Undoubtedly, continual cost and productivity improvement is the fundamental recipe of any firm’s success. Analysis by Bain & Company shows that top performers in total shareholder return focus on cost, not just revenue growth, no matter which phase of the economic cycle. How to cut fat and not organizational muscle? Read more. 

 

1. Be Like the Owner

 

Grounding transformation in an owner-activist mindset raises the odds of producing sustainable results. Owner activists consider costs selectively, with an eye to which areas of cost advance their firm’s competitive advantage. 

 

2. Every Dollar is not Equal

 

For an accelerated transformation, senior management must understand how their company makes