![]() ![]() Management teams at such companies spend a lot of effort separating out the costs that truly fuel their distinct advantage from the ones that don’t. After all, if we aren’t directing spending to the right places, what chance do we have to grow? ![]() ![]() They put their money where their strategy is and continually cut bad costs and redirect resources toward good costs. The best-run companies, in contrast, think of cost management as a way to support their strategy, and of cost as precious investment that will fuel their growth. Most organizations wait to act until they have a problem, at which point they don’t have the time to make the right trade-offs for the long term. When doing research for our book, we found that the main reasons most companies suffer from this syndrome are that they make across-the-board cuts that are unconnected to their strategy, and fail to make the cuts sustainable. How many cost-cutting initiatives have our companies gone through in the last dozen years? More important, do we look back on those initiatives as transformative in helping us build success and leading us to growth?įor executives at most large organizations, the answer to the first question is probably “too many,” and the answer to the second is “no.” Call it cost management fatigue. And for many of us, it’s not a fond memory. We’ve all been through it - the looming cost project. To manage cost the right way, connect costs and strategy think of costs in terms of capabilities use a “zero-based” budgeting approach make your cut sustainable and be proactive. He resolved to start by cutting 40% in general and administrative costs, which freed up money to invest in assets such as direct store delivery, product and manufacturing innovation, and consumer marketing. For example, former CEO of Frito-Lay, Roger Enrico, had to make a major investment in product quality to stay competitive. To do this, management teams must figure out which costs fuel their distinct advantage, and which don’t. In order to cut costs effectively, companies must connect costs to their strategy. Most organizations also wait to act until they have a problem – at which point they don’t have the time to make the right trade offs for the long term. When companies cut costs, they often make across-the-board cuts that are unconnected to their strategy, and fail to make the cuts sustainable. ![]()
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