I have previously posted some perspectives about the ineffectiveness of many cost cutting programs. Many organizations fail to realize that, in order to be sustainable, cost reductions need to be planned and they need to be aligned with company strategy. Willy-nilly cost cuts will not last and they threaten the very core of an organization.
In a recent white paper, three McKinsey & Company associates take a hard look at what it takes to make meaningful and sustainable cost reductions. In part, they write, "Why is it so difficult to make cost cuts stick? In most cases, it’s because reduction programs don’t address the true drivers of costs or are simply too difficult to maintain over time. Sometimes, managers lack deep enough insight into their own operations to set useful cost reduction targets. In the midst of a crisis, they look for easily available benchmarks, such as what similar companies have accomplished, rather than taking the time to conduct a bottom-up examination of which costs can—and should—be cut. In other cases, individual business unit heads try to meet targets with draconian measures that are unrealistic over the long term, such as across-the-board cuts that don’t differentiate between those that add value or destroy it. In still others, managers use inaccurate or incomplete data to track costs, thus missing important opportunities and confounding efforts to ensure accountability."
The entire white paper, "Five Ways CFOs Can Make Cost Cuts Stick", is available in our resource library. Click here to go there.
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