When a business requires 10% to 20% cost reduction, the actions executives need to take to reduce costs are strategic, not tactical. They need to think beyond common cost reduction initiatives such as operational efficiencies, purchasing costs, discretionary expenses, and non-mission-critical perks and activities.
Achieving significant cost reductions requires management to focus efforts on strategic cost reduction approaches such as rationalizing product lines, reconfiguring their business, reducing organizational complexity, and restructuring operations.
WHAT IT TAKES
Strategic cost reduction is a vital undertaking that requires four steps: (1) clarifying the business strategy, (2) aligning costs to the strategy, (3) setting aggressive targets, and (4) committing executive leadership.
ESSENTIAL QUESTIONS FOR YOUR TEAM
Given the importance of strategic cost reduction, the following questions provide clarity and relevance:
- What cost objective do you need to target?
- How long do you have to achieve these results?
- Will the cost reduction get you to where you need to be?
- Does your company have the capabilities to get there?
- If your company doesn’t achieve these cost targets, what is your plan B?
Confronting these issues head-on can make the difference between success and failure in running your cost program.