Effective Cost Reduction Initiatives
In this economic environment, many companies are considering or implementing broad actions to reduce spend and streamline organizational design and processes. While these types of projects are never pleasant, if done correctly, they can not only help you achieve your immediate cost reduction objectives, but create an efficient platform and new capabilities that will create a competitive advantage for you when market conditions rebound.
Based on business needs, managers will determine the scope and focus of the expense management effort. However, regardless of the scope and focus, there are three aspects of the process your organization puts in place that will determine how successful it will be:
First, involve the organization. The largest source of untapped knowledge is hiding in plain sight — your managers and staff. There are many reasons why good ideas don’t get surfaced and implemented. Putting in place a solid process to identify those ideas, build consensus around them, and get decisions made quickly is critical to achieving your financial objectives. We have worked with organizations that developed hundreds, even thousands, of good ideas internally, resulting in extraordinary financial results.
Second, use software to organize the effort. When we interview managers responsible for these efforts, they tell us that organizing the effort is one of the most frustrating aspects of their assignment. Typically, all those working on a cost reduction effort are doing so in addition to their regular responsibilities. As the number of projects grows, the ability to keep track of issues, progress, and financial impact is critical. Organizations typically turn to familiar tools, like Microsoft Excel or Project. However, this software is not designed to manage these types of efforts, and those responsible for project coordination, typically the CFO or someone in the CFO’s organization, grow frustrated with the need to gather, check, and integrated spreadsheets that get increasingly complex over time. Finding the right software tool to assist the organization is an important element to achieving your financial objectives.
Third, build an organizational capability. If all you do is cut costs, the organization will look back on the effort as a negative event. However, if you reduce your expenses using a process that gets people involved and changes the way decisions get made, people will remember that this difficult period was one in which organizational capabilities were strengthened. At the right time, these same processes can also be used to grow revenue and support innovation.
Many companies suffer as the result of a poorly executed cost reduction effort. While they achieve their financial objectives, morale declines, cuts go too far into organizational muscle and processes don’t change. People just work harder.
However, done well, managers and staff will see that things really changed and that the company has new capabilities. These capabilities give the organization a voice and lead to a continuous improvement process in which everyone can participate. This should be the goal, and it is achievable.
Filed under: Management