Containing Your Expenses

It's The Next Big Thing

In my last post, I was describing the first and most basic IT strategy called Reducing Expenses. Under that strategy, we use technology spending to reduce the expenses associated with our current business operations. Applying technology, we can both improve the speed and reduce the cost of doing business, and earn a fair return in the process. 

Today, I'm going to write about containing expenses, or, containing the cost of your growth. It's the next big thing we try do with technology to provide a return. Usually, we won't focus on this strategy until we've exhausted the "low-hanging-fruit" associated with Reducing Expenses since that's the easier kill. 

It Takes Money to Make Money

When containing expenses, we're mostly talking about investments with technology helping to pay for your growth over time. Let's work with an example.

You're a small grocery owner and you've got big plans. You've been relatively successful growing your business and have attracted new customers. Your business processes have been managed with the assistance of technology as to reduce the impact of labor while maximizing return - and mostly because you've been reading all of my great advice on the subject of Reducing Expenses! Good job!

But you know you're going to get bigger. Based on your current growth projections, you're going to need another 5 people over the next five years to accommodate the business volume in your checkout lanes and to earn a 4% margin (a pretty healthy profit for this line of business - there's not a lot of money in retailing food, and that's factoring in the increasing costs of labor over that five year time period, too).

Now, you could hire on eight more people and acquire the long-term liabilities associated with labor - sick leave, vacation, payroll, taxes, family leave, education and pensions, 401k's; sounds kind of risky though given the 4% margin. If you grow on the back of labor, the variable costs could erode your profit. 

On the other hand, you could purchase 4 "U-Scan" machines to take on the extra volume in the checkout lane by shifting the labor (and those costs) onto the back of the consumer. You're paying a fixed, depreciable expense for an asset that can handle the excess volume while taking on, say, just 1 employee - a knowledge worker who helps consumers check out using the new machines.

Because the U-Scan machines are a fixed expense that can be depreciated over time, the cost structure of your growth becomes less variable and more known. Your volume commitments will be met and you're more likely to meet the 4% margin, all the while reducing your dependence on labor.

This is expense containment: spending a little today to reduce the cost of your growth in the future. Through investing in "U-Scan", the company is able to meet its projections and reduce the cost of its growth by not investing in variable expenses like more labor.

Everybody's Doing It

Take a good look around. Where do you see other examples where companies have shifted away from owning labor to putting labor on the back of consumer. Self-checkout lanes like "U-Scan" is just one example. Can't you book your own airline ticket? Reserve your own book at the bookstore? Directly interact with your doctor and schedule an appointment without a phone call? Of course you can! Everyone everywhere is containing the expense of their growth through leveraging self-service technology.

Well, maybe everyone except you.

Yeah, say, how's your expense containment strategy coming along? How are you shifting the cost of your growth away from you and on to consumers? How are you enabling consumers to interact with you faster, to integrate with your processes, so that you don't need to own that labor in the process? How are you giving your customers self-service tools? And if you're not doing this, right now, what are your competitors up to?

Next time around, I'll talk about self-service and the last strategy in our bucket: Revenue Generation. For now, thanks for reading!

R