Why do cost reduction efforts fail?
Companies’ executives have always been concerned with managing and reducing costs, but being able to implement cost reductions quickly is just as vital for their business. 84% of the executives surveyed have already begun implementing an overall cost savings analysis.
When rating the most significant opportunities for cost reduction over the next 12 months, the following business functions were considered: supply chain (25% of respondents), operations (15%), sustainability programs (6%), research and development (11%), information technology (13%), sales and marketing (12%) and M&As (16%).
While most cost reduction programs do not deliver the expected benefits, most of the ones that do fail to sustain the savings beyond the initial period of management focus. Therefore the likelihood of overcoming the challenges typically seen in cost reduction programs and achieve savings can be realized by focusing on value, pace and sustainability.
Companies must first identify the maximum potential and deliver more value by carefully examining the key elements of addressable spends. Second, they must accomplish the expected savings rate by carefully balancing the pace of short- and longer-term savings through rigorous stakeholder engagements and project management. Finally, they should focus on sustainability by reducing the right costs and creating an appropriate cost reduction consciousness across the organization while also redeploying expenditures to areas that drive competitive advantage.
When rating the most significant opportunities for cost reduction over the next 12 months, the following business functions were considered: supply chain (25% of respondents), operations (15%), sustainability programs (6%), research and development (11%), information technology (13%), sales and marketing (12%) and M&As (16%).
While most cost reduction programs do not deliver the expected benefits, most of the ones that do fail to sustain the savings beyond the initial period of management focus. Therefore the likelihood of overcoming the challenges typically seen in cost reduction programs and achieve savings can be realized by focusing on value, pace and sustainability.
Companies must first identify the maximum potential and deliver more value by carefully examining the key elements of addressable spends. Second, they must accomplish the expected savings rate by carefully balancing the pace of short- and longer-term savings through rigorous stakeholder engagements and project management. Finally, they should focus on sustainability by reducing the right costs and creating an appropriate cost reduction consciousness across the organization while also redeploying expenditures to areas that drive competitive advantage.