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Cost Transformation is a reality that every organization has to face, several times, in its period of existence.\u00a0 Proper and enduring Cost Transformation provides an opportunity to reformulate an organization\u2019s complete course.\u00a0 It may result in divestiture of established businesses<\/a>, even profitable ones, if they do not match the Strategy or the enterprise\u2019s most distinguishing capabilities.<\/p>\n Such Transformations are increasingly being spearheaded by Activist Shareholders in recent times.<\/p>\n Activist shareholders are investors in a company (usually hedge funds) that demand drastic changes to how business is conducted in organizations.\u00a0 Activist investors routinely expect management teams to reduce costs drastically<\/a> over a relatively short period of time.<\/p>\n Data analysis indicates that activist shareholders returned double digit rewards for investors compared to the single digit returns by other investment funds.\u00a0 Investors are increasingly demanding activist funds in their portfolios.<\/p>\n Organizations should prepare for such funds by presciently looking at what changes such activist shareholders are demanding and proactively adopting an Enterprise Cost Reduction Approach<\/a>.<\/p>\n Organizations can learn from activist investors during times of tremendous cost containment pressure, such as during a recession.<\/p>\n The activist investor approach to Cost Transformation, albeit unconventional, can be adapted to help organizations navigate through times of uncertainties.\u00a0 Companies can display farsightedness by assuming control of their cost base proactively, and develop a more robust and effective organization.<\/p>\n PwC\u2019s experts extracted the following 10 principles for Cost Transformation<\/a>\u2014to aid companies in performing the activist\u2019s role themselves.<\/p>\n First 5 principles in the list manifest the intensified agenda of activist shareholders. \u00a0Next 5 principles are focused on strategic cost reduction and rationalization\u2014the fundamental principles around which any program should be structured.\u00a0<\/strong><\/p>\n Let us delve a little more deeply into some of the principles.\u00a0<\/strong><\/p>\n Past practice of slashing costs, for e.g. by 10% over a 5-year period, do not fly with activist shareholders any more.\u00a0 They demand significantly more and that too, over a fairly shorter period e.g. 20% or more in 24 months, with half of it in the first 12 to 18 months.\u00a0<\/strong><\/p>\n Transforming costs sizably and quickly has been shown to provide considerable leverage.\u00a0 Study of 29 cost reduction efforts showed that of the 29, the companies which went big and fast were able to achieve 33% more cost reduction in almost 1\/3rd<\/sup> of the time.<\/p>\n Conventional approach to cost reduction advocates eliminating unnecessary work first, then reducing the head count accordingly.\u00a0 This takes quite a long time to accomplish due to various reasons.\u00a0 New approach takes the head count reduction before process and system change.\u00a0<\/strong><\/p>\n Reducing head count first produces a void, the residual workforce has to step up and fill that space in order to keep their part of the business running.\u00a0 In stepping up, the remaining workers are forced to prioritize and handle jobs thus creating more effective and efficient processes.\u00a0<\/strong><\/p>\n Entire expenditure is investment.\u00a0 Each cost is an option\u2014not regarding what to slash from the budget, but about where to invest.\u00a0 Expenditures have to be rethought from their starting points\u2014each expense to be considered eliminable.\u00a0 Correct choices are the ones that reduce the disparity between Strategy and Execution.<\/p>\n Interested in learning more about 10 Principles of Cost Transformations?\u00a0 You\u00a0can download\u00a0an editable PowerPoint presentation on 10 principles for Cost Transformation here<\/a> on the\u00a0Flevy documents marketplace<\/a>.<\/p>\n You can download in-depth presentations on this and hundreds of similar business frameworks from the\u00a0FlevyPro Library<\/a>.\u00a0 FlevyPro<\/a>\u00a0is trusted and utilized by 1000s of management consultants and corporate executives.<\/p>\n For even more best practices available on Flevy, have a look at our top 100 lists:<\/p>\n Cost Transformation is a reality that every organization has to face, several times, in its period of existence.\u00a0 Proper and enduring Cost Transformation provides an opportunity to reformulate an organization\u2019s complete course.\u00a0 It may result in divestiture of established businesses, even profitable ones, if they do not match the Strategy or the enterprise\u2019s most distinguishing… 10 Principles of Cost Transformation<\/span><\/a><\/p>\n","protected":false},"author":110,"featured_media":12456,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"neve_meta_sidebar":"","neve_meta_container":"","neve_meta_enable_content_width":"","neve_meta_content_width":0,"neve_meta_title_alignment":"","neve_meta_author_avatar":"","neve_post_elements_order":"","neve_meta_disable_header":"","neve_meta_disable_footer":"","neve_meta_disable_title":"","footnotes":""},"categories":[85,81],"tags":[3087,635,14,3086,3088,824],"class_list":["post-12451","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-organization","category-strategy","tag-activist-shareholder","tag-change","tag-cost-reduction","tag-cost-transformation","tag-divestures","tag-transformation"],"_links":{"self":[{"href":"https:\/\/flevy.com\/blog\/wp-json\/wp\/v2\/posts\/12451","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/flevy.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/flevy.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/flevy.com\/blog\/wp-json\/wp\/v2\/users\/110"}],"replies":[{"embeddable":true,"href":"https:\/\/flevy.com\/blog\/wp-json\/wp\/v2\/comments?post=12451"}],"version-history":[{"count":5,"href":"https:\/\/flevy.com\/blog\/wp-json\/wp\/v2\/posts\/12451\/revisions"}],"predecessor-version":[{"id":12461,"href":"https:\/\/flevy.com\/blog\/wp-json\/wp\/v2\/posts\/12451\/revisions\/12461"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/flevy.com\/blog\/wp-json\/wp\/v2\/media\/12456"}],"wp:attachment":[{"href":"https:\/\/flevy.com\/blog\/wp-json\/wp\/v2\/media?parent=12451"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/flevy.com\/blog\/wp-json\/wp\/v2\/categories?post=12451"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/flevy.com\/blog\/wp-json\/wp\/v2\/tags?post=12451"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}\n
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<\/a><\/p>\n1. Transform Sizably and Quickly<\/strong><\/h2>\n
2. Reduce Headcount First<\/strong><\/h2>\n
3. Rationalize What to Retain, Not What to Eliminate<\/strong><\/h2>\n
Do You Find Value in This Framework?<\/strong><\/h2>\n
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