A Cornucopia of Cost Cuts

A no-stones-unturned attitude toward cost savings permeates companies' thought processes.
David McCannMay 8, 2009

Bob Zobel’s job is running the internal finance function at XN Financial Services, a growing firm that creates specialized insurance products underwritten by Lloyd’s of London. His hobby, though, is “turning over little rocks.”

That the hobby is part of the job doesn’t diminish Zobel’s zeal for discovering what’s under the pebbles. Nor does the fact that the booty amounts to minute cost savings that barely budge the cash needle, even though XN’s revenue is just $80 million. “These are not big numbers,” the CFO acknowledges. “But they get bigger when you add them up.”

He takes a seat-of-the-pants approach, spotting potential savings in the course of his daily doings and travels. A favorite example, which involves cell-phone charges, “started with me but became a good deal for the company,” he says.

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Zobel, who began working for Boca Raton, Florida-based XN last year, visits the firm’s Canadian arm in Montreal every other week for two or three days. After his first trip there, he was surprised that his Verizon bill for the month had doubled from its previous norm, because of international calling charges. He was surprised again when Verizon told him that for just a few dollars a month, his “anywhere minutes” plan could be expanded from just the United States to include Canada as well.

That got Zobel wondering how much more the company could save on phone bills. About 50 of XN’s 75 employees make calls for which they are reimbursed. There is frequent travel not only to Canada, but also to London and elsewhere in Europe, where analog phones do not work. So employees without a BlackBerry or other digital device can easily ring up $100 to $150 a week in land-line charges.

Working with his IT director, Zobel reduced the number of cell-phone suppliers the company uses from three to two, signed up for country-specific plans in all of the firm’s international business destinations, and bought BlackBerries for those who travel to Europe. He says he won’t get his first read on savings until the end of XN’s fiscal year on June 30, but expects they will have at least paid for the new gear. Going forward, with everyone properly equipped, the benefit will be several thousand dollars a year, he guesses.

Potential cost reductions can go unnoticed even when they stare you in the face. Zobel says he’s proudest of a simple switch in hotels in Montreal that saved $75 a night. XN had a corporate deal with a small boutique hotel that satisfied his needs. But then came a time when he found out just before a trip that he had to extend his stay, and the boutique said it couldn’t accommodate him. Since he didn’t want to change hotels during the trip, he had his travel agent book him into another hotel.

That property, part of a major chain, is his new home away from home. It too satisfies his needs, and the savings amount to about $7,500 for the 100 or so nights Zobel alone spends there in a year. The best part, he adds, is that XN’s board thought the story about the hotel change was “fabulous.” Other employees are now being encouraged to look for their own travel cost savings. “If two people are going to the same city on the same day, take the same plane and share a cab,” he says.

On the road or in the office, all savings are welcome, no matter how small. In March XN stopped spending $50 a month for big jugs of drinking water by investing $160 to install a high-quality filter for the kitchen tap. And the firm is saving a couple of hundred more dollars a month after trading in the big copier/scanner/fax machine it had leased for two smaller machines with fewer features.

“The reality is that we don’t need six-color printing, and faxing four pages a minute is plenty fast,” says Zobel.

A Drop in the Bucket

Like beauty, cost reductions are in the eye of the beholder. At ServisFirst Bank, a four-year-old Birmingham, Alabama, institution with $1.2 billion in assets, business-services provider Crowe Horwath LLP is winding up a two-month-long expense-benchmarking project. The bank’s CFO, Bud Foshee, says he expects that less than $80,000 in potential savings will be identified.

He characterizes that level of savings as not terribly significant. “Anywhere money could be saved, they’ve looked at it and have found very few things,” says Foshee. “This proves that we’ve done a pretty good job of controlling costs. When you grow as quickly as we have, you don’t always watch your expenses. But I don’t know of anything we could do right now that would save an awful lot of money.”

The examination is covering more than 20 categories of noninterest expense, such as maintenance, office equipment, IT processing, printing, stationery, and check expense. Crowe Horwath will receive a percentage of identified savings, to be paid out over three years.

Foshee says that rather than being motivated by the recession, the project was prompted by a cost-control orientation the bank has had since it opened in 2005. A big part of that effort has been a preference for outsourcing whatever is possible, including internal audit, compliance, and managing the bank’s core processing system. “We avoid investing in the people and equipment for those things, and it’s worked out really well,” he says.

Buyer-to-Seller Transformation

An entirely different type of response to cost pressures is taking shape in the Mayo Clinic’s supply-chain organization.

While health care is among the more recession-proof industries, people under financial hardship may postpone medical procedures that aren’t absolutely necessary, and it may be difficult to collect payments from those who do seek care. So the not-for-profit clinic has been imposing budget reductions, says Erich Heneke, supervisor of supply-chain audit controls.

That poses a problem for Heneke’s group, which is responsible for getting products in the door and paying for them. By far, salaries are Mayo’s largest expense. But reducing head count has a documentable impact on, for example, the number of invoices processed per month and how many calls customer service can take per day. So the supply-chain organization, normally viewed strictly as a cost center, is developing an unusual strategy to turn itself into a revenue generator.

The idea is to market Heneke’s group’s services — accounts payable, purchasing, contracting, logistics, etc. — to other health-care organizations. Because of its transaction volume and strong technology, it could reduce costs for such customers, Heneke claims. None of these arrangements have been struck yet, but over the past year the group has begun providing services for other organizations within Mayo.

Marketing efforts likely would start with a consortium of Midwest health-care providers that Mayo belongs to and that already share pricing information and do some joint contracting. “We’ll say, ‘Here’s our cost to process an invoice. What’s yours?’ These costs are dragging them down, and if we can do things more cheaply, we both benefit,” says Heneke.

Popular Cuts

Meanwhile, some types of expense savings — aside from well-known ones such as layoffs, hiring freezes, and benefits reductions — are emerging as trends among smaller companies, according to Angela Roberts, area practice director for Ajilon Finance Solutions.

A number of Ajilon clients have turned to videoconferencing in lieu of physical travel for such purposes as board meetings and business pitches. Long on the horizon as a promising cost-saving development, the technology finally seems to be finding some widespread footing. And the more companies that have videoconferencing, the more useful it becomes to others that have it.

Installing videoconferencing equipment brings not only immediate savings but also expense reductions that will last, Roberts points out. “Whenever you use it, you’ll be saving not only on travel costs but on time away from the office,” she says.

An even lower-cost alternative to travel — in fact, a free one — is the use of Internet communication vehicles such as Skype. Roberts says that she and some of her clients are using for audio interaction without the need to install camera equipment. For their part, Skype users can see one another by using cameras mounted on their computers.

Another widespread practice is a switch to electronic documents, saving on paper and printer cartridges. Even documents that require signatures, like invoices and purchase orders, now often use electronic signature stamps. All kinds of communications — to employees, customers, and shareholders — are going electronic. “It’s a good ‘green’ idea, but I think it stemmed from a cost-cutting motivation,” says Roberts.

And many owners of Ajilon’s small-business clients are forgoing the salaries they historically have paid to themselves, instead just waiting for year-end returns on their investments in their companies. Indeed, in a survey released in April by American Express, 30% of 727 small-business owners said they have taken that step.