In order to achieve successful, lasting and effective cost reduction, a company should begin by building a strong foundation. An important component of this base is emphasizing accountability for cost drivers. This is achieved by completing an analysis of operating activities, and subsequently linking these directly with financial plans, thereby improving transparency. Accountability increases and it is easier to measure the success of cost reduction activities.
The strong foundation includes a reduction of discretionary spend, and thorough analysis of third-party spend. The latter will ensure that, in addition to cost reduction, maximum value is achieved for current levels of spend through sound consistent business agreements. For the foundation to be completed, the company must be aware that everyday business choices directly impact costs. This will drive more accountability for everyday decisions and keep the costs from creeping back in the future.To achieve sustainable cost reductions, companies must execute a strategy that integrates transparent management information and accountability. By focusing on cost reduction and cost management and control processes in parallel, organizations can set the stage for, and perhaps self-fund, more transformational activities.