How companies can lower their operating costs

Oct 05, 2023

Key takeaways

Embracing advanced technology and automation can lower operating costs while maintaining efficiency and accuracy.

Engage, train, outsource wisely.

Strategic savings: Rethink contracts, energy, eco-efforts 

Business optimization

It’s not always about making money. Yes, increasing revenue is undeniably good. But if revenue has slowed or plateaued, cutting expenses is one path to profitability. Organizations that lower operating costs position themselves for success, and the process doesn’t have to be grueling.

Here are some ways that companies can reduce operating expenses while still capturing market growth.

Tech solutions

Investing in advanced technology can lead to reduced labor costs and increased productivity. Many powerful, yet affordable, tools and technologies are available that enable teams to work better, faster and more effectively.

For example, automating processes can help employees eliminate repetitive or manual tasks and instead focus on important, value-add activities. Companies that embrace automation often find that it reduces errors, increases productivity, and improves employee satisfaction.

Any discussion of technology has to include artificial intelligence (AI). While many companies are still trying to figure out how AI works in their business model, there is little doubt that the technology will change how organizations function.

In the short term, companies’ operational costs may rise as AI is implemented in their processes. But the long-term benefits will likely develop quickly. Eventually, most companies will need to consider adopting AI.

Like all tools, however, AI is of little use if staff members are not committed to the new technology. People will still need to review and augment any AI solution to ensure that it is high quality and meets the needs of the business.

Like all tools, however, AI is of little use if staff members are not committed to the new technology. People will still need to review and augment any AI solution to ensure that it is high quality and meets the needs of the business.

People solutions

Employees are the lifeblood of an organization, so companies must include their viewpoints and needs in any major changes. Engaging people—keeping them involved and pinpointing how new approaches will benefit them—is essential.

One way to get employees on board, while lowering operating costs, is to offer them opportunities to improve their skill sets. Cross-training employees can shake people out of their doldrums and open them up to different career paths. Of course, it also benefits companies to have employees skilled in multiple areas. This provides flexibility and reduces the need to hire specialists for every task.

There are times, however, when companies require expertise in a specific area. For example, a company that is growing rapidly but unable to scale to support that growth might want to outsource certain functions. This provides the company with a scalable structure that it can adjust as needed, while keeping operating expenses down and capturing market share. In such cases, organizations can fulfill their needs while keeping operating expenses low by outsourcing noncore functions such as information technology, human resources and financial accounting.

Companies can utilize managed service providers to provide these services at a lower cost than it would take to hire for each position. In addition, working with a managed service provider allows companies to scale up or down, depending on the organization’s needs at the time. This helps companies keep expenses stable and avoid hiring permanent staff for projects that may be temporary.

Structural solutions

A company doesn’t need to overhaul how it does business to lower operating costs. Sometimes, one or two key changes can add up to big savings.

For example, companies may want to look at their vendor contracts. Is it possible to negotiate a better deal? How about consolidating vendors or opening the process to competitive bids? Regularly reassessing supplier relationships can help secure better pricing and terms for materials and services.

Also, many industries have group purchasing organizations for office supplies, special equipment and other materials. Companies can join these organizations and leverage broader purchasing power to lower their costs.

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In addition, implementing energy-saving measures—such as optimizing lighting and heating/cooling systems and buying energy-efficient appliances—can significantly lower utility bills. Companies that implement eco-friendly initiatives, such as reducing waste and conserving resources, often see cost savings as well as a boost in customer appreciation.

The transformed organization

To lower operating costs, it's crucial to understand the downstream impact of any change, whether it is implementing new technology, cross-training employees, outsourcing certain functions or reorganizing infrastructure. There are usually innovative options for organizations looking to cut operating costs without decreasing efficiency or quality.

The most effective of these strategies will depend on the company’s industry, size and circumstances. Organizations may adopt a combination of these strategies, or focus on just one approach that will make the biggest difference. In all cases, companies that assess their operations honestly and plan carefully will have the best chance of lowering their operating costs.

Additional insights