Top 10 Cost-Reduction Strategies During a Divestiture

Sept. 17, 2007
Best practices tips

Manufacturers can enhance shareholder value by keeping overhead costs in line with the overall financial model. Jeff Weirens, Christine Cutten and Marco Sguazzin of Deloitte Consulting LLP offer the following list of the top 10 things to keep in mind during a cost-reduction effort:

  1. Plan for cost reductions in parallel to divesture or spin-off activities (generally three to four months prior to separation).
  2. Identify and communicate the baseline cost structure so all functions have clarity on the current costs they will be measured against.
  3. Set parity targets by function based on affordability, the business model and strategic objectives.
  4. Encourage functions to use the project momentum to identify further cost reductions or transformation opportunities beyond parity targets.
  5. Leverage external leading practices and benchmarks to challenge functions to reach or exceed cost-reduction targets.
  6. Drive functions to clearly articulate and quantify their cost-reduction initiatives so they can be incorporated into an overall cost-reduction road map.
  7. Centrally manage any workforce management initiatives to provide consistency in timing and messaging and to confirm legal requirements are met across multiple countries.
  8. Plan for longer cost-reduction lead times in some areas and countries to help reduce risk of cost overhang (e.g., sale of real estate, workforce management in foreign countries).
  9. Keep in mind any transition services due to the sale or spin-off that may be required of some functions that may impact the timing of some initiatives, especially head-count reductions.
  10. Do not forget to manage the change impact through communications and stakeholder management with the remaining business units and functional team members.

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