Cutting Costs, Not Corners
Innovative thinking helped these companies trim expenses in 2012
By Wendy Peters
The recession that began in 2008 and dragged on through 2009 is still taking its toll today. Millions of people worldwide lost their jobs—many have still not recovered. Businesses disappeared en masse and some categories of industry were virtually eradicated. Europe still suffers the hangover of massive austerity measures imposed on some countries in an effort to keep them afloat and the United States is on the brink of economic collapse unless the freshly elected government and its opposition take immediate, positive action.
Canada has remained relatively unscathed, except for the decimation of the manufacturing sector, particularly in Ontario. But there are tremendous success stories that have helped balance the tragedies. In the Golden Horseshoe, a number of companies have found creative, considerate and inspiring cost-saving methods to ensure they not only survived, but thrived.
Headquartered in Oakville, Jelinek Cork manufactures and distributes cork products and has a strong international focus. According to co-owner Sonny Jelinek, "We were able to create efficiencies by streamlining our operations on a global basis. For example, our six country subsidiaries each had their own computer system to manage inventory, process payments and facilitate customer interaction. Some of these were costly to maintain and were based on older technology. Most of these solutions were hosted on premise and were country-specific, so we switched to a global system that allows all six to operate on the same platform via the internet."
The result has been streamlined costs, as well as the creation of important business continuity. As an example, Jelinek noted that if a bookkeeper in one country is absent, any other employee worldwide can cover the job since everyone uses the same system. "It has also allowed us to expand our presence without generating undue administrative overhead," he explains.
The new system has allowed Sonny to work out of the company's recently opened Savannah, Georgia office, while much of their administrative work is still conducted centrally out of the Oakville headquarters. This frees up the Savannah staff to focus on sales.
Jelinek says the company has benefited from efficiencies across the board, but admitted the process is still a work in progress. "Learning new software and processes is often a 'one-step-backward, two-stepsforward' process for all staff," he admits. Still, the efficiency planning is a long-term effort to create a better experience for the customer while also keeping costs down.
Jelinek noted that efficiencies created in their global operations would be equivalent to six full-time employees.
A full-service accounting firm, Burlington-based SB Partners appreciated the implications of the 2008/09 recession in true pragmatic accountant style. "We wanted to improve profitability, so we looked at costs and overheads," says company Partner & CEO John P. Chisholm. "As a service company, our biggest production cost is people and our biggest expense is payroll." Since there weren't many costs savings to be realized from the basics, such as infrastructure, rent and equipment, Chisholm and company had to look at ensuring they had the right mix of people for such a competitive field. "This business is all about leverage," he explains.
What the firm needed, according to Chisholm, was to have someone fully dedicated to scheduling all client work, managing the process and allocating team resources to the work to ensure optimum utilization of staff relative to their billing rate. The firm hired an individual to fill in for a maternity leave and he performed so well that they wanted to keep him on full-time.
"We quickly realized that the cost of retaining that candidate paid back immensely," said Chisholm. "It allowed us to free up the equivalent of half of a full-time, comparable manager, and highly skilled managers are difficult to recruit and hire."
If partners are taking on work below their normal hourly fee for that particular assignment or their designated level among the partners, potential revenue is being sacrificed, notes Chisholm. That makes delegation essential.
"If you have 2,000 hours/year to produce output and you're doing $100/hour work, you will produce $200,000 worth of revenue. If you could shift just 10% of those hours to work at $250/hr and shift another 10% of your time to work at $500/hr, you'd bring in $310,000 of revenue, or a 55% increase by simply working at the right level. For me to hold work at my desk and not delegate to a manager (also) impedes his or her ability to grow. The managers, in turn, must also delegate to their team, giving them more challenging opportunities."
Chisholm said his staff have been very supportive and realize the company is trying to utilize everyone at the proper level, which plays to a more sustainable model and one that ensures staff retention.
First Canadian Title
First Canadian Title (FCT) is a leading provider of title insurance and other real estate products and services. Wendy Rinella is VP of Corporate Affairs for the Oakville-based company and notes that cost savings and improvements are a constant for the company, regardless of the economy. She also explains its use of "Kaizen," the philosophy of continuous improvement in small steps involving everyone at FCT. "Kaizen is a change that either enhances an existing process or creates an entirely new process," Rinella explains. "At FCT, it's also a change to reduce cost and/or staff time, or to improve revenues, efficiencies, the environment and customer or employee experience." According to Rinella, the "Master of Kaizen" issues a challenge to all employees to meet a targeted number of implemented Kaizens for a set period. For 2012, the target is 1,000 Kaizens in three months. "We are currently in the midst of it," says Rinella.
