Short-term cost-cutting measures have helped companies survive the ever-changing business landscape until 2020, but these rapid solutions could lead to a collapse in 2021. According to Gartner’s analysis, companies are reporting a 7.3% decrease in IT spending across all industries compared to the previous year. In perspective until 2021. Expenditure is expected to increase by 4.3%, but companies will rely on cost-cutting to realize the benefits of additional cash flow.
1. Determine the crisis phase and take action
Entrepreneurs need to know what phase of the crisis the company is in to react accordingly. By immediately targeting investments that may mean immediate savings for the company, the impact will be visible in the coming months, not spread over time.
The first phase is a response that focuses on maintaining essential services and ensuring cost optimization. Here, try to plan everything to prevent your company from going bankrupt at the most critical time.
The next phase is the recovery. This is where cost optimization strategy begins when leaders can look beyond everyday life. In the recovery phase, optimize value and manage risk compared to cost. Slowly think about how to restore the company’s pre-pandemic form and pay attention to how competitors do it.
The final stage is the recovery phase. Discussions with management reorganize the previous cost-cutting to stimulate innovation and take advantage of opportunities to create new value. Think about whether your company doesn’t need to introduce new services or products to fit in with the current reality and consider what marketing efforts best promote your company’s entire offering to your target customers. This will allow you to return your company to its pre-crisis form.
2. Eliminate costs
Companies have taken significant steps to adapt their costs to the new economic reality they are facing all over the world. Most of them are looking for a lower, more flexible cost base through cost optimization. This shows that some companies are smaller than at the turn of the year, while others try to introduce more flexibility to deal with unstable periods.
Instead of eliminating them, the frozen costs appear later in the organization’s annual budget. Reducing the use and renegotiating existing rates can provide liquidity that the final costs will be diminished, not just shifted. Currently, many companies are resigning from large office buildings due to the lack of on-site staff. Gartner’s survey of 127 company leaders showed that 82% of respondents intend to allow remote working for some time, and 47% intend to allow full-time remote working from now on.
3. Plan everything based on your company’s data analysis
Budget cuts are hard enough the first time – don’t stretch them over several rounds. You have to prepare a personal cost optimization plan for your company. Especially when it comes to staff changes, several rounds of reductions can create an unproductive and destructive cycle of uncertainty that harms financial performance. Data analytics and technology will enable you to take new cost reduction measures. For example, they allow companies to set data-based targets, use the demand and cost levels observed during COVID-19 as a benchmark, and permanently set new demand and load levels through automation and digitization.
There is no doubt that the coming months will remain challenging. Nevertheless, as we saw when COVID-19 hit in March, companies can operate at an extraordinary pace to meet the enormous challenges. From now on, it will become apparent to many senior executives, especially CEOs and CFOs, that more radical changes will be needed to achieve more radical savings targets for unforeseen situations like the one in 2020.