Wringing cost reductions from every area of a business is an important part of surviving in this economy. In today's economy, all companies need to quickly identify and implement cost reductions -- no sacred cows, no stones left unturned. Analysts and lenders, either for new lending or covenant compliance waivers, will place premiums on cost-disciplined companies. And, consider that every $1 saved through cost reductions equals some $10 of new sales. So, in this economy which is easier, to identify $1 in cost reductions or generate $10 of new sales?
We have completed numerous cost reduction projects. Over the years we have developed our approach to these types of projects, which are relatively modest sized projects as compared with the cost reductions that can be achieved. We use a highly efficient phased-in project approach that is intended to quickly indentify "Quick Hits"; which a company's own management team can implement often without additional outside resources, thereby accelerating time to value with little implementation costs. Our approach also anchors cost reduction into the company's ongoing business culture, thereby leaving behind durable change.
Cost reduction work is more an art form that involves a solid understanding of the process of change management. Along those lines, here is our top-ten list for ensuring a successful cost reduction project.
- Obtain senior-level commitment. Without the CEO’s backing, don’t waste your time! That means that CEO needs to actively communicate interest, support and willingness to commit resources to the effort.
- Establish a sense of need and urgency. In today’s economic climate this should be easy to do – as in “your job depends on the health and survivability of this company”.
- Create a guiding coalition. This is a cross functional team of managers headed up by a project sponsor who would be their direct manager. One thing to keep in mind when forming up this team, you want people on the team that don’t have the time to be on it, not those who do.
- Develop a shared vision and strategy. This is a subtle but an important first step in establishing a “touch stone” against which all resulting improvement opportunities will be measured against. If a recommendation doesn’t fit in with the shared vision and strategy, don’t waste too much time with it.
- Communicate the change vision. It is important to establish a project communication program early on. If the project leadership doesn’t communicate where they are headed, how can anyone down the line be expected to follow?
- Empower employees for broad based action. The team must be empowered to be able to take broad based action. If the project team doesn’t believe they have the power to change the status quo, they won’t.
- Generate short-term wins. Quick Hits are the key to overcoming initial project inertia. Find lots of Quick Hits and implement the low hanging fruit quickly. Nothing breeds success like early success.
- Consolidate gains and procure more change. Once momentum is achieved through lots of Quick Hits early on, the project team will be psyched up. Now is the time to undertake the more challenging projects that will result in greater paybacks. Go for it!
- Anchor new approaches in the culture. Once most of the project results have been achieved, don’t stop now. Keep the project teams intact and focused. You have a chance to keep it going and anchor change management into the culture.
- Hire the right consultant to guide the process. Although this may seem self serving, there is much to be said for having an independent professional driving this type of process. For one thing, a consultant will bring fresh ideas and a willingness to challenge “sacred cows”. And, there is much cost to be wrung out of those cows! In addition, change management is something that requires a good deal of neutral meeting facilitation skills. And, it’s always easier to challenge the status quo when you know you’re leaving after a project is over.
Remember, in this economy, it is probably easier to identify $1 of cost reduction opportunities than to generate $10 of new sales. For our more detailed guidance to cost reduction projects, please download our white paper, The Fast Track Approach to Cost Reduction.