How Kenyan businesses can overcome high operational costs

A story is told of a country that faced a severe economic upheaval, characterised by escalating taxes, skyrocketing energy costs, and an overall rise in the cost of doing business.

Businesses across the nation struggled to maintain profitability amid these challenges, and many companies opted to close shop and move to other regions with more favourable business environments.

In the heart of its bustling capital, there was a mid-sized manufacturing company that was feeling the pinch just like many others. However, this company managed not only to survive but also to thrive by adopting strategic cost management measures, diversifying their energy sources, leveraging technology to improve efficiency, and addressing corruption head-on. Their story offers valuable lessons for companies in Kenya as they brace for a similar economic landscape marked by increased taxes and higher costs.

Kenyan businesses today find themselves at a crossroads. With new taxes on the horizon and energy costs already high, the cost of doing business is set to rise substantially. To navigate these challenges, companies need to adopt a multifaceted approach that includes cost management, energy efficiency, technological innovation, and tackling corruption.

One of the first steps companies should take is to conduct a thorough review of their expenses. This involves identifying and eliminating wasteful practices and finding more cost-effective ways to operate. Businesses can start by implementing lean management practices, which focus on maximising value while minimising waste.

By adopting lean principles, companies can streamline operations, reduce unnecessary expenses, and improve productivity. Additionally, outsourcing non-core activities can reduce overhead costs and allow companies to focus on their core competencies. Building strong relationships with suppliers can also lead to better payment terms and discounts, ultimately reducing procurement costs.

Additionally, energy costs are a significant burden for many businesses, especially those in manufacturing. To mitigate this, companies can invest in energy-efficient technologies and sustainable practices. This not only reduces energy bills but also positions businesses as environmentally responsible, which can be a competitive advantage. Investing in renewable energy sources like solar panels can provide long-term savings.

Although the initial investment may be high, the reduction in energy costs over time can be substantial. Conducting regular energy audits helps identify areas where energy consumption can be reduced. Simple changes, such as upgrading to energy-efficient lighting or optimising heating and cooling systems, can lead to significant savings. Implementing sustainable practices like recycling and waste reduction can also lower disposal costs and improve corporate sustainability.

Moreover, technological advancements can play a crucial role in reducing operational costs and improving efficiency. Companies should explore various technologies that can help automate processes and enhance productivity. Automating repetitive tasks can significantly reduce labour costs and improve accuracy. For instance, using automated systems for inventory management can streamline operations and reduce errors.

Shifting to cloud-based solutions can reduce the costs associated with maintaining physical servers and IT infrastructure. Cloud computing also offers scalability, allowing businesses to adjust their resources based on demand. Utilising data analytics can help companies make informed decisions. By analysing customer behaviour, market trends, and operational efficiency, businesses can identify areas for improvement and optimise their strategies.

In times of economic uncertainty, diversification can provide a safety net for businesses. Exploring new markets, products, and services can open additional revenue streams and reduce dependency on a single source of income. Developing new products or services that complement existing offerings can attract new customers and increase market share.

Entering new geographical markets or targeting different customer segments can mitigate the risks associated with relying on a single market. Fostering a culture of innovation within the company can lead to the development of unique solutions and products that differentiate the business from competitors.

Effective financial planning and risk management are essential in navigating increased costs. Companies need to be proactive in managing their finances and mitigating potential risks. Regularly updating budgets and forecasts helps businesses anticipate financial challenges and adjust strategies accordingly.

Maintaining a financial reserve can provide a cushion during tough times, allowing businesses to continue operations without severe disruptions. Identifying potential risks and developing contingency plans can help businesses respond swiftly to unexpected challenges.

Finally, tackling corruption is another critical factor that can significantly impact the cost of doing business. Corruption leads to inefficiencies, increases operational costs, and can damage a company's reputation. Businesses should adopt transparent practices and implement strong internal controls to minimise the risk of corrupt activities.

Establishing a clear code of ethics and providing training to employees on ethical behaviour can help create a culture of integrity. Reporting and addressing any signs of corruption promptly is essential to maintain trust and operational efficiency. Partnering with anti-corruption organisations and participating in initiatives that promote transparency can also reinforce a company's commitment to ethical practices.