{"id":4554,"date":"2019-04-03T06:17:02","date_gmt":"2019-04-03T11:17:02","guid":{"rendered":"http:\/\/flevy.com\/blog\/?p=4554"},"modified":"2020-12-19T20:28:10","modified_gmt":"2020-12-20T01:28:10","slug":"strategic-cost-reduction-primer-a-systematic-approach-to-transforming-costs","status":"publish","type":"post","link":"https:\/\/flevy.com\/blog\/strategic-cost-reduction-primer-a-systematic-approach-to-transforming-costs\/","title":{"rendered":"Strategic Cost Reduction Primer: A Systematic Approach to Transforming Costs"},"content":{"rendered":"

Cost Optimization Programs<\/a> are hard to manage, sustain, and often tend to fall short of delivering the promised value. \u00a0The failure could be attributed to many reasons\u2014inclu\"\"ding lack of clearly delineated objectives, failure to account for operational difficulties, internal resistance to change, trying to cut corners from everywhere, not paying attention to planning optimal utilization of resources; lack of direction, accountability, and management agreement.<\/p>\n

However, the tremendous pace of technological disruption, today, offers new opportunities to transform enterprises by eliminating complexities, transforming the strategy and cost disciplines, streamlining operational capabilities, and consistently innovating.<\/p>\n

Alongside transformation of organizational cost bases, leadership should focus on value rather than costs.\u00a0 Cost optimization plans need to consider achieving the more strategic, long-term options.\u00a0 These long-term options include pulling out from unworkable markets, business model innovation, robotic automation, or streamlining processes.\u00a0 These cost initiatives necessitate revisiting the strategy, costs, and, the way they align.<\/p>\n

A robust 5-phased cost optimization framework helps businesses sustain competitive relevance and maximize their potential.\u00a0 These steps provide a more informed, systematic, and sustainable approach to Strategic Cost Reduction<\/u><\/strong><\/a>:<\/p>\n

    \n
  1. Start with the Corporate Strategy<\/strong><\/li>\n
  2. Align Costs to Strategy<\/strong><\/li>\n
  3. Be Transformational and Aspirational<\/strong><\/li>\n
  4. Demonstrate Leadership Support<\/strong><\/li>\n
  5. Create a Culture of Cost Management <\/strong><\/li>\n<\/ol>\n

    \"\"<\/a><\/p>\n

    Let\u2019s talk 3 of the phases in detail.<\/p>\n

    Start with the Corporate Strategy<\/strong><\/h3>\n

    The first phase emphasizes on having a clear view of the Corporate Strategy<\/a> and ensure that it is consistently understood across the organization.\u00a0 The commencement of strategic cost reduction endeavor demands developing a thorough understanding of the business strategy, operating model, and the investment on and revenues from the operations.<\/p>\n

    The phase encompasses examining the expenditures and revenues of the business, evaluating the sustainability of the existing ventures; and contemplating the effects of disruption, changing customer needs, and competition from startups.\u00a0 There is also a need to comprehend the interfaces between different units and their associated costs, instead of merely utilizing industry benchmarks to gauge the viability of costs.<\/p>\n

    Align Costs to Strategy<\/strong><\/h3>\n

    The second phase signifies differentiating the strategically critical good costs from the non-essential bad costs.\u00a0 It involves segregating the good costs from the bad costs (avoidable expenditures), making informed decisions to improve the good costs, clearly articulating the current skill inventory and knowing the few critical competencies crucial to meet customer expectations and remain profitable.<\/p>\n

    The phase demands distinguishing high-value priorities for investments, directing investments on creating winning capabilities, and developing plans to minimize bad costs. \u00a0This can be done by undertaking organization-wide cost analysis to understand the type of projects being executed, their value, the expenditure critical to run the business, the transformation and automation opportunities, and how to realize the potential for improved savings.<\/p>\n

    Demonstrate Leadership Support<\/strong><\/h3>\n

    The next phase of the strategic cost reduction approach requires from the senior management to set the strategic direction and demonstrate Leadership<\/a> support and buy-in.\u00a0 Leaders should treat the cost optimization program as a strategic business transformation<\/a> initiative.\u00a0 They need to assign dedicated resources to the endeavor, guide teams, devote time, set governance and oversight mechanisms, and engage employees across the organization.\u00a0 It is critical for the leaders to develop ways to encourage organization-wide sense of ownership and partnership.<\/p>\n

    Interested in learning more about how to implement Strategic Cost Reduction<\/a>?\u00a0 You can download an editable PowerPoint on <\/u>Strategic Cost Reduction Primer<\/u><\/strong> here<\/u><\/a> on the Flevy documents marketplace<\/a>.<\/p>\n

    Do You Find Value in This Framework?<\/h2>\n

    You can download in-depth presentations on this and hundreds of similar business frameworks from the FlevyPro Library<\/a>. FlevyPro<\/a> is trusted and utilized by 1000s of management consultants and corporate executives. Here’s what some have to say:<\/p>\n

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    “FlevyPro has been a brilliant resource for me, as an independent growth consultant, to access a vast knowledge bank of presentations to support my work with clients. In terms of RoI, the value I received from the very first presentation I downloaded paid for my subscription many times over! The quality of the decks available allows me to punch way above my weight \u2013 it’s like having the resources of a Big 4 consultancy at your fingertips at a microscopic fraction of the overhead.”<\/p>\n

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    \u2013 Omar Hern\u00e1n Montes Parra, CEO at Quantum SFE<\/p>\n<\/blockquote>\n","protected":false},"excerpt":{"rendered":"

    Cost Optimization Programs are hard to manage, sustain, and often tend to fall short of delivering the promised value. \u00a0The failure could be attributed to many reasons\u2014including lack of clearly delineated objectives, failure to account for operational difficulties, internal resistance to change, trying to cut corners from everywhere, not paying attention to planning optimal utilization… Strategic Cost Reduction Primer: A Systematic Approach to Transforming Costs<\/span><\/a><\/p>\n","protected":false},"author":110,"featured_media":4556,"comment_status":"open","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":[82,81],"tags":[76,1489,15,1491,1500,905,1488,824],"class_list":["post-4554","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-operations","category-strategy","tag-corporate-strategy","tag-cost-analysis","tag-cost-management","tag-cost-optimization","tag-leadership-commitment","tag-strategic-alignment","tag-strategic-cost-reduction","tag-transformation"],"_links":{"self":[{"href":"https:\/\/flevy.com\/blog\/wp-json\/wp\/v2\/posts\/4554","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=4554"}],"version-history":[{"count":12,"href":"https:\/\/flevy.com\/blog\/wp-json\/wp\/v2\/posts\/4554\/revisions"}],"predecessor-version":[{"id":7905,"href":"https:\/\/flevy.com\/blog\/wp-json\/wp\/v2\/posts\/4554\/revisions\/7905"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/flevy.com\/blog\/wp-json\/wp\/v2\/media\/4556"}],"wp:attachment":[{"href":"https:\/\/flevy.com\/blog\/wp-json\/wp\/v2\/media?parent=4554"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/flevy.com\/blog\/wp-json\/wp\/v2\/categories?post=4554"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/flevy.com\/blog\/wp-json\/wp\/v2\/tags?post=4554"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}