Companies that view strategic cost reduction efforts through a cultural lens can produce long-term value.
Focus on the Right Things
Consumer products companies tend to find the most success in achieving sustainable cost reductions when they focus on three core imperatives:
- Know the company.
- Align decisions to the business strategy.
- Apply a cultural lens.
Let’s look at each imperative in some detail.
Know the company
At a tactical level, companies need to know their operations inside and out to be able to make the right cost-cutting decisions at a detailed, program-by-program level. It’s about knowing which cost reduction opportunities will provide the most value.
With the right knowledge, companies can consider a full range of levers, including operations, overhead, tax and capital. By knowing which levers to pull, companies can implement changes that produce quick wins. One option may be to tighten travel policies. Another may be to eliminate projects that duplicate effort or offer a low return on investment. By making these changes first, companies can realize initial benefits within six months.
Align decisions to the business strategy
In addition to making tactical, program-by-program decisions, companies should be taking more strategic measures. Linking cost reduction efforts to the broader business strategy and to the operating model enables consumer products companies to be deliberate about where to invest in cost savings.
Using tools such as driver-based data analytics provides a framework to structure decision-making and deliver actionable insights. Analytics should look at cost reduction through both a top-down lens and a bottom-up, functional perspective to challenge the current cost structure and identify practical solutions.
Such solutions may include using new technology to automate manual work activities, establishing shared service centers, or standardizing tools and processes across functions or geographies to drive consistency.
Apply a cultural lens
Tactical and strategic changes to the operating model can produce success initially, but to produce sustainable value, companies need to apply a cultural lens to decision-making. They need to understand the cultural fabric of their organization and make decisions that offer the best fit.
Understanding the company’s ability to embrace change is a good place to start. It’s important to know what kind of change the company wants to achieve -- whether it is a light dusting or a deep cleaning -- and how employees will react to each level of change.
One way to gauge employee support is to conduct interviews and workshops. The more interactive the process is, the more employees will understand and embrace the company’s goals.
Once the company appreciates the cultural climate for change, it can then determine which cost reduction efforts would add the most value. Making changes that go against the grain of a company’s culture could damage its brand and its relationship with its people.
Any change that the company initiates needs to be supported by a robust change management program that opens the channels of communication. This will enable the company to not only listen and act as issues arise, but also instill a cost optimization mindset into the cultural DNA.
