Cost reduction
Ten essential tips for cutting business costs
Ninety per cent of businesses have run a cost reduction program. Three quarters missed their target. These are the habits the ones that worked had in common.
The odds
Most programs miss.
From a survey of C-suite executives, cited in The Agile Cost Advantage.
90%
had attempted a cost reduction program
75%
failed to meet their targets
44%
missed them by more than half
Why we went back over them
Cost programs can deliver a powerful mix of financial, strategic and organisational benefits. The failure rates are also very high: in a survey of C-suite executives, 90 per cent of businesses had attempted one, three quarters missed their targets, and 44 per cent missed by more than half.
We have spent more than twenty years supporting businesses through these programs. Some come to us having already run one that did not deliver what they hoped. Others come after engaging a better known competitor and receiving a large bill and a disappointing outcome.
So we went back over the work and asked what separated the programs that landed from the ones that did not. The successful ones had a set of features in common, drawn together here and set out in full in The Agile Cost Advantage.
The ten
01
Create a burning platform
Cost work is hard and changes how people do their jobs. If you are asking a management team to come with you, they need to understand why. Sometimes that is an existential threat to revenue, sometimes it is funding the next phase of growth. Say which it is at the start.
02
Set a target
A target reinforces the case and sets the expectation. A bad target is worse than none: if it is arbitrary and unreachable, people disengage early. Benchmark the main categories first so the number is a stretch you can defend.
03
Find the ideas as a team
Programs run out of the finance function alone, or handed to consultants, miss the obvious. Your own people know where the waste is. Involving them widens the list and brings them onto the program at the same time.
04
Build early momentum
Prioritise the list on value against speed, and fast-track anything that can land quickly. Early savings prove the process works and often fund the temporary resource needed to unlock the harder initiatives.
05
Write a plan for each initiative
Ideas that never become plans slip to the bottom of a long list. A plan with milestones and dates forces the team to think through the practicalities, and surfaces resourcing conflicts while they can still be traded off.
06
Forecast the savings
Estimate the benefit and the timing for each initiative, then total them. That tells you how close the program sits to its target, and gives you the baseline to compare actuals against later.
07
Track delivery
Every initiative goes into one tracking tool, with milestones and benefits monitored on a regular cycle. The point is early visibility: you can act while a shortfall is still small, or stop and reallocate.
08
Adapt as you go
Not every idea survives contact with the business. What matters is how quickly you replace it. If the rest of the program is running ahead, you can write one off. If not, you need new initiatives to fill the gap.
09
Mark the wins
Cost programs are not known for being enjoyable, and they need everyone on board. Calling out early wins marks progress and keeps the effort collective rather than imposed.
10
Review it afterwards
Being good at cost reduction is a capability worth having. At the end of the program, or of a phase, run a review with the participants and carry what you learn into the next transformation.
Where to start
If you are about to begin, the first two on the list are the ones that decide the rest. A clear reason for doing this, and a target that is ambitious without being fictional, will carry a program further than any amount of analysis.
The full framework, including the tools for finding opportunities and the tracking we use through delivery, is set out in The Agile Cost Advantage alongside.
Capability
Our cost and margin capabilities.
Most of our implementation work starts with a conversation about the initiatives already on the list, and which of them genuinely move the number.