Today’s environment of ever present competition and dizzying change means leaders must constantly seek ways to improve operational and organizational efficiency in order to optimize margin. Budget constraints, cost pressures, and a scarcity of capital funding are all challenging leaders to find innovative solutions to drive revenue growth and achieve the long-term strategic goals of the organization. The traditional “slash and burn” cost reduction approaches and spending freezes are no longer sufficient. These efforts are often unsustainable and can be detrimental to the organization’s growth and strategic plans.
In order to navigate today’s business landscape effectively, leaders must take targeted actions to reduce costs while simultaneously driving growth initiatives. Data-driven insight, along with a platform of processes and controls, will ensure sustainability. When executed well, a cost reduction program may even become a source of funding for growth initiatives.
Our unique cost reduction approach is based on a holistic view of the business, understanding objectives and priorities of the organization. Our FORE model considers the broader context and implications in order to make the most effective cost reduction decisions. It considers benefits, risks, and impact to other areas of the organization, when focusing on the following four areas:
- Financial Metrics – Key performance indicators used to measure impact of investments, teams, and assets
- Operational & Organizational Efficiency – Ability of the organization and network to delivery on performance targets with the lowest consumption of resources
- Risk Management & Regulatory Compliance – Impact of evolving business environment and regulatory changes
- Enterprise-Level Effectiveness & Integration – Synergistic efficiencies achieved by aligning people, processes, technology, and assets
Impact: Client Example
North Highland recently worked with a client’s centralized IT department who was seeking to identify opportunities to reduce IT spend while also not adversely impacting service levels. Our team interviewed stakeholders and analyzed IT spend across 26 departments to understand current spending patterns and alignment to business objectives. In addition to providing insight into all IT costs, our team provided spend reduction and reallocation recommendations which met cost reduction targets and also improved alignment with the company’s strategic plans.
Cost Reduction: Doing the Work
The following are best practices when designing an effective and sustainable cost reduction program:
- Engage Stakeholders
- Engage all key stakeholders in the process. Communicate purpose, timeline, goals of the process, and impact to the organization’s long-term strategy
- Routinely review data driven insights with stakeholders to gain greater perspective on cross functional impact of the proposed cost reductions
- Ensure Sustainability
- Consider immediate and short term initiatives’ impact on achieving long term objectives
- Calculate total cost and benefit of cost reduction initiative when considering whether to reinvest some or all of the realized cost savings
- Think Strategically
- Incorporate financial measures and KPIs in ongoing plan to monitor, drive accountability, and continue sustainability
- Identify champions whose success and incentives are aligned with supporting the initiatives
Engaging stakeholders, ensuring sustainability, and thinking strategically are three vital components of a successful cost reduction effort. Organizations utilizing these best practices have the opportunity to achieve in-year objectives while ensuring alignment to short and long term strategic priorities.