What’s the best way to lead cost reduction?

Most companies have no shortage of ideas about how to save money. From procurement to headcount and from bureaucracy to efficiency savings, they are able to identify hundreds of ways to reduce costs. If you were asked right now to list five areas in which your own company could save money, you could almost certainly do so without a second thought.

Thinking of ways to reduce costs is only half the battle, though. The challenge, of course, is turning those ideas into action and tangible sustainable initiatives that deliver lasting change and a meaningful contribution towards cost leadership. For as much as we would like to think otherwise, the truth is that most large organisations struggle to change their ways in the long term. That failure has never been more expensive, because cost leadership is increasingly crucial in many hyper-competitive markets, where a low-cost position wins in almost every case.

Cost leaders are able to out-invest rivals in areas such as sales, marketing and R&D, whilst simultaneously maintaining attractive margins. They have the resources to react rapidly to market changes and exploit new opportunities. And they are able to increase market share because they have more price flexibility than their rivals.

How do you make cost leadership change sustainable?

At Project One, we know that the key to building the changes that ensure a long-term sustainable cost leadership position is to apply the same principles to cost reduction that you would to any other major change initiatives. Together, we can align the strategic priorities of your executive and make realistic strategic recommendations that have their full and active support.

In our experience, it is crucial to ensure that everyone understands that strategy reflects – and affects – a company’s cost structure. There is little point in hacking away at cost positions if the fundamental business model is no longer competitive, as this is only likely to derive short-term benefits and the natural instinct of your teams to deliver the same service levels as previously may lead to cost simply being hidden elsewhere. Addressing these types of issues in the definition of your strategy will ensure that the change will not be undermined through silo thinking or lack of leadership support.

Together, we then follow that through by defining practical programmes to make change sustainable, ensuring that the implications of the new strategy are clearly understood across all functions and at the seams between those functions. Lastly, we drive clear ownership and accountability of the cost reduction programmes on the ground, reviewing progress regularly to drive long-term success and cost leadership.

POSTED BY: David Knappett - Consulting Director

CONTACT: david.knappett@projectone.com

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