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The Need for Intelligent Cost Cutting
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The Need for Intelligent Cost Cutting
Author:
Steve Anderson
4/20/2009
It is amazing how economic cycles can dramatically change corporate priorities. In the past 3 months, we have heard from dozens of companies that they are overhauling their top initiatives. Given the current state of the economy, most companies are getting really serious about cost cutting. But don’t we all govern our businesses with evergreen mantras like “Continuous Improvement”, “Reengineering”, “Lean Management”, “TQM”, “Customer First”, and “Balanced Scorecard? They are supposed to keep our operations dynamic, efficient, and profitable – capable of fending off competitors, avoiding product obsolescence, and even mitigating the effects of a global recession. How is it possible that this recent downturn took us all by surprise, so that we are frantically conducting massive layoffs, exiting entire businesses, and closing our doors? With all of these far-visioned, professionally managed programs…
•Aren’t we supposed to be better prepared?
•Aren’t we likely to cut some vital parts of our business by taking hasty actions?
The answer to these questions is yes. So how can we be better prepared, and avoid making cuts that hurt our business? It starts with something very fundamental, that should be the modus operandi of all businesses. Know where you are making and losing money. Know this in great detail – specific customers, orders, products, and vendors.
While revenue growth has been the key driver of corporate performance over the last five+ years, internal efficiencies will determine success over the next several years. The companies that get it right will have a huge competitive advantage once the economy turns around. If done intelligently, cost cutting does not necessarily need to negatively impact service levels, quality or your most profitable customers.
Our experience over the past 12 years shows that most companies lose money on over 50% of their customers, products and processes. Even more startling is that just 20% of your customers often generate 200-300% of your total net profits. With those numbers, what companies really need is visibility into who and what are creating losses and profitability in their business. They also need the ability to understand WHY so they can take corrective action. And most companies are not aware that a deep and broad analysis of their company can be completed in less than 90 days.
If the casualties of today’s recession had institutionalized cost and profit management across their organization, and had integrated this information into their business operations, financial budgeting, sales forecasting, market development, personnel staffing, product / service pricing, and even employee compensation , these companies would have been able to adapt more swiftly, and would be in a great position to capitalize on the recession, acquiring assets at depressed prices.
Tags:
cost cutting, cost reduction, cost management
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