For senior executives and owners
Cost reduction that holds
A four stage framework for taking cost out and keeping it out, drawn from twenty years of performance improvement work with companies, private equity funds and their portfolio companies.
- The four stages, and what has to be finished before the next one starts
- Six ways to find cost opportunities, and how to prioritise what you find
- Why most programs miss, and the four failures that precede it
PDF, 17 pages. No sales call, and your details are not passed on.
As featured in
- Forbes
- Financial Review
- Expert360
- Clutch
- Eloquens
Why they miss
Most cost programs do not hit their target
In a survey of C-suite executives, almost every business had run one. Very few finished where they said they would.
90%
had attempted a cost reduction program.
75%
failed to meet their targets.
44%
missed them by more than half.
Survey of C-suite executives, cited in the report. Source: Bain & Company.
The four failures behind a miss
Unrealistic targets
An arbitrary number sets the program up to fail. Too modest and it does not go far enough. Too steep, on a cost base that is largely contracted or structurally fixed, and motivation goes early.
Cuts go too deep
Large savings in a short window mean headcount comes out before the work does. Staff are stretched, service slips, and the saving is unwound within a year or two.
Execution
Transformation failure rates in large organisations are put at between 50 and 90 per cent. The usual roots are stakeholders out of step, unclear planning, and no honest tracking of delivery.
Loss of momentum
After the launch, the initiatives get harder. A common trigger is the consultants leaving without a proper handover to the internal team.
The framework
Four stages, run in order
Stage 1
Set targets
Break the cost base down by type and division, then set a target for each on how compressible it actually is.
- Top-down requirement
- High level cost mapping
- External benchmarking
Stage 2
Identify opportunities
Find as many as you can, then prioritise them on value against speed to deliver.
- Driver-based analysis
- Value chain mapping
- Spans and layers, RACI
Stage 3
Design initiatives
Validate the assumption, then a business case and a plan for each. Quick wins are fast-tracked and fund the rest.
- Opportunity validation
- Business cases
- Initiative plans
Stage 4
Deliver initiatives
Track the milestones and the money. Some initiatives will slip; the point is to see it early enough to act.
- Initiative tracking
- Financial tracking tool
- Mitigating actions
Underneath all four
The Value Delivery Framework: objectives and financial targets, the program plan, and the tracking system, with governance that keeps senior executives actively overseeing the design and the delivery rather than receiving a monthly update on it.
Stage two, in detail
Six ways to find the cost
Most of what is left in a lean business is hidden behind complex processes and how the operation is configured, not sitting on the payroll.
Benchmarking
Key metrics and ratios, such as rates or spend per full-time employee, against best practice.
Driver-based analysis
The relationship between a cost and the outcome it buys, taken as far as zero-based budgeting where it is warranted.
Process mapping
Unnecessary complexity along the value chain, and what could be automated or moved out.
Spans and layers
The shape of the hierarchy, and the reporting layers that have accumulated inside it.
RACI mapping
Duplication in who decides what, which is usually where decision speed has gone.
Our opportunity repository
A repository of cost reduction opportunities by sector and functional area, built up over twenty years of engagements.
The report
Seventeen pages you can work from.
The framework in full, with the tools for each stage and what goes wrong when a stage is skipped. Written for the team that has to run it.
It opens on why programs fail, including two worked examples of cuts that cost more than they saved, one of them a branch closure program that lost more revenue than cost.
Then the four stages, each with the analysis behind it, the prioritisation matrix, and the planning artefacts a good initiative carries.
It closes on delivery: the tracking that catches a slipping initiative early, and the governance that keeps the program owned inside the business.
From the engagements
Three programs in the report
We run smaller, more senior teams and hand the delivery to the management team, which is where the ownership has to sit.
Financial services
34%
Outperformance against the market index over the nine months after the program began. Eight workstreams and more than 100 initiatives, including 24 near-term quick wins worth over $15m in initial profit impact.
Fertilisers and chemicals
$30m
Of cost eliminated by rationalising manufacturing facilities and supply points. More than 100 initiatives across five functions. The management team went on to exceed market expectations.
Construction materials
EVA positive
Across the cycle, the goal set after a period of lost market share. Cost drivers assessed across the whole value chain, with short and long term measures and implementation support.
The Agile Cost Advantage
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