The Other Lens: What is the difference between ‘cost improvement’ and ‘expenditure reduction’?
8th February 2016
In last month’s column 5 Ways to Lead from Abundance I wrote about one of the most powerful aspects of ‘Leading from The Feminine’ – Leading from Abundance.
In this column I want to show how that applies to a highly practical, operational area of work that I am very familiar with. What started out as a request for a reduction in my budget became a spend transparency and cost improvement project.
It put millions back into my budget, built trust and ultimately spread to other parts of the company I then worked for, shifting millions from expense to profit side of the balance sheet, freeing up money for investment in both the short and long term.
Words: Jennifer Kenny
For me the difference between cost improvement and expenditure reduction is huge. And yet many people use them interchangeably not realising the big difference that they produce in the energy and mindset of the teams being asked to fulfill such goals.
Creating cost improvement says that you are looking to do something that you’ve already committed to greater efficiency. It speaks of efficiency and excellence.
Expenditure reduction on the other hand means taking things off the table that you already committed to doing. It means reducing the scope of your commitments and your offers. It means potentially disappointing someone: your customers, your staff, and/or yourself.
Both these approaches have very different mindsets. One comes from scarcity and the other comes from abundance.
Expenditure reduction is all about scarcity
– Expenditure reduction says that we need to cut things; that we need to reduce things; that we need to make things smaller.
– Expenditure reduction says that we don’t have the resources or the money to fulfill our goals for excellence and customer satisfaction.
– Expenditure reduction demands that we have to revoke some of our existing promises either to customers, employees, internal partners, suppliers or to ourselves.
– Expenditure reduction creates a sense of sadness and desperation.
– Expenditure reduction tends to be directed to a targeted number 5% or a $1M – so you are already putting limits on what is possible.
– Expenditure reduction is driven by fear and scarcity so it often leads to anxiety, overwhelm, 1:1, competition and hyper-control.
Creating cost improvement comes from mindset of abundance
Creating cost improvement comes from a mindset of abundance. That seems like a really strange thing to say, but here’s why I say it:
– Cost improvement means that you are freeing up money to do something else that really matters to you, your people, or your customers. You are creating new possibilities.
– Cost improvement means that you are re-establishing priorities.
– Cost improvement creates an opportunity for organisational reflectiveness – are the spend decisions we made in the past still relevant in the present?
– Cost improvement is an opportunity to get to know your value partners anew – their ongoing expertise in an aspect of your business lets you leapfrog to efficiencies they have been creating in their marketplace.
– Cost improvement means that you are raising the bar and finding more efficient ways of doing things.
– Cost improvement requires you, your allies and partners and your team to speculate, brainstorm, explore and co-invent, put all the options on the table and find a smarter way to do something you’ve been doing for a while.
– Cost saving is about innovating within your current situation.
– Cost saving often requires that you form new alliances; that you partner differently with others.
– Cost improvement definitely requires that you question the current conventions and ways of doing things.
In essence, creating cost improvement requires you to innovate. To create cost improvement you need to be leading from a mindset of abundance.
This requires discipline because to live in a mindset of abundance requires that you invite others to follow you as you create space for creativity, innovation, appreciation, context-creation and ultimately excellence.
Or do you lead from fear and scarcity – leading to anxiety, overwhelming, 1:1 competition, and hyper-control? This is the default, the easy/lazy way.
Pay attention – words matter. Make sure you understand the mindset or intention behind the words. Remember that unless the house is on fire, the plane is crashing or the ship is literally sinking, leading from abundance wins every time.
Your choice – you can pleasantly surprise yourself and others and you can produce measurable, exciting, sustainable and valuable results. You may even put yourself on the path to amplifying yourself and others.