-Cutting Targets
If there's a single new trend in cost cutting, it may simply be this: Setting cost-cutting targets is out; rethinking every single expenditure from the ground up is in.
"It used to be that companies would look at last year's budget and maybe say that everything will go up by 2% or 5%. Or if they felt they needed to cut costs, they'd say that everything will go down by 3%. But that just doesn't work anymore," says James Carulas, a vice president at Meaden & Moore, a five-office accounting firm based in Cleveland. "These days there's always someone out there who has a lower overhead structure and can do what you do for less. So you've got to start thinking about the whole notion of controlling costs in a different and more comprehensive way."
What that means, quite simply, is that a company's owners and managers need to focus not only on what they're spending but on how and why as well. As an example, Carulas points to a law firm that may have traditionally spent a large sum each year maintaining its research library. "Maybe now all it needs is to invest in some CD-ROMs and learn how to make use of what's available through the Internet. That change alone could have a major impact on the law firm's operating budget. Not only does it not need to spend all that money buying law books, it also might need less office space and maybe even a smaller support staff."
This article was adapted from material that first appeared in Inc. magazine in July 1999.