Cost reduction strategies for businesses

Overview: Cost reduction strategies

Effective business cost reduction strategies begin with a holistic approach. Companies can drive manageable and sustainable cost reductions across multiple areas of their business and achieve significant savings while maintaining or even improving the quality of its operations, products and services.

The process begins with identifying opportunities in every aspect of the business, such as vendor relationships and employee working habits. Focus areas for cost reduction can include techniques such as:

• Negotiating with vendors
• Reducing the need for business travel
• Identifying new opportunities in technology investment
• Labor strategies
• Training methods

Common cost reduction techniques

There are a variety of methods for reducing business costs, each with different benefits and challenges. Let’s take a look:

Embrace more remote work

Implementing a remote work policy can reduce business costs associated with overhead, office space, equipment and utilities. By sustaining a remote workforce, companies can minimize employees' own commuting costs and potentially increase employee satisfaction.

Business leaders should be aware that remote work presents challenges associated with onboarding, communication, resource allocation and other areas. For example, in-office employees may have access to more resources like specialized equipment, training or experts. Plus, in-office employees are exposed to different experiences than remote ones, which can sometimes lead to imbalances in work-life balance expectations.

Fortunately, companies can invest in a robust remote work infrastructure, including reliable communication tools and comprehensive training programs, which can limit costs while supporting seamless communication and collaboration among employees, regardless of their location.

> Read more | How to set employee expectations for remote work

Lean into negotiations

Successful negotiation with suppliers and providers can help reduce long-term costs without compromising the quality of their products and services. Arrangements such as discounted bulk purchases or favorable, long-term contracts can lead to lower prices, better payment terms and value-added services (VAS).

Building strong relationships with vendors can also lead to better deals in the future. By establishing trust and demonstrating loyalty, suppliers may be encouraged to offer favorable pricing or terms on future arrangements, adding value to new deals down the line.

Reconsider travel and transportation

Opportunities to reduce business travel costs are simple and more culturally accepted with the emergence of virtual meetings instead of in-person visits. These methods save money while reducing the environmental impact of frequent travel. When travel is necessary, companies can prioritize budget airlines and carpooling for short trips.

Travel management software also helps businesses find cost-effective travel arrangements by comparing prices and identifying the best deals. This technology streamlines the booking process and ensures travel expenses remain within budget.

Investing in technology for cost reduction

Technology investments can streamline operations and reduce costs across various business areas. By leveraging advanced tools and systems, businesses can improve efficiency, enhance productivity and minimize waste, leading to significant financial savings. Here are some technologies to keep in mind:

Intelligent document processing (IDP)

Intelligent document processing (IDP) uses artificial intelligence (AI) to process unstructured and semi structured data by extracting and converting text into structured formats. With a continuously learning engine, it enables efficient processing of various file types, like invoices and emails, without human input, boosting operational efficiency and productivity.

Through the power of IDP, businesses can minimize manual processing errors, enhance efficiency and cut operational costs by up to 20%. The emergence of this technology improves data accuracy and reduces time spent on manual tasks by automating essential aspects of document handling.

Robotic process automation (RPA)

Automating repetitive tasks through robotic process automation (RPA) reduces the need for human intervention in areas such as data entry, data processing and even some customer service functions.

Implementing RPA can reduce the risk of human error, boost productivity and drive cost savings through efficiencies. However, it's essential to address potential challenges, such as integration with existing systems and ensuring employees are adequately trained to work alongside automated processes.

Content management

Modern content management systems (CMS) streamline document handling and collaboration, improving information sharing and content retrieval while reducing storage costs. Moreover, today, enterprise content management (ECM) solutions are scalable and feature low-code or no-code capabilities, enabling anyone to customize and adapt the software to their organization in a cost-effective way.

For example, a state treasury department saved $30 million annually by using Hyland's OnBase content services platform to handle escalating unemployment claims and reduce transaction costs. Within a four- to five-day period of implementing the solution, the department was able to post over 600,000 payments to recipients' accounts.

Cloud computing

Leveraging cloud computing solutions can eliminate a company's need for on-premise physical servers, helping reduce capital and operational costs. Cloud solutions are also scalable, which means businesses only pay for the resources they use.

Companies that migrate to the cloud and adopt its "pay-as-you-go" model can benefit from massive savings compared to those that continue to use strictly on-premise solutions. Additionally, cloud migration enhances business agility, allowing companies to quickly adapt to changing market demands and opportunities.

Additional strategies for cost reduction

To further reduce business expenses, consider implementing the following additional strategies:

• Cutting employee costs: Hire freelancers or partners with contingent staffing firms to manage workloads efficiently without incurring the expense of full-time salaries and benefits. Outsourcing is also an option to delegate tasks, allowing companies to focus on core competencies while accessing specialized experts at lower costs.
• Reducing material costs: Explore bulk purchasing options to obtain equipment and materials at discounted rates. Switching to alternative materials and embracing recycling practices would also lower expenses.
• Eliminating overhead fees: Regularly review operating expenses and renegotiate lease agreements to ensure optimal terms and potentially relocate to more cost-effective locations. Enabling virtual meetings and transitioning to the cloud also reduces overhead from costly servers and physical spaces.
• Choosing shared services: Share facilities, equipment or services with other businesses to distribute expenses. For example, companies can consider sharing office space or IT services with other organizations in their industry.
• Cross-training employees: Implement programs that allow employees to handle multiple roles, reducing the necessity for additional hires and maximizing workforce efficiency. Employee development programs also boost productivity and retention rates, eliminating potential future costs associated with slow production or employee turnover.