alexa How to cut down operation costs without hurting your business - Daily Nation

How to cut down operation costs without hurting your business

Wednesday November 6 2019

Nairobi Securities Exchange

The cost of managing non-core functions is not justifiable in this age of specialisation and efficiency where smart, agile businesses are evolving to stay competitive. FILE PHOTO | NATION MEDIA GROUP 

OSCAR ONGURU
By OSCAR ONGURU
More by this Author

According to the World Bank, Kenya has made significant political, infrastructural and economic reforms that have largely driven its sustained economic growth and social development over the past decade following the 2008 global economic recession.

Growth resumed in the last five years reaching a peak of 5.7 percent in 2019, positioning Kenya as one of the fastest growing economies in Sub-Saharan Africa.

However, the aforementioned growth has not trickled down from the macro to micro economic level to benefit established enterprises and SMEs.

Projected economic growth in the build-up to the 2017 general election was not realised with the actual election year, 2017, registering the lowest economic growth and highest inflation rates in recent times.

This was further compounded by a prolonged electioneering period as a result of the post-election stalemate culminating in fresh presidential elections the same year. This coupled with the interest rate cap that has further limited access to credit to SMEs by banks, hampering their growth and  operations.

As a result, many enterprises have resorted to reducing their overhead costs either by retrenching, downsizing, issuing profit warnings or in worst case scenarios, shutting down.

Advertisement

Most companies (with the exception of shrewd multinationals) have adopted a wait-and-see posture while continuing operations in a business as usual (BAU) mode, instead of delving deeper to critically analyse their operations, to identify opportunities to streamline, optimise and diversify to increase efficiency, grow new revenue lines and cut down on unnecessary expenses to avert the status quo.

Despite the associated high and constantly rising overhead costs thereof, many companies still hire and maintain an entire work force to undertake works that are not core to the company’s main objectives --with the notion that they need to have complete control of every aspect of their operations-- thus consuming valuable resources that could otherwise be reinvested back in the business for greater gain.

The cost of managing non-core functions is not justifiable in this age of specialisation and efficiency where smart, agile businesses are evolving to stay competitive. 

CUTTING DOWN COSTS

So, what needs to be done to cut down operational costs if enterprises are to stay afloat and remain competitive in these harsh economic times and beyond?

The answer lies in enterprises cutting down their operational costs and focusing on their core business and outsourcing all non-core functions. This frees up valuable resources for re-channelling to more productive uses within the organisation.

This is where Facilities Management comes to play and is a critical aspect of an organisation’s operations and survival.

In layman terms, facilities management is the art (or science) of managing all aspects and activities that are not core to the operations of a business.

For instance, the bank’s core mandate is trading in money. It has no business deploying resources to manage all other functions that do not support this core mandate  i.e. front office, call centre operations, asset maintenance, utility and fleet management, etc.

Similarly, an insurance company’s mandate is to provide protection cover from adverse events to their clients. Hiring a team to look after their fixed assets e.g. their real estate portfolio isn’t in line with their core mandate.

Additionally, a supermarket chain whose core mandate is to offer self-service retail experience to customers, would not derive much benefit from employing a whole team of technicians to maintain the MEP (Mechanical, Electrical and Plumbing) installations within their stores. These are just a few examples of how companies channel investments and focus on functions that detract them from where they derive the most value.

On the flip side, imagine the nightmare KFC (the world renowned fast food restaurant chain) would be facing today if they were running and managing chicken farms in every market they operate in.

A specialist service provider will be more motivated to not only ensure improved efficiency and cost controls, but also add value to the business through Specific, Measurable, Attainable, Realistic and Time bound (SMART) objectives as part of their Key Performance Indicators (KPIs)contractually.

Facilities Management is flexible in approach --no one size fits all solution-- and modular in application – one can start small and gradually grow the scope.

It can be classified into two categories, both of which have potential to significantly impact organisation’s bottom-line positively as elaborated below:

  • Hard Services

    Relates to the management of all technical aspects within an organisation. The service provider would be expected to carry out an audit of the physical asset as well as all Mechanical, Electrical and Plumbing (MEP) installations therein to ascertain their operational, maintenance and serviceability status, capturing documents and information on  guarantees/warranties, developing equipment life cycle and replacement schedules, maintenance records  as well as developing asset registers coupled with a maintenance budget and cash flow projections. It also incorporates other technical services such as project and construction management, repairs and maintenance, utilities management etc.

  • Soft Services

    Relates to the management of all non-technical aspects of a company’s operations ranging from front desk operations, mail room/messenger services, cleaning and housekeeping services, supply of office consumables, security, call centre operations etc.

It is worth noting that the above mentioned services should not just be outsourced for the sake, but rather, the specialist service provider should be able to demonstrate value addition by value engineering all processes with the aim of streamlining and improving efficiency through process automation and eliminating wastage – by  optimising roles, manpower, equipment etc.

As such, corporates and SMEs need to embrace Facilities Management as it would enable them streamline their operations and increase efficiency with minimal investments. Indeed, this is the future of operations.

The author is a seasoned property practitioner with a wealth of experience in facilities management. He currently runs and manages a property consulting agency - Technitis Limited. [email protected] or [email protected]  or on 0722873740.

Advertisement