Cost Cutting vs Efficiency

Over the Global Financial Crisis, you would recall times when CFOs of many companies announced their strategy on cost cutting.

As individuals, we do a similar exercise a.k.a ‘tightening our wallet.’ For example, thinking about whether what we are buying is a “need” or a “want”; reducing the number of fine dining or holidays (what we perceived as luxury items).

I believe that every individual has different priorities, needs and wants. So I am not here to suggest which expenditure you need to ‘cut.’ Instead, I am suggesting that we should think about whether there are ways to ensure the we get the ‘bang for our buck’, and I don’t mean buying cheap but ‘useless’ things.

Let’s have a look at one of the well known retailers in Australia, JB Hi-Fi Limited (JBH). One of the key performance measures JBH communicates to the market is “cost of doing business.” In other words, JBH is consistently looking at different ways to do business more efficiently and corresponding reducing cost. That is something we should consider.

In my own life, I notice that people pay a lot of money for ‘convenience.’ For example, paying a tax agent, a gardener, a house cleaner, and even people to iron your shirts. What we are really saying is “I will pay someone else to do the jobs that I don’t want to do.” What’s more, sometimes we even ‘justify’ these spending by thinking about tax deductions and thereby the cost is ‘supposedly cheaper’.

Although each individual’s circumstances are different, I would like to challenge you to re-think about some of these recurring costs and whether you are willing to do it yourself. In other words, “Don't be lazy.”

I have started to remind myself not to be lazy, and I did find it useful. Rather than thinking about how long and hard your day has been, and why you need to rest on your favourite couch to watch your favourite DVD, just get up and finish the chores.

That said, there's a difference between paying for convenience and paying for efficiency.

Feel free to post your comments and share with me your strategies to improve ‘your cost of doing business’.