Some of the hundreds of Kaizens submitted include:
- A SaveOnEnergy project that attracted a $42,000 rebate from the OPA by utilizing greener information technologies. Ongoing energy savings are also anticipated in future years.
- A reduction in corporate travel and their replacement by conference calls between regional offices.
- A replacement of corporate holiday gifts with charitable donations.
"All Kaizen measures are successful, as they have to be implemented before they can be submitted," says Rinella. "On an annual basis, Kaizen implementation can realize anywhere between $1 million to $2 million in financial savings and employee hours."
Rinella notes that FCT staff have supported the Kaizen process for more than a decade. The Kaizens are submitted through an online recognition portal and each attracts points from FCT's awards and recognition system.
House of Kangaroo
House of Kangaroo President Paul Donolo started working on a new business plan to save his business when the recession took hold in 2008/2009, and began implementing it shortly thereafter, moving his high-end leather goods store "to take advantage of the depressed commercial markets" and setting up in a more consumerfriendly area of Oakville that was less than half the rent he had been paying while also attracting more traffic and synergy for his business.
He then renegotiated prices with his suppliers, encouraging them to help him with the development of products. He ended up sharing shipment expenses of raw material with one supplier so that neither was wholly responsible for the total expense. "These two critical elements gave me time to absorb whatever shocks there were in the financial and business markets," he says.
Donolo also put together a plan to diversify his revenue stream—he also offers custom logo services and hosts a website for online purchases— which until this year had been primarily wholesale to the travel and golf industries.
"We dabbled in promotion and incentive rewards programs, but by hanging in, our rewards business has now taken off. So by diversifying I don't depend on one avenue of revenue." The rewards program is a huge part of his business now and is poised for a major expansion.
Donolo then set about the lengthy task of going through his payables, both personal and business. He managed to cut $5,000 per year on his personal expenses and did a similar job with his business costs, trimming them by more than 30%.
These companies—covering a wide range of industries—are proofperfect that cost management does not have to be a purely negative function. Their bosses had better ideas: hiring an additional staff member to create efficiencies in the workplace; negotiating deals with suppliers for their mutual benefit; converting to a global system that allowed subsidiaries to operate on the same online platform; fully automated technological improvements; and facility and energy management. More than one company noted that cost savings were a constant in their business planning, where creative thinking has become mandatory in today's uncertain financial climate.
Regional governments toe the line on costs
Since the country took a dive into recession in 2008/2009, governments have been wrestling with debts and deficits at the federal and provincial levels and trying to avoid these obstacles at the local and regional levels, where such shortfalls are not permitted.
Fortunately for Halton Region, it has a lengthy history of long-term financial planning, which makes it much easier to deal with unexpected bumps in the road.
"It all begins with setting a direction for the region. Ours was done through the Official Plan (OP) adopted by Council several years ago," explains Pat Moyle, Chief Administrative Officer for Halton Region. The OP provides data on where the population, lands and growth will be accommodated from now until 2031.
"By completing a comprehensive review of Halton's infrastructure—water, wastewater, transportation, long-term care, social services and other regional responsibilities—we have a long-term capital plan. Nevertheless, we had to find a way to pay for it all, so we updated our development charges bylaw in April 2012 and have a good sense as to how much growth-related costs there will be for all this new development."
This means Halton has the ability to handle unexpected challenges—like a financial downturn. However, if an immediate problem does occur, staff deals with it through cost-cutting measures or core service reviews, says Moyle. Also, since many financial demands are cyclical, Halton has a process of re-deploying staff where they are needed, instead of hiring and firing.
Halton's operating capital budget is approximately $1 billion and each department underwent minor restructuring—a thorough review of business practices and organizational structure, notes Moyle, who says the region has not increased taxes on regional services in five years.
The City of Hamilton, meanwhile, has been successful in limiting budget and tax increases over the past three years, says Rob Rossini, the city's GM of Finance & Corporate Services. Since salaries and compensation account for 52% of the tax budget, Rossini said Council approved two years of 0% increases for non-union workers (2009 and 2011) and for unions managed to negotiate four-year deals with a 0% increase the first year and a 1.9% increase for each of the next three years.
"We've lowered some discretionary costs such as consulting, travel and conferences, and we did a major contract where we saved $2.4 million for waste collection," says Rossini. The city also managed to decrease energy costs by entering into some futures contracts for natural gas costs over the next three years.
Rossini acknowledges there has been some corporate restructuring, and in 2011 and 2012, "Council gave us targets for $1 million in savings." In his own department, efficiency reviews enabled him to implement changes and make better use of technology by staffing deployment and resources.
Of Hamilton's total budget of $1.85 billion, about $1.45 billion is supported through taxes; the rest is utility, Rossini notes. "Our total budget reduction has been about $6.5 million over each of the last two years, at a 1% reduction each year through savings and efficiencies."