Column: Are you lean and mean?

Lean and mean

The old adage of doing more with less still rings true. Lean organizations actively look for ways to improve business operations and cut unnecessary costs.

From reducing travel expenses through video conferencing to reusing and maintaining office materials such as furniture, small changes can make big differences and help improve or update a company’s operations. But small alterations are just part of the opportunity. An organization can also leverage other large items such as fixed assets. For example, a business can lease out currently empty or unused office space to increase cash flow.

Other components to consider when implementing a lean strategy include sustainability initiatives. Implementing sustainable practices have the potential to result in financial savings. For instance, using less paper and conserving electricity can reduce ongoing costs that add up over time.

Everyone on staff should be responsible for implementing and carrying out efficiency in the workplace. Whether an employee has an idea for how to streamline a process, or an executive needs to demonstrate procedures, each person should act as part of the team in an effort to make business efficiency a priority. If an employee has an idea for how to reduce the number of steps necessary for a project, the employee and supervisor can work together to implement this change and train other staff members on the new process.

When endeavoring to run lean and mean, it’s important to take the initial steps of identifying what can be cut while still maintaining quality, and then solidifying processes to maintain these changes long term.

Identifying fat versus bone

Cutting expenditures such as staff, marketing budgets, or research and development just for the sake of cutting can hurt the bottom line. Just because it costs money does not mean it isn’t critical to the long-term profitability of an organization. A reduced emphasis on research and development can lead to less product innovation, resulting in loss of market share and decreased sales. Understanding how much should be cut from particular areas is critical. The key is differentiating excess from necessity.

A critical first step in determining what to cut is identifying where the customer receives added value.  Sometimes cost-cutting strategies can be too aggressive and can have a long-term negative impact on the business. If a restaurant, for example, wishes to scale back its menu items or hours of operation, the decision should be made after analyzing sales data, determining when peak sales hours occur and determining high-margin menu items.

Every business contains an administrative component; from sales and marketing to accounting and customer service. Business leaders should study their systems and customer behavior carefully to identify waste. It may be necessary to seek out a financial advisor to review the business’s financial documents and help determine how much overhead is spent throughout the organization. This advisor can also compare the company’s spending habits with other similarly sized businesses in the same industry. 

Sometimes identifying the fat versus bone is not as obvious as it should seem. The secret is determining the return on investment (ROI) for every component of the business. The “fat” starts to build up when management is not critical of every penny spent.

Setting up a long-term system

Maintaining a successful and profitable organization is an ongoing process and can be challenging, but there are many ways to position a business for long-term success. A good starting point is to actively use existing company financial statements in a structured way to monitor business activities such as sales and expenses on a regular basis. Customer relationship management (CRM) programs and other internal tracking systems can also help streamline the sales process while reducing administrative costs.

The right financial institution can help a business identify ways to manage company funds and plan for the future by implementing long-term financial strategies. Efficiency measures require constant upkeep and it is important to build close working relationships with accountants and financial advisors who can help keep the business on an efficient financial track.

Consider the business that only monitors sales data and doesn’t analyze the costs associated with the creation of the product or service. Actively identifying ROI often takes a back seat to selling the company’s products and services. The ability to adapt to market demands while identifying and providing highly profitable products or services is a major component of business growth.

Efficiency is not a band-aid, but a long-term solution that requires a business to constantly monitor and refine its processes. As business owners seek to refine and evolve internal procedures, careful attention should be paid to maintaining efficiency.

Kristy Weaver is a senior vice president and team leader at Pacific Continental Bank. She can be reached at kristy.weaver@therightbank.com 

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