Are partnerships needed for successful cost reduction?

In Expense Reduction Analysts, we talk a lot about partnerships with our clients. But are partnerships really necessary, or is it all marketing speak?

Our clients employ us to help them reduce costs; our work is only truly successful if our clients achieve cost savings over a sustained period. Can we do this without working in partnership?

A partnership can be defined as a number of people working together and sharing risk to achieve a common goal. Taking each of these three elements in turn:

1. Working together

We work closely with a sponsor in client organisations (usually the MD or FD), but that isn’t enough on its own. To really understand our clients’ needs, we need to work with the key stakeholders – those who manage the existing relationship with the supplier, place orders and use the products or services in question. If we don’t work together with all of these stakeholders, we could find savings, but if we don’t understand the service and cultural issues that are important to them, the chances of those savings being successfully realised over a sustained period are significantly reduced.

If changes in ordering habits or suppliers are agreed, then we need to work with those same stakeholders to help them through any transitional periods. If we are working together, a successful implementation is far more likely.

Over the longer term, we need to continue to work together so that we understand what is happening in their organisations; how their priorities may be changing and how this could affect supply arrangements.

So, Expense Reduction Analysts certainly needs to fulfil element of partnerships.

2. Sharing risk

Most of the work Expense Reduction Analysts does is on a contingent basis – if we do not reduce costs successfully for our clients, we are not paid for our efforts. Partial implementation resulting in lower fees and supplier non-performance are also risks. So it is clear that Expense Reduction Analysts risks a great deal of time, and therefore thousands of pounds, for each contingency-based project we work on.

Are our clients also subject to risk? I would argue that they are. They may choose to change supplier, which always entails some risk in terms of disruption and non-performance. There is sometimes a perceived risk that we will upset the incumbent supplier, although that is very rare, or we would not have been in business for this long! Another perceived risk is that of embarrassment – that if we reduce costs, this reflects badly on the person who has negotiated with suppliers previously. In reality, it does not reflect badly on anyone – it’s a reflection of the fact that suppliers see the benefits of working with an organisation with 1700 clients and that this is all we do, so our market knowledge is far greater than that we would usually expect our clients to have for non-core expenditure.

There are risks to both Expense Reduction Analysts and our clients, so we also clearly fulfil that element of partnerships. Obviously we work hard to mitigate the risks to both parties, and we consider that the potential rewards outweigh the risks, which leads us to:

3. Achieving a common goal

If our client wants to reduce cost and we are paid a share of the cost savings, it seems clear that we have a common goal. If we don’t achieve sustained cost reductions while meeting our clients’ other needs, then our work has not been successful – and our remuneration is limited accordingly.

I would therefore argue that, although cost reductions could be achieved in the short term without all of these elements in place, for a longer-term, sustained result, we DO need to work in partnership with our clients.

What are your views on the matter?