We live in a world that is constantly changing. Organizations are left to contend with rapid disruptions caused by the upheaval of the commodity cycle, supply chain uncertainties – that bring along increased transportation costs, and the uncertainty caused by what we are witnessing as the Great resignation. Although these changes have provided organizations immense opportunities – those who cannot keep up have tremendously fallen behind.
To keep up with the increasingly changing market, organizations have three choices – they can either increase prices, increase sales volumes, or they can manage and control their spends. By drawing parallels to the ‘Circle of Control’ adapted from Stephen Covey’s “7 Habits of Highly Effective People that define those circumstances, issues, or problems that we have direct control over – with the use of technology and effort – we can establish that the best option for organizations today would be to control their spends.
The biggest bottleneck is that organizations haven’t changed as much as required. There is a significant gap between expected performance and actual performance. As a side effect, that gap influences our attitudes on how we react to situations and plan the future. Therefore, a paradigm shift is absolutely necessary.
However, today all business decisions are ultimately made on the parameter of efficiency. Shabbir Imani, Founder & Director – Expenzing, in a recent webinar, highlighted that
The unfortunate side effect of approaching processes with the bottom line of efficiency… is that it brings the status quo bias into how we respond…
While reflecting on Darwin’s theory, the speaker also added, “It is all about survival of the most adaptable,” pressing on organizations to change the way they think today.
When organizations focus on agility, resilience, self-consistency, and spend effectiveness, they can get ahead of the curve in today’s rapidly changing world.
Why Spend Management is the Right Response?
Spend management helps organizations focus on managing, controlling, streamlining, and analyzing spending processes in the organization. One should keep in mind that spend management does not simply mean cutting costs. It is much more profound. It has various facets and can mean different things to different organizations. However, spend Management always has to be about reducing bad spending. More often than not, spend management can help you save money so that you can increase your good spend.
Adopting ERP solutions with workflows and establishing plans and strategies will allow spend management processes to mature, get examined, automated, and digitalized. The organization can then embark on the journey to digital transformation, especially onto the functions in the middle and back office. And since ultimately, everything reflects into your financials – companies can categorize them based on assets, liabilities, costs, and revenues, with greater visibility.
Tip : Behavioral economics talks about how visible spends creates myopia and everybody’s focused on it. Organizations need to talk about invisible spends because it will inevitably form 80% of your organizational expenditure.
10 Hacks to Effective Cost Management
Here are 10 of our favorite hacks to help you get started with spend management while reducing the risk of fraud:
Hack 1: Address Organizational Culture & Policies
Define an unambiguous Code of Conduct and instill the values that really matter. While it’s important to define the meaning of a ‘No Tolerance’ policy, ensure that you trust in your people, and have mechanisms for monitoring in place.
Hack 2: Cost & Spend Consciousness
In order to bring in a cost-conscious mindset throughout the organization, companies have to ensure it trickles down from the top management. Two effective ways to achieve this are incentives – build it into the performance appraisal, and use gamification – make it fun & measurable.
Hack 3: Supply Chain Dimensions
Implement strategies and processes to increase visibility into the supply chains. While building sustainable business relationships and establishing vendors as trusted partners, ensure to have a good and transparent empanelment process to assess the risk to your supply chain. Don’t forget to enable mechanisms to stress test your supply chain.
Hack 4: Sourcing and Contracting
Establish good vendor discovery processes and price discovery mechanisms so that you have enough ways for vendors to approach you, and vice-versa in different markets and plan your budget accordingly. It’s imperative for organizations to internally reflect and understand how smart and automated are their RFI/RFQ/RFP processes while understanding how mature are their contract monitoring and contract enforcement processes.
Hack 5: Do you use technology smartly?
Define clear principles like rejecting last-minute requests. Make the requisition process fairly easy to save time, money, and resources. Leverage technology to eliminate manual tasks and automate processes like Cost Allocation, Amortization, Provisioning – ensure that NO data is entered more than once.
Hack 6: Using Controls & Compliance effectively
Human-based controls tend to be brittle, so move to system-based controls. Using technology will help improve your flexibility, so identify which controls would help you eliminate wastages. Build most of your compliance requirements into the system, so that cost of compliance is minimized. Be careful not to use controls as a blunt-edged weapon – they need to be based on organization needs & nuanced.
Hack 7: Increase Visibility & Eliminate Silos
A good system will eliminate a lot of the mindless, repetitive work, associated politics, and the high costs it brings along. Nothing is more important than eliminating silos in the workflows and processes. This will eventually lead to increased visibility, and informed decision-making.
Hack 8: Run with Lean, Agile teams
Relook at the kind of resources and skill sets of the team from time to time. People who can drive improvement initiatives are the ones who are considered as real value ads for the organization. For the existing employees, make collaboration and coordination part of the process to remove the need for unnecessary emails & phone calls. Over time it will help change the composition of the team while giving them more time to work on important tasks.
Hack 9: Fraud Prevention
Spends are the most common area where frauds happen so you will require forensics and fraud prevention mechanisms in place to ensure that they don’t occur in the future. The best practice for frauds is “do small & frequent”, so have systems with functionality to eliminate processes like employee expenses, procurement, and accounts payable like double payments, advance adjustments, and direct invoices.
Hack 10: Bring the Spends Under Management
Mature organizations ensure a higher percentage of their spends are under management. Use technology to experiment & be Agile. Spend analytics need to be centralized – consider both work & controls for this.
Digital transformation is not just an option – it is imperative. However, a shift in mindset will only come if organizations are open, willing to learn, and fail. It’s time to focus on – the short, medium, and long-term goals and identify tools and technology to help you achieve them. For example – the power of predictability can be achieved with spend analytics that can help in spend governance and spend risk management. For a cost-conscious mindset to form the underlying fabric of your organization’s daily operations, replace the lens of efficiency, with a new one for adaptability, resilience & agility.
