Cutting costs … Yes, but do it right!

65% of the CEOs we have surveyed indicated an intention to engage in substantial cost reduction by 2023.

At EffCo, such an exercise makes sense if carried out intelligently, carefully, thoroughly, and sustainably. Suppose a cost-cutting activity needs to be performed adequately, on the one hand. In that case, costs will creep right back in, and, on the other hand, there is the risk of a bruised, frustrated, and unengaged middle management. The long-standing cheese slice method is entirely obsolete.

Cost reduction should be carried out in various forms but in parallel with the quest for greater transparency, greater accountability of critical people, and more rapid decision-making in the business.

Provided the right balance is established between efficiency and effectiveness, a 15% reduction in costs is frequently attainable. It is imperative to constantly distinguish between costs directed at critical areas generating added value and those that do so to a lesser extent or even not at all.

Therefore, it is vital to customize a cost-reduction operation for any given business. This is why at EffCo, we consistently perform a “Cost Savings Scan” considering our customers’ strategic priorities, culture, and objectives. In doing so, we apply several unwavering principles:

– Reduce costs at the very source

– Considering the possibilities of cross-departmental implications and effects on customer experience

– Targets formulated on the foundation of solid analytics

– Articulating ambitious but attainable goals

– Ensuring accountability of all C-levels and key people involved

A solid cost reduction approach is founded on the following six steps:

1. Thorough analysis of company-wide potency based on P&L

2. Aligning the potential with corporate goals in conjunction with buy-in from leaders.

3. Identifying appropriate tools: benchmarking, interviews, Activity-based optimizations, 

4. Preparing a detailed plan, including a savings realization timetable.

It is also vital during the scan to apply the Pareto rule since, in most companies, 80% of the results are generated by 20% of the efforts. An important rule during the scan is to consider ROI and business impact in addition to the cost.

Questions that should be asked are:

– Is this cost required?

– Is this cost incurred in the right place at the appropriate time?

– Are all those management meetings needed?

– Is our management structure adjusted to be as cost-efficient as possible?


5. Implementation

6. Sustaining