More Information: https://flevy.com/browse/flevypro/strategic-cost-reduction-primer-3741 Cost Optimization Programs are hard to manage, sustain, and often tend to fall short of delivering the promised value. The failure could be attributed to many reasons — including lack of clearly delineated objectives, failure to account for the operational difficulties, internal resistance to change, trying to cut corners from everywhere, not paying attention to planning optimal utilization of resources; lack of direction, accountability, and management agreement. However, the tremendous pace of technological disruption, today, offers new opportunities to transform enterprises by eliminating complexities, transforming the strategy and cost disciplines, streamlining operational capabilities, and consistently innovating. While transforming the organizational cost bases, leadership should focus on value rather than costs. Cost optimization plans need to consider achieving the more strategic, long-term options. These long-term options include pulling out from unworkable markets, business model innovation, robotic automation, or streamlining processes. These cost initiatives necessitate revisiting the strategy, costs, and, the way they align. A robust 5-phased cost optimization framework helps businesses sustain competitive relevance and maximize their potential. These steps provide a more informed, systematic, and sustainable approach to Strategic Cost Reduction: Start with the Corporate Strategy Align Costs to Strategy Be Transformational and Aspirational Demonstrate Leadership Support Create a Culture of Cost Management Got a question about this presentation? Email us at support@flevy.com.

1. 1/17/2021 Strategic Cost Reduction Primer: A Systematic Approach to Transforming Organizational Cost Bases | by Mark Bridges | Medium
https://mark-bridges.medium.com/strategic-cost-reduction-primer-a-systematic-approach-to-transforming-organizational-cost-bases-a989fd13cf56 1/6
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Strategic Cost Reduction Primer: A Systematic
Approach to Transforming Organizational Cost
Bases
Mark Bridges Apr 3, 2019 · 5 min read
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2. 1/17/2021 Strategic Cost Reduction Primer: A Systematic Approach to Transforming Organizational Cost Bases | by Mark Bridges | Medium
https://mark-bridges.medium.com/strategic-cost-reduction-primer-a-systematic-approach-to-transforming-organizational-cost-bases-a989fd13cf56 2/6
Cost Optimization Programs are hard to manage, sustain, and often tend to fall short of
delivering the promised value. The failure could be attributed to many reasons —
including lack of clearly delineated objectives, failure to account for the operational
difficulties, internal resistance to change, trying to cut corners from everywhere, not
paying attention to planning optimal utilization of resources; lack of direction,
accountability, and management agreement.
However, the tremendous pace of technological disruption, today, offers new
opportunities to transform enterprises by eliminating complexities, transforming the
strategy and cost disciplines, streamlining operational capabilities, and consistently
innovating.
While transforming the organizational cost bases, leadership should focus on value
rather than costs. Cost optimization plans need to consider achieving the more strategic,
long-term options. These long-term options include pulling out from unworkable
markets, business model innovation, robotic automation, or streamlining processes.
These cost initiatives necessitate revisiting the strategy, costs, and, the way they align.
A robust 5-phased cost optimization framework helps businesses sustain competitive
relevance and maximize their potential. These steps provide a more informed,
systematic, and sustainable approach to Strategic Cost Reduction:
1. Start with the Corporate Strategy
2. Align Costs to Strategy
3. Be Transformational and Aspirational
4. Demonstrate Leadership Support
5. Create a Culture of Cost Management
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3. 1/17/2021 Strategic Cost Reduction Primer: A Systematic Approach to Transforming Organizational Cost Bases | by Mark Bridges | Medium
https://mark-bridges.medium.com/strategic-cost-reduction-primer-a-systematic-approach-to-transforming-organizational-cost-bases-a989fd13cf56 3/6
Let’s talk about the first 3 phases in detail.
Start with the Corporate Strategy
The first phase emphasizes on having a clear view of the Corporate Strategy and ensure
that it is consistently understood across the organization. The commencement of
strategic cost reduction endeavor demands developing a thorough understanding of the
business strategy, operating model, and the investment on and revenues from the
operations.
The phase encompasses examining the expenditures and revenues of the business,
evaluating the sustainability of the existing ventures; and contemplating the effects of
disruption, changing customer needs, and competition from startups. There is also a
need to comprehend the interfaces between different units and their associated costs,
instead of merely utilizing industry benchmarks to gauge the viability of costs.
Align Costs to Strategy
The second phase signifies differentiating the strategically critical good costs from the
non-essential bad costs. It involves segregating the good costs from the bad costs
(avoidable expenditures), making informed decisions to improve the good costs, clearly
articulating the current skill inventory and knowing the few critical competencies
crucial to meet customer expectations and remain profitable.
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4. 1/17/2021 Strategic Cost Reduction Primer: A Systematic Approach to Transforming Organizational Cost Bases | by Mark Bridges | Medium
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The phase demands distinguishing high-value priorities for investments, directing
investments on creating winning capabilities, and developing plans to minimize bad
costs. This can be done by undertaking organization-wide cost analysis to understand
the type of projects being executed, their value, the expenditure critical to run the
business, the transformation and automation opportunities, and how to realize the
potential for improved savings.
Demonstrate Leadership Support
The next phase of the strategic cost reduction approach requires from the senior
management to set the strategic direction and demonstrate Leadership support and buy-
in. Leaders should treat the cost optimization program as a strategic business
transformation initiative. They need to assign dedicated resources to the endeavor,
guide teams, devote time, set governance and oversight mechanisms, and engage
employees across the organization. It is critical for the leaders to develop ways to
encourage organization-wide sense of ownership and partnership.
Interested in learning more about how to implement Strategic Cost Reduction? You can
download an editable PowerPoint on Strategic Cost Reduction Primer here on the Flevy
documents marketplace.
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Cost Optimization Cost Analysis Corporate Strategy Transformation
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