Strategic Decisions for Cost Savings in an Economic Downturn

“Recession is when a neighbor loses his job, depression is when you lose yours,” Ronald Reagan once said. In this economy, this statement resonates with all of us. The question “what should I do?” comes up often as we talk to advisors and friends.

In realizing times are tough, good decision making is more critical, and these decisions will be scrutinized more. There is no doubt that key decisions will need to be made over the next several months. The challenge will be to determine how management will position their respective companies to better manage through difficult times and to position for the inevitable uptick.

During economic downturns, many companies fall into the trap of deciding to make cuts in all facets of the business or freeze spending. In some cases, that decision may be a good short term solution, but can be a longer term barrier for needed improvements, efficiency, and revenue enhancement.

“Today, more than ever, companies need to review their operational and organizational strategy. In doing so, companies can identify where they can optimize their processes resulting in cost savings but also positioning for growth”, Jim Cashin, shareholder, Vitale Caturano. History can tell us something about the future. A study that was performed by Mercer, identified most businesses that used cost-cutting as their primary strategy for surviving the recession of the early ‘90s did not achieve profitable growth during the second half of the decade. Those that made some bold decisions and enhanced their business and operating models, while balancing cost reduction initiatives, were the clear winners.

Organizations should look to more sustainable improvements. For example, it may make sense for companies to assess their overall back office operations and operating model to identify process inefficiencies and redundancies. By doing so, companies can identify opportunities to optimize their transactional systems and processes, which may result in cost savings and efficiencies that will sustain over time. Some opportunities, like shared service centers, strategic outsourcing, and other effective back office re-organizations, can help companies to effectively achieve cost savings, while at the same time making an important strategic decision for the organization.

Organizations that can realign their internal operations are able to more effectively emerge from an economic downturn and support the future growth of the business. These types of cost improvements can also position a company to weather the storm during this period of uncertainty by maintaining margins, identifying market opportunities, and out-performing stagnant competitors.

Jim Cashin and Dan Wheadon head up the Management Consulting practice at Vitale Caturano, New England’s largest regional full-service CPA, consulting, and Wealth Management firm. The Management Consulting practice is focused on enhancing performance through the following services; strategy, software selection, project management, process improvement, and integration services. With a commitment to assisting clients resolve complex business challenges and optimize organizational performance, the management consulting team aligns strategy with the execution of initiatives around process, technology, and organizational enhancements. For more information on Vitale Caturano consulting services, contact Doug Bosley at douglas.bosley@vitale.com.

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