Common cost cutting mistakes, how bad can they be?
The news lately has been full of stories about the economy – how inflation is driving up costs for small businesses, and how many small business leaders are having to “tighten their belts”, or some other overused metaphor. While the metaphor may be tired, it doesn’t change the fact that many small businesses are being forced to make difficult decisions about their budgets and where to cut costs. When money gets tight, business leaders always must ask the question “do we really need this?”
Unfortunately, without careful strategic planning, it is easy to make cuts that result in increased costs and put the business at greater risk of losing control of its sensitive information. When evaluating items to remove from the budget, it is important to beware of making decisions that will:
Reduce the ability to control access to information or systems
Degrade the employees' work experience
Remove automation and reintroduce manual processes
Reduced the ability to control access
An example of cuts that we see too often is in the area of IT software and licensing. Many small business leaders will try to cancel licenses for software tools with the intention of simply sharing licenses or accounts between multiple employees. At best, this is against the terms of service or licensing agreement. At worst, shared accounts create a scenario where the business no longer knows which team member is accessing and changing data. This kind of budget cut means that the organization can no longer control access privileges on a per-employee basis. On the surface, this might seem an acceptable trade-off, but when an employee leaves, it becomes critical to change those shared passwords – a manual step that very few organizations actually execute reliably.
Degraded employee experience
When the team is asked to “do more with less”, it inevitably results in more work and more frustration for the entire team. A team that lacks the tools and support that they need to accomplish their work will be forced to get creative. Creativity might sound like a positive thing, but when it comes to protecting sensitive information, creative employees are dangerous employees. Creative solutions are how your company’s or customers' data end up uploaded to unapproved, ungoverned, and unknown personal cloud accounts like Dropbox or Google Drive. Worse yet, links to files in personal cloud accounts can unofficially become embedded into your business processes and even make critical business processes dependent on a former employee's personal cloud account.
Revert to manual processes
If management simply removes existing technology or tooling that helps to support productivity and automate processes, it results in the reintroduction of manual processes. While doing things by hand might seem less expensive, we must remember that manual processes are slow, error prone, and difficult to audit reliably. Process quality suffers, efficiency is reduced, output becomes unpredictable, rework increases, and employees become frustrated. Those frustrated employees will provide sub-standard customer service, look for creative solutions, and often leave the organization.
The most insidious thing about budget cuts that reduce capabilities, degrade employee experience, and reintroduce manual processes is that that they hide the problems and inefficiencies that they create in other budgets. The money isn’t saved in the end, it just moves to other areas, such as payroll, work in progress inventory, and training due to employee turnover. These hidden costs can far exceed the top line savings that the initial cuts were thought to create. More importantly, none of these hidden costs include the direct and indirect costs of a security breach due to a creative solution or a disgruntled former employee, which can easily add up to hundreds of thousands of dollars.
To avoid these pitfalls, small business leaders should consider the entire organization as a system and look for ways to strategically optimize the system to reduce costs, rather than focusing on individual line-item cuts in isolation.
To approach budget optimizations strategically, leaders can do the following things:
Shift the focus to investing in tools that improve efficiency to reduce operating costs and increase margins.
Consider moving to new tools that consolidate the functionality of multiple existing systems into one instead of simply eliminating licenses.
Eliminate manual process steps by integrating tools with one another and investing in automation to boost efficiency.
Contact vendors and renegotiate contracts to lower costs by moving to longer terms.
Look for opportunities to bundle licenses or services together to achieve better pricing.
Consolidate technology purchasing through a single master IT reseller that can offer better discounts based on total relationship and spend.
Outsource carefully to gain access to capabilities that you need while taking advantage of both fractional personnel and economies of scale that 3rd party service providers can offer.
Obviously, there is no perfect solution when money gets tight, and the decisions become difficult. Understanding the potential risks and looking at the big picture will help small business leaders make the best decisions they can to operate safely and efficiently.
Have you run into unexpected outcomes from budget cuts in your organization? Use the buttons at the top right corner of the page to connect with us on social media and let us know.
Do you have questions about this topic? You probably aren’t alone! Join us as a caller on a future episode of The Mindful Business Security Show and ask your questions on the podcast!