Strategic cost reduction program

The starting point of strategic cost reduction is to realize the need for change. It is all about creating a sense of urgency to win in the age of disruption. Out of many key performance indicators, cost (revenue, expenses, margin) provides the best quantitative objective to start an open, honest, and convincing dialogue about what’s happening in the company, the competition, and the marketplace. One of the most common errors in successful organizational change is underestimating the power of vision, and the strategic cost reduction dialogue builds the foundation of sustainable transformation. Through my experience in developing many transformation roadmaps, cost challenge falls under the following three categories; 1-Efficiency gap – Not meeting the budget The gap between the company’s target performance, or budget, and its actual performance is the efficiency gap. This situation poses a serious challenge, where the company is not meeting its internal standards and commitments to the stakeholders. This requires a deep analysis of the variance by areas, types, and root causes to develop a course of action.  2-Competitiveness gap – Behind the competition Even if a company is meeting its internal standards, its success depends on its competitiveness in the market. Therefore, it is essential to understand the market position and conduct competitor analysis to constantly stay updated with the products, cost, and market opportunities. Although this analysis is quite challenging due to the ready availability of data, it is an important exercise to understand key competitors, product features, market share, pricing, differentiation, and customer reviews. This information is often available through financial reports, press releases, industry events, and other means. Based on this analysis, a comprehensive plan must be developed to achieve cost leadership.  3- Innovation gap – Unleashing the full potential Sometimes, cost leadership is not good enough, and the company must innovate. As technology is drastically changing, companies must understand the innovation potential and harness the power of creativity. This area is particularly tricky as companies need to see beyond the foreseeable future. Examples of Kodak, Blockbuster, Blackberry, and many provide us great insights into how market leaders became laggards by not paying attention to the product and business model innovation. To understand the innovation gap, look at your guiding purpose, winning capabilities, and the market opportunities and develop a bold aspiration for the future. Then, based on this vision, embark on the innovation journey by generating ideas, screening, experimenting, commercializing, and finally fully implementing the innovation.  So, start to understand the cost challenge and leverage this opportunity to rally the organization to embark on the strategic transformation journey. 

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