As COO, your focus is typically on performance. You want teams to deliver high-quality products as quickly as possible to avoid disappointing customers. But cost optimization is also a concern.

Some leaders use cost optimization as a defensive move. They cut budgets, freeze hiring, and negotiate harder with vendors. However, rather than improving performance, they erode morale, leading to lower productivity and increasing risks.

A better approach is to work smarter, not harder. COOs should aim to reduce waste and complexity rather than diminish resources that drive revenue and resilience. This article will provide tips for improving speed, quality, and customer satisfaction while spending less.

Redefining Cost Optimization

For many leaders, cost optimization involves hitting a short-term financial target. It may involve staff cuts, lower-cost supplies, and cheaper technology. In many instances, these strategies reduce quality, increase error rates, and slow innovation, costing companies more in the long run.

In modern times, COOs should focus on getting more out of the money they spend. This can be achieved through automation, better inventory management, smarter sourcing, and tech optimization. With the right approach, companies should improve performance metrics.

High Impact Levers That Don’t Hurt Performance

With a better understanding of cost optimization, you can begin focusing on factors that lower expenses without harming performance. While these can vary by company, they often include:

• Process Simplification: Review the processes you’re implementing and identify ways to simplify them to eliminate waste. Consider cutting unnecessary steps and resources. With strategic insight, you can speed up processing, reduce manpower and supplies, and eliminate mistakes.
• Technology and Vendor Rationalization: Vendors and technology are two places where you never want to cut corners. However, you can save money while ensuring quality by choosing one vendor or tech provider that offers multiple products and services. You can often benefit from bundled deals, and working with fewer vendors simplifies processes, freeing up time to focus on more important needs.
• Demand Management: This involves controlling which work flows your team handles, and their delivery methods, to ensure they are not bogged down by low-value or unplanned tasks. By simply saying “no” or “not this way,” you can ensure teams focus on high-priority products and work more efficiently, potentially reducing overtime risk. Teams should also know how to identify low-value tasks that interfere with workflow, so they can say no when you’re not around.

Compare Metrics to Avoid Undercutting Performance

Strategies like process simplification, technology and vendor rationalization, and demand management should support cost optimization without undercutting performance, but you never know. Comparing metrics will tell you if your efforts are successful. Here’s a recommended step-by-step plan.

1. Choose 2-3 performance indicators per function, such as cost per ticket or resolution time
2. If costs fall and performance holds or improves, you’ve effectively removed waste, backing a worthwhile strategy.
3. If performance degrades, rethink your process.

Determine the Process

You know which metrics to look for, but how do you implement change considering your current processes? Here’s a playbook to follow:

1. Map your systems to identify 3-5 cost hotspots, considering region, product, and function.
2. Decide what to automate, centralize, or stop to eliminate waste.
3. Embed a cadence with monthly and quarterly reviews to focus on costs and metrics, and prevent negative performance impacts and increased expenses that may occur over time.

Making It Stick

Once systems are in place, you need to make them stick across your organization. Teams should adapt to your processes and make independent decisions that support cost optimization without degrading performance. Here are some helpful tips:

• Promote Cost Consciousness, Not Paranoia: The idea is to make employees aware of wasteful activities that increase expenses, not to make them afraid to do anything that increases costs. This ensures the ideal balance between savings and performance.
• Train Your Frontline Team: As a busy COO, it’s important to give frontline teams the autonomy to make their own decisions regarding cost vs. performance. Involve them in the early decision-making process so they learn from the ground up.
• Align Incentives with Achieving Balance: The metrics leaders use should align, and outcomes should be guided by incentives. In other words, their performance should be measured against how well they help your company perform!

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