Cost-value connection: Upstream efficiencies for long-term savings

As we’re all gripped in turbulent post-pandemic trading conditions, businesses must keep adapting to constant change.

Cost cutting is often the first change identified when weathering a storm. And yes, while you can find savings by slashing downstream functions, the process can have a negative impact longer term. Especially now, as customers expect frictionless and holistic (omnichannel) service.

Resilience is key to surviving volatile markets, changing global political landscapes, and rising customer expectations. Businesses which embrace change are better equipped to endure, while slow to act or short-sighted organisations are most likely to struggle.

When reviewing costs, it’s important to consider these points:

• Making people do more with less to save money can hinder performance and business growth by limiting creativity and focus. Support functions are traditionally the hardest hit in cost-cutting programmes, but the long-term effects of reduced customer retention and satisfaction can be a false economy.
• Where you spend money affects every area of your business and, most significantly, wellbeing and culture. Happy workers are more productive and effective. Unhappy workers drive up employee churn, and subsequent re-recruiting/training costs.

What’s the alternative to simply cutting costs?

To flourish, businesses need a combined focus on cost and value transformation.

Driving effectiveness, or optimising costs, can reveal better ways to organise and run your business. With a mixture of short-term and longer-term tactics, you can maximise scarce resources and capitalise on sustained improvements.

When costs are spiralling, it’s far too easy to focus solely on the P&L. While reducing overheads and setting ambitious targets for departments that directly affect P&L is a quick fix, it’s often fleeting. And can be the start of a continuous cycle of temporary, knee-jerk actions.

There are greater opportunities to drive efficiencies and growth once you understand your value levers. It may seem counterintuitive, but investing in upstream processes may ultimately reduce costs downstream and offer greater cost-effectiveness.

But how does that look in practice?

Take debt as an example. We regularly see debt recovery teams with challenging or unrealistic performance targets, despite debt drivers being ignored earlier in the customer journey. More positive and wholesale changes come from a holistic and pragmatic approach.

We’ve seen a tremendous impact when clients invest in point of sale, improve their billing process, or train customer operatives to spot and support customers before they get into debt (pre-delinquency). Debt collection costs reduce, and customer service improves long term.

Just as investing to replace a roof, which is showing signs of deterioration, is more cost-effective than extensive remedial works born out of a leaking roof. Reviewing things with a service quality lens is where you can identify real, long-lasting cost effectiveness. For maximum impact, any cost reduction must balance the wider impact on customer satisfaction.

The UKCSI points out:

"Organisations that consistently earn higher levels of customer satisfaction than peers in their sector achieve better financial results, greater productivity by reducing costs associated with problems, and higher levels of trust and reputation – key sources of long-term value.

"Problems and complaints are costly for organisations: they consume time and resources that could be deployed more productively for improving service, developing products or winning new business."

- UKCSI State of the nation report (July 2023)

As the debate around enforced Smart prepayment for debtors highlights, a seemingly simple solution to one problem can have bigger cost and value repercussions, such as costly field visits, regular discretionary credit applications and labour-intensive control activities. And look at the reaction to water companies struggling to manage flood waters, excessive waste, and an ageing infrastructure. Customers and the media often experience or see things differently, which can have an enormous impact on your business brand equity.

This is clearer than ever with Ofgem now calling for publicised customer satisfaction (CSAT) scores and league tables. And Ofwat issuing fines based on poor CSAT scores. While customers are feeling the pinch, their previous apathy has gone in favour of minimising costs and choosing suppliers with better support services wherever possible. This makes customer service a key repeat sales driver as research shows, the probability of selling to a new prospect is 5-20% and costs five times more than an existing customer with a 60-70% probability.

Ways to find efficiencies

We’ll explore each of these in more detail in future pieces, but here are some ways to find and make service-focused efficiencies.

1. Process optimisation

• Revisit or gain an accurate view of your cost and value drivers.
• Reconfigure your workforce more effectively to nurture focus and creativity, and create value to support growth.
• Transform your operating model to remove duplication.
• Use automation to replace bottlenecks or sluggish processes through AI or robotics.
• Evaluate and improve internal communication, training and support for better wellbeing and culture.

2. Internal and external analysis

• Assess, plan, do, review. Measure and assess your activity with a control framework. With visible reporting, you can measure added-value, and identify, manage and mitigate risk, to ensure your cost savings stick.
• Benchmark regularly against competitors and industry leaders to identify opportunities for competitive advantage.

3. Digital transformation

• Use specialised tools and platforms available to save time, resource and reduce financial risk.
• Use chat bots to automate common customer service queries.
• Embrace omnichannel servicing systems to remove friction, cut enquiry times and improve customer experience.
• Automate simple services where possible for efficiencies – consider anything and everything from data capture to billing, being careful not to remove the human interaction required for struggling customers.
• In Financial Services, leverage the Open Banking standards and software to verify customers, fulfil Anti-Money Laundering requirements, link accounts and explore debt history.

To summarise, you can uncover longer-term cost effectiveness with a proactive approach and focus on quality. You can protect downstream activities to maintain or even boost customer satisfaction by reviewing upstream processes and tackling inefficiencies.

How we can help?

At BFY, our experts have helped large and small companies to radically improve their value levers and operational effectiveness. We work closely with clients to understand their business, their processes, and their teams – identifying opportunities to deliver transformational results.

This includes:

• Implementing operational process improvements to deliver ~£15m cash benefit for large energy retailer
• Supporting a large supplier's transformation through challenger strategy and scenario analysis
• Helping a large B2B supplier to increase efficiency through operational excellence

Through our Benchmarking for energy and water, suppliers can gain a detailed insight into the drivers of their cost performance, and how this compares to peers. We’ll then help to build a delivery plan for the target savings, providing strategic challenge on ‘where to save and where to spend’.

For more information on how we can support you with delivering cost transformation, contact Holly Odle or Jonathan Paton.

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