Right strategies can help managers turn customer’s hidden costs into profit

Cutting costs is tough, especially if one of the measures is downsizing people. Though such measures might have long term negative impacts on a company, executives often have little choices and are forced to cut costs to maintain profitability and arrest revenue slumps.

However, such measures also leave many questions unanswered like: Is internal cost cuts the only strategy? Are the cost reductions temporary saving measures? Can the organisation survive if its downstream customer business is shrinking?

Most managers tend to think outside of the box and find strategies or measures that can achieve the twin objective of cost cuts and profit growth.

That said, traditional cost accounting concepts often limits such possibilities. In most cases, companies focus on reducing their own costs because they have been trained to think that way. But, very often the cost performance is also an indicator of the management capability. Therefore, it is important to back these measures with proper strategy and operation.

Very often the first step in such a process hinges on a thorough understanding of the customer’s business process and whether there are any hidden costs that can be eliminated. In most cases, the answer would be a ‘no’ as hidden costs “are always hidden”. But if the hidden costs are extended to include non-value-added costs from non-value-added activities, it opens several possibilities.