Video
When done right, an accelerated transformation can spur cost reduction and improve the organization's overall culture. Simon Henderson, a partner with Bain's Performance Improvement practice, discusses how to cut costs strategically and position your business for future growth.
Read the Bain Brief: With High Stakes, Accelerate the Transformation
Read the transcript below.
SIMON HENDERSON: Scorched-earth cost reduction is back in fashion, either for companies looking to hit earnings targets, or for ways to fund growth, or even just to survive. But all too often, these cost approaches are clumsy, and the way they're implemented in the organization actually risks the organization and prevents it from being able to drive growth going forward. For example, all functions are treated roughly equally, and the top-down use of benchmarks clumsily can actually drive cutting muscle, not just fat. And in addition, the way targets are set and imposed on the organization can actually rob management of accountability to drive those changes.
The right way to drive an accelerated transformation through the organization—that is, an organization-wide effort to deliver cash benefits and revenue upside—relies on a couple of key principles. First, you've got to act like an owner. This means you've got to be thinking about long-term value creation, not just the short-term cost target.
Second, it's important to apply a strategic lens to cost-cutting, really understand how the business makes money, and focus disproportionately on those areas the business will continue to need to thrive. Third, it's essential to think future-back. Think about the market and the organization and the customer in the future, and therefore use that as a catalyst to drive much more significant change in the organization.
Using these three principles actually helps to drive cost-reduction in a much more accelerated way. But how you drive that change is just as important. For example, making sure these changes are line-owned, line-led. That is, people in the front line trained-up in their day job, driving costs out of the business, because, guess what? That will mean they continue to drive productivity gains going forward, instead of treating this like some short-term project.
The second thing that's really important, as you think about the how, is actually driving tracking and accountability through the organization, but in a way that's incredibly simple—ideally, actually, it's automated. So as a CEO, a CFO, you can see the results on your desktop every day, without the need for hundreds of slides and hundreds of texts. Just something you can track as you stand at the lift every morning waiting to get up into your office.
So with these simple things, you can actually drive an improved culture through the organization as you drive cost out. You end up with a leaner, better business that's built the muscles for future profitable growth.
Read the Bain Brief: With High Stakes, Accelerate the Transformation