The words “Death by a thousand cuts? No, thank you” caught my eye this week, resonating with some of the cost cutting in global businesses in the current environment.
An interesting article by Doug Gish, Stanley Porter and Leon Pieters of Deloitte argues for the idea of “growth-oriented cost optimization” which echoes some recent discussions I have been engaged in.
Efficiency trends from the “assembly line” to Kaizen, Lean 6-Sigma, JIT, Offshoring, Activity Based Costing, ZBB, EVA et al have all focussed on maximizing economic output and minimizing costs, the essence of productivity.
We all know that, as a strategy, “cost-cutting your way to success” has a very short life span!
And, of course, what worked in the past won’t necessarily work in today’s environment.
Based on wide ranging research with strategy, operations, and transformation officers from Fortune 500 companies, the authors argue for four key strategies;
- Prioritize strategic investments
- Shift from cost management in silos to driving organization-wide synergies
- Rely on strategic partners, not just for non-core functions
- Integrate tech to help across the board
It may not surprise you to know that I lingered on the second theme for some time.
- The traditional approach to cost reduction in silos, departments or functions, without regard to the broader organizational impact is failing us. Unanticipated consequences are rife. Cost AND Value optimization as an “end to end” enterprise strategy requires a focus on full cycle processes (revenue, product, spend cycles et al) across the entire organization.
- It is self-evident that strategic investments for long term productivity and customer value are key. Short-term cost reductions alone can backfire by stifling innovation, degrading product or service quality, lowering employee morale, and missing growth opportunities. The challenge is to pick the right capital investments that will pay off and ensuring successful execution over the long haul.
- “Your mess for less” outsourcing is a short time game that is losing favor. Partnering beyond siloed transactional processing towards true business outcomes is a strategy that is emerging as a winner.
- Using technology for human augmentation with data-driven decision making through AI, data and analytics is the new frontier. Focusing on value creation and smart efficiencies. But too many are still thinking in old models of cost saving by replacement. Technology investments, themselves, can also run the risk of magnifying failure and increasing costs!
“While companies are getting better at setting up technology, there’s a graveyard of undeployed functionality that is not in sync with underlying strategy or processes”.
No company has ever cost-cut its way to prosperity.
“The emphasis is now on creating broader, “end to end” efficiencies across the organization and, in doing so, freeing up resources (whether capital, equipment, or people) that can be redeployed to propel the business toward a more efficient, resilient, and prosperous future.”
Thanks for reading . . . .