Learn the mistakes businesses make when trying to cut costs
Managing the costs of healthcare is a global problem and a political hot potato. But what’s that got to do with you and your business?
Plenty, as it turns out.
If you’re trying to run a more efficient and effective business, then don’t fall into the same traps that many healthcare providers are doing.
Recently I read an article in Harvard Business Review called ‘How Not to Cut Healthcare Costs’ (HBR November 2014). The whole article is definitely worth a read. The authors of the article, Robert Kaplan (of Balanced Scorecard fame) and Derek Haas, opened with the following scene setter:
“Evidence suggests that many cost-cutting attempts are counter-productive; they actually increase costs and in some cases lead to poorer outcomes. That’s because cost reductions are usually made without considering the optimal mix of resources needed to deliver excellent outcomes in an efficient manner.”
As I read through the article, I noticed quite a few parallels between the healthcare profession and the financial planning profession. Let’s apply their main findings to you and your business.
Mistake #1: Curbing costs by not investing in support staff
Kaplan and Haas state in their article:
“Our research shows that specialists’ time is often an order of magnitude (10 times) more costly than their assistants’ time. It makes no sense to have physicians and senior nurses perform tasks that could be done just as well by far less expensive personnel. Indeed, we found that effectively integrating more nurses and physician assistants into patients’ care frees up senior clinicians to work “at the top of their license,” performing tasks that only they can perform, leading to higher-quality care at a much lower cost per patient.”
When I think of financial planners, I think of them as the surgeons in the organisation; they should be performing more surgery, or in our case, spending more time seeing clients.
It makes no sense to have the surgeon (you) making appointments, booking meeting rooms, sending invoices, or writing reports. Not investing in a high-quality, fully-formed support team for the advisers within the business increases costs, reduces productivity and leads to sub-optimal client outcomes. Don’t be fooled into believing that doing it yourself (if you are an adviser owner) is a good idea.
Once you’ve delegated tasks away from the advisers, then you need to do the same for your paraplanners. They should be working “at the top of their licences” too.
It’s crazy to have a skilled paraplanner who is CFP and Chartered and costing you anywhere from £30,000 – £60,000 p.a. churning out suitability reports, or any other task that isn’t using their skills to the maximum. Ideally your paraplanners are attending meetings with advisers, building cashflows, handling post-meeting notes and follow through, with plenty of support from a team of administrators who can handle what was once thought of as paraplanner work.
Build Your Team Support to Increase Productivity
You need to build a team of skilled administrators at the bottom level of your professional services organisational pyramid. They are the easiest to find and the cheapest to employ, but they enable the other professionals in your organisation to do what they’re trained to do, and to do it productively.
Ordinary advisers manage £100,000 to £200,000 p.a. of income from their client base. Good ones manage £300,000 to £400.000 p.a. and high performers manage £500,000 to £600,000 p.a. of revenue.
Are you getting that sort of productivity from yourself or the other advisers in your organisation? If not, it might be time to think about the support you’re putting in place.
Mistake #2: Underinvesting in space and equipment
Kaplan and Haas state in their article:
“Our analysis shows that the cost of a second operating room is far less than the cost of a skilled surgeon and clinical team’s idle time. This is a vivid example of the folly of attempting to cut costs by holding down spending in isolated categories. More often than not, much higher costs soon show up in another category. Only by measuring the costs of all the resources used to treat a patient’s condition can trade-offs be made that lower the total cost of care.”
In financial planning businesses this can often manifest itself as a reluctance to invest in the most up-to-date technology for the team.
Slow internet connections, outdated hardware or software and second-rate technology can really hold back the productivity of everyone on the team, which has a disastrous cumulative effect. In one firm I worked with I actually encouraged them to extend their overdraft to urgently address this issue. Not only were there productivity improvements across the board, but the message it sent to the team, about how much they were valued, helped improve things as well.
Lately, a few firms have told me that if they’re prepared to pay for it, they can have super-fast broadband connected (often for just a few thousand pounds), but they’ve been reluctant to make this investment. For me this is a no-brainer. Everything that you and your team do relies on this connectivity. Why not invest to make it better?
Take some time out to see if any of these issues are affecting you and your firm.
Next week I’ll look at three other issues financial planning firms face that are keeping costs high and productivity and performance low.