My wife enjoys a good cup of coffee. So you can imagine my surprise when I saw her with a styrofoam cup from the local coffee shop.
"It's actually tastes pretty good and besides, they are having a $2 special." she explained.
"$2 for a small cup of coffee and that's the special price? What's the regular price?"
"$4"
"What??? I thought our town coffee shop was supposed to be reasonably priced?"
"Yes, but this is a latte, dear"
What do I know? Not being a coffee connoiseur, I guess "lattes" are deserving of a higher price. Honestly, I have never understood the fascination with high priced coffee drinks and wonder how the average citizen can afford such luxuries today with the economy taking a one-two punch in the stomach from the collapsing housing bubble and soaring gas & food prices. Recent headlines have been downright depressing: "Net Worth of U.S. Households Declines for First Time since 2002," "U.S. Mortgage Foreclosures Increase to All-Time High as Owners 'Give Up', " and "U.S Payrolls Fall Unexpectedly." It's not a rosy picture -- has the average consumer all but given up on the economy? It appears so:
You can see that consumer confidence (correlated by 2 seperate surveys) has plummetted to 30 year lows -lows not seen since Mork and Mindy was the top TV sitcom and Jimmy Carter was President.
Make no mistake about it, dear blog reader, the average U.S. consumer is hurting. It seems unlikely that Joe & Jane Public will continue buying expensive hot beverages if they lose their house and job. More likely they will spend that last $4 on a gallon of gas ... or a gallon of milk ... or a loaf of bread ... not a cup of cappuccino.
The US consumer is retrenching and it will unquestionably be bad for the economy as 70% of our GDP is consumer spending. In fact, for the second consecutive quarter, consumer demand topped the list of CFO's external worries in the quarterly Duke University/CFO magazine Global Business Outlook Survey (chart from CFO.com):
But here is what really caught my eye -- 4 of the top 8 internal concerns are about costs.
Traditionally, when CFOs start panicking about costs, this puts tremendous pressure on SG&A functions such as AP. If the economy slows (and we may already be in a recession), you can bet your "venti, nonfat, decaf latte with chocolate sprinkles" that senior management will demand cost cutting -- especially back-office finance cost cutting. For AP, the ramifications are clear. Cut costs or be outsourced or offshored.
How would you reduce overhead if the cost cutting hammer came down? Technology? Offshoring? Outsourcing?
Can you articulate the pros and cons of each option? For example, the whole outsourcing question is a lot more complicated than just reducing costs. Other pros include lower capital expenditures and speed to benefits. But on the cons side, we are talking about sensitive financial data here so you need to consider other risk factors such as security, reliability of service and the integrity of your data to name a few.
So let me repeat my question: How would you reduce costs if the cost cutting hammer came down? I would love to hear in the comments section.
-Rakesh Shukla
P.S. For a balanced view of the pros and cons of shared services, offshoring and outsourcing check out the following webcasts: