Expense reduction is a hot topic right now….I find that the pendulum swings back and forth: focus on investment (revenue growth) vs focus on expenses (margin protection). As an ex-COO in Operations, I’ve only known the expense focus side. Growing up in retail financial services where margin was measured in basis points, it was a never-ending focus on expense management. So what lessons did I learn in reducing expenses?

1. Make the numbers visible. Too often, numbers aren’t broadly communicated. Not every number is appropriate, but there’s a set of data which is appropriate and relevant for the people who will be impacted. At the very least, it’s here’s where we are, and here’s where we need to be.
2. Focus on the big stuff: nothing drives me more nuts than cutting things like small stuff: employee lunches, etc. It’s not usually material and just makes everyone crazy. Often the administration of those programs cost more than the savings.
3. Unfortunately: it’s always going to be about people. Yes, there are other costs such as real estate.  But the biggest expense driver is usually people. But…..
4. Attrition is your friend: people leave. If you don’t backfill, it’s a save. Too often, people assume that if someone leaves they have to refill the role. If you’re in a cost cutting mode, the best thing to do is to book the head…figure out a way to do without. Put a process in place that forces people to justify the add…..chances are, they’ll figure out how to go without.
5. Focus on the big external stuff: it amazed me how little people knew about contracts and the vendors we used. There’s always opportunities to figure out how to reduce costs. Those reductions are even better because it lessens the dependency on reducing people.
6. Don’t do things you will need to undo: inevitably, the pendulum swings back. If the organization has been promoting a lot of senior people, creating “I” formations (a VP reports to a VP reports to a VP), it will stick out during cost reduction times. Just don’t go there.
7. Say no often.  Yes, I know people would rather hear yes.  But it’s a lot easier to say no from the beginning than to try and shut down something once it’s started. Be choosy about what you invest in.
8. Have a holistic approach: it can’t just be about the expenses. You need metrics on service and risk/control. Cut too much and service levels can tank, and risk profiles will go up. That’s not a good tradeoff. The data also acts as a good balance to an overzealous cost cutter.
9. Understand your true denominator: when expenses go up, why? Is it volume related? Chances are you don’t control it.  Part of my story has always been expenses which are fixed, semi fixed, and variable. My opportunity might not be as big as management thinks it is.
10. Be a good communicator. Often, these times are tense for the organization….they are waiting for the big announcement. Good people think about leaving preemptively. It’s important to communicate: you have a plan, here are the elements of it, and you’re committed to keeping the best talent. Saying nothing allows the rumors to become fact.