5 common cost-reduction mistakes in professional service firms and how to avoid them


Looking at professional service organisations such as lawyers, advertising professionals, architects, accountants, financial advisers, engineers, and consultants, among others, successful cost reduction programs are a major reason for increased operating effectiveness. In a study conducted by Deloitte in 2016, 88% of 210 senior executives at Fortune 1000 companies stated that they are planning to pursue cost reductions over the next 24 months, regardless of company performance. These organisations recognize the benefits of operating efficiently and effectively such as the fact that cost reduction can lead to attractive cost differentiation opportunities with saved costs giving room for business development investments.

Although leaders understand the significance, results from the above research showed a staggering 58% of cost reduction programs that failed to meet their targets. Let’s look at five common mistakes and five potential solutions that professional service firms can use to increase the likelihood of successful cost reduction programs:

#1: Laying-off staff is their first reaction towards cutting costs

Although in some cases it is very urgent in order for the firm to stay alive, laying-off staff is more costly in the long run. An example is when the firm is eventually back on its feet and a substantial amount must be invested on new staff hires and training. Organisations should take advantage of their staff’s downtime and assign “growth programme” related work such as production of research insights or brainstorming on business development activities.

#2: Making cost-cutting stick proves challenging.

The initiative is performed although the whole effort eventually spins out of control. This is caused by the lack of the right controls and culture set in place to ensure that the organisation maintains costs down. A solution is for the organisation to set P&L responsibility and assign ownership to managers of key activities, e.g. service owners.

#3: Applying cost reduction without a clearly defined growth strategy

Key stakeholders fail to reinvest freed up resources to winning growth initiatives due to a misalignment of cost-reduction programs and growth strategies. Instead, they should be focusing their efforts on more strategic cost reduction approaches by understanding the needs and trends of their target market. Following that, they should re-design existing processes or launch new services that are value adding to their clients in order to maintain their competitive advantage.

Sign-up to our newsletter to receive “Part 2” of this blog post and more thought leadership content/tips that will inform your growth aspirations.

#4: Cost-reduction initiatives are focused on cutting the value-adding aspects of the service offering

In a lot of cases, cost-reduction degrades the quality of the company’s products, which ultimately produces a noticeable drop on sales figures. Successful initiatives start by researching the value-adding aspects that clients perceive and tailor implementation by removing waste in areas of lesser significance.

#5: Key managers are not proactively prepared to support cost reduction initiatives

This is due to the fact that most managers are not wired with the “cost reduction” mindset. On the other hand, successful firms locate and empower champions as part of their proactive approach to risk management. They are equipped with the right mindset and processes to effectively tackle any downturn or adjust to changing market conditions.

Cost-reduction is a challenging initiative and comes with its complexities. This blog post does not form an exhaustive list of risks, nor is the “holy grail” of recommendations for PSFs to successfully implement cost-reduction initiatives. Every organisation has different characteristics and challenges, dictating the need for a comprehensive approach towards cost-reduction complemented with sustainable, growth strategies.

Leaders of professional service firms feel increasing pressure to cut through the complexity in order to focus on the key initiatives necessary to drive their organisation on a profitable growth journey. At ProfeedWise, we can help you reduce your costs and become more competitive. If you are interested to receive 3 quotations from top cost-reduction specialists within 2 days, communicate your requirements in our special form. If you need help determining your needs, contact us to discuss your growth aspirations and better define the best approach for you.