The power of partnership [June 2012 print edition]

The Pearson Centre reduces its costs through strategic relationships

July 3, 2012
by By Stephen Davies

The Pearson Centre recently made a strategic decision. We decided to transform the organization into a dynamic, self-sustaining entity and, with this declaration, began to analyze cost reductions and supplier partnerships to compensate for the revenue changes we would experience.

At the beginning of the 2011/12 fiscal year, the organization had a budgeted revenue of $9.5 million, along with indirect expenses of $5.8 million. During the transition phase (beginning in 2010) we decided no longer to apply for government core funding after 31 March, 2012.

Last January, we had 100 staff. By focusing on new processes that increased staff efficiency and by investing in IT enablers, we reduced staff to 34 while increasing productivity. This reduced fixed corporate costs from 40 percent of revenue to 15 percent. We used Sharepoint and Navision to automate many finance and HR functions, allowing corporate services to downsize from over 30 employees to six. These IT enablers also reduced some of our direct staffing requirements.

We also reduced our vendors by going to an RFP for most of our services. The remit for our partners was to provide more value-added service with more aggressive price reductions. As a result, we reduced our vendors from 400 to about 40.

By evaluating staff processes, we could target our partners with specific requests to reduce the administrative burden on our team, thus enabling the HR reductions. Our bank charges were reduced by over $10,000 a year by including in the RFP what we could do for the bank through margins. We thus reduced our monthly service charge by over $900.
With the audit RFP, we requested increased services from the auditors. But we didn’t choose the least expensive option—we chose the option that allowed for greater redundancy within the finance function.

But our greatest savings came from partnering with a single travel company for our travel requirements and partnering with one supplier for our office supplies, IT and furniture requirements. By using Maritime Travel exclusively for our flights, hotels and vehicle rentals rather than the five providers we had used in the past, we were able to create efficiencies by having Maritime Travel book all our flights, collect all the business intelligence on flights and negotiate on our behalf with the various carriers and alliances.
Not only did this result in less administrative burden on the organization, it also created a budgeted saving of $400,000 in the first year from direct cost savings. We also benefited by having staff itineraries passed onto our medical and evacuation partner in case of emergency.

By partnering with Grand & Toy for office supplies, furniture, IT and project management requirements, we saved substantially on one-time and ongoing operating costs. For example, we negotiated larger discounts on our purchases, got one itemized statement and developed the capacity for ordering online. As well, we used their project management salaried expertise to save on the costs of refitting our new office. This sunk cost saved $30,000 on the project management alone. By aggressively negotiating with their furniture suppliers, Grand & Toy was able to provide new furniture with a lifetime warranty at a better price than for us to move our old furniture and buy second-hand furniture to fill the gaps in fitting the new office.

By using Grand & Toy for all of our office requirements, we were able to receive much larger global discounts and also utilize their back-end technology to minimize our front-end administrative work. This further reduced our administrative burden and at the same time saved on aggressive pricing— from coffee creamers to network servers.

These savings were substantial, and at the end of 12 months we reduced our operating costs to 15 percent of revenue with a saving in costs of over $5 million annually.
From this experience, we learned that cost savings have to be analyzed at a strategic level. Sometimes, the lower direct cost does not provide the lowest overall cost for the organization. Process mapping at the outset is key to planning a strategic overhaul. Follow through on tough decisions and staying the course requires discipline to follow the plan.

Personally, I learned that in this technological age of the Internet and email, the best method for partnering with vendors is old-fashioned relationship building, where the value is in the human touch that these relationships provide. The Pearson Centre, with the assistance of all its partners, is now strategically placed to be a not-for-profit with a for-profit mentality. We’re also able to provide the same quality service to domestic and foreign government partners and corporate partners at a lower cost.

Stephen Davies, CMA, is vice-president, corporate services, for Pearson Centre, which works in Peace and Security strategies and solutions.