Strategic Cost-Cutting: Reducing Overhead After the COVID-19 Pandemic

One critical way to reduce company costs is to reduce unnecessary overhead. This includes reducing office space, inventory space, warehouse space, retail space, and any other square footage that is not absolutely necessary for your business.

I’ve kept the overhead of my business, Prestige Economics, extremely lean since I founded the company 11 years ago.

In fact, for the first four years of the business, I operated out of an 800-square-foot apartment. My computer desk was part of the same granite countertop as the cooktop directly adjacent to my workspace. And in the last two locations since leaving that apartment, I have continued to maintain a home office — but no additional, separate commercial office space.

We have never had an office. And there have never been any plans to get one.

It just hasn’t been necessary for my business, even if some of my former colleagues thought it was strange to found a business without an office in 2009.

Even without an office, I frequently give international TV interviews.

Not Having an Office Will Become Increasingly Normal

When I started my business and I opted to skip having office space, I thought it was the most normal thing in the world to do.

After all, people have been able to work remotely for some time. And when I started worked in consulting at McKinsey in 2007 — almost 13 years ago — many consulting firms, including my own, were letting people work from home, and they were already using flex space and coworking spaces. With the recent developments of COVID-19, this decision to have my company operate remotely has proven to be even more valuable for my company.

Many corporations have resisted the move to remote working environments. Although pandemic risks have always loomed out there, the fact that we are now living through one of this magnitude has proven to be an unexpected surprise for many.

We are now at a watershed moment. And while the ability to have large remote working staff has been a potential for many years, companies that resisted the move are now being forced to adapt. Going forward, many companies will likely be unable to wind the clock backward. Of course, some companies will never look back.

From a cost leadership standpoint, why would they want to?

Many companies are likely to support remote working long after the COVID-19 pandemic has ended because it reduces corporate overhead and increases worker satisfaction and flexibility.

Benefits of Reducing Corporate Overhead

There are a number of major cost savings associated with increasing the number of remote workers and reducing the size of physical operations.

The benefits of remote work include reducing direct real estate costs as well as:

— Reducing water use and costs.

— Reducing paper products use and costs.

— Reducing power consumption and costs.

— Reducing internet costs.

— Reducing food and meal costs.

— Reducing parking needs and costs.

— Reducing the need for an office gym, company coffee shop with barista, game room, etc.

In short, some business basics as well as some of the greatest perks seen in startup life culture could become antiquated trappings of a far-too-luxe period of time.

In addition to lowering costs, these use reductions can also help companies meet increased pressures for ESG and sustainability goals.

Plus, remote workers may be able to afford a significantly higher quality of life without needing to live close to an office in an expensive area.

If you never have to go to an office in Manhattan or Silicon Valley, you can get a high wage and still live far out in the country.

The only thing that matters is your access to the internet, a computer, and a phone.

For companies, this also presents a financial advantage. After all, if you make Manhattan profits but can pay your people wages that are competitive for Boise or Milwaukee, you may be able to reduce your labor costs significantly while keeping your profits high. 

Other Cost Implications

While reducing physical overhead in terms of office space is critical for businesses like mine, the importance of reducing square footage needs for any kind of company can also deliver significant financial value.

In the wake of the COVID-19 pandemic, retail space demand could also fall — even if warehouse and distribution center square footage demand is poised to rise.

The truth is that the highest-cost square footage, especially in heavily dense urban areas, could experience a decline in demand.

Beyond Square Footage

One way that I’ve repeatedly highlighted some companies gain leverage in their day-to-day operations is to use technology to control other costs wherever possible.

One important example of this is the use of vending machines for PPE cost-savings programs. Not only does this reduce some MRO square footage, but it also helps track the use of MRO and PPE equipment. These are goods that are notoriously difficult to track — and they often grow legs.

Being judicious in overhead can greatly improve company profitability. After all, every dollar in spending that gets cut goes right to the bottom line. This means that cutting costs can actually boost profit more than increasing sales.

Strategic Cost-Cutting

This is an excerpt from Jason Schenker's recent book Strategic Cost-Cutting, which was released on 18 April 2020. This book is currently a #1 New Release on Amazon.

This book can be ordered at www.StrategicCostCutting.com

Jason Schenker is one of the world's leading futurists. He is the Chairman of The Futurist Institute and the President of Prestige Economics. Jason is also an instructor for LinkedIn Learning.

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