a myth of reality

Businesses Reducing Costs Amid High Inflation – A Myth or a Reality?

Companies have historically pursued product differentiation and reducing costs amid high inflation as strategies to gain competitive success. Aneel Karnani conducted a research study in 1984 titled Generic Competitive Strategies—An Analytical Approach and found that a superior cost or differentiation position leads to a larger market share and, hence, higher profitability.

The Prevailing Inflationary Spell in the US

One of the major shifts in the economic dynamics of the US economy in recent times is the rise in the rate of inflation – more than the historical average.

In one of our earlier publications titled “Is Inflation Adversely Affecting Your Profitability”, Trading Economics, which had sourced the US Bureau of Statistics (BLS), was quoted as stating, “Inflation rate in the US averaged 3.24 percent from 1914 until 2021.” In the same publication, Statista was quoted as stating that the rate of inflation had shown a persistently hiking trend from August 2020 to August 2021, increasing from 1.3 percent in August 2020 to 5.3 percent in August 2021.

With such a hostile business landscape, entrepreneurs have no choice but to look into measures such as lay-offs, downsizing, and reducing costs amid high inflation to compete in the market.

The Economic Effects of Inflation

Many negative economic effects of inflation are currently affecting the US business landscape. The prevailing inflationary trend has led to stressed-out supply chains, increased energy prices, and volatility in the labor markets; and the complexity of the situation is compounded by the fact that this inflationary pressure is reaching an all-time high simultaneous to major geo-political and social developments on the global stage.

How is Payroll Affected?

The Society for Human Resource Management quotes the BLS in stating that the recent CPI hike has manifested in the form of real average hourly earnings reducing by 2.7 percent, seasonally adjusted from March 2021—2022, and further quotes Salary.com – compensation data and analytics firm – in stating that around 73 percent of US firms are considering a payroll budget increase of 4 percent or more, owing to the higher salary expectations in the face of rising inflation.

Will the Inflationary Trend Persist?

The same publication also quoted the BLS in stating that the inflationary trend will continue in its upward trajectory because of the increase in the Producer Price Index (PPI), which is the key indicator of the end consumer price.

How Does Inflation Impact the Labor Market?

How closely are inflation and the labor market interlinked and intertwined can be understood not just from the positive correlation between Consumer Price Index (CPI), Producer Price Index (PP)I, and salary hikes, but also by the mass resignation witnessed during the COVID-19 pandemic.

Labor Market and Consumer Market: Ties and Knots

According to Chicago Fed Letter, No. 465, February 2022, research has established a strong and positive relationship between resignations, wage, and price hikes. The research purports labor market slack as a novel measure that has been used to find how the recent sudden surge in the propensity to search for greener pastures on the job caused a 1 percentage point rise in inflation.

Is It Possible for Businesses to Reduce Costs Amid High Inflation?

Savings and inflation do not go hand in hand, which is why it is rare to hear savings advice during inflationary spells. While reducing costs amid high inflation may sound like a fantasy, it is the only way to cope with the hostile business landscape, and entrepreneurs would do well to look into cost-saving solutions to weather the consistently soaring inflationary trend.

The Way Out

So, by now, we all know that a spell of cost-push inflation has gripped the world economy, including that of the United States, the next question is: what is the way out?

This question is not an easy one, but not so difficult at the same time. There is no dearth of literature on inflation, its type and causes, and the monetary and fiscal responses to it, but innovation and evolution, too, have led to the development of – what I would refer to as – out-of-the-box solutions. While developing a cure for the disease that is inflation, we must first diagnose the symptoms, develop the cure and then surgically implement it.

Diagnosing the problem

In order to deal with the prevailing inflationary pressure, businesses need to cure the disease rather than the symptom i.e., rationalize their cost of input in order to retain the shelf price of their products and/or services to competitive levels.

Payroll cost is always a major element in the costing of products and services for any business, ranging generally from 30—50 percent. This implies that if a business can rationalize its payroll cost, it can rationalize the cost of input, and hence, the price of its end product or service.

At this time, inflation is leaping to unprecedented proportions and retailers and manufacturers are in a tug of war over prices of end products and services with the former refusing to accept but the latter forced into making price hikes.

Developing the Cure

The quest for competitive strength is not a one-off job, but an ongoing struggle, reinforcing both superior cost and innovation as the heart of the competitive effort.

The business landscape’s continuous search for newer ways to gain the competitive lead, coupled with fast and ever-changing environmental variables, has led to the evolution of two major business strategies for reducing costs amid high inflation in the contemporary business arena: offshoring innovation and global sourcing.

Outsourcing as the surgical instrument

Experts at Expertise Accelerated believe that businesses in the US can employ outsourcing, selective outsourcing, and staff augmentation as surgical instruments to help extricate the business from the oppressive clutches of inflation, achieving payroll savings and ensuing a trickle-down effect which would be price stability of end products and services.

Expertise Accelerated As Your Partner in The Savings Journey

Based in Greenwich, Connecticut, United States, Expertise Accelerated is an outsourcing & co-sourcing/staff augmentation specialist led by C-suite–level US industry experts leveraging a global talent pool to deliver quality-assured–60% payroll savings.

Expertise Accelerated Savings Formula

US Oversight & Quality Assurance x Offshore Resources = Quality Assured—60 Percent Payroll Savings

A Word About Haroon Jafree (CPA)

Expertise Accelerated (EA) CEO Haroon Jafree is a Certified Public Accountant. He has delivered phenomenal savings to notable US companies such as the Sabra Hummus, Safford Roads, and Hillshire Brands.

EA Outsourcing Methodology

Expertise Accelerated pursues a hybrid work methodology that combines elements of on-site oversight with off-site resource mobilization to club local and offshore expertise to deliver its clients a high-quality yet affordable outsourcing and co-sourcing/staff augmentation service.

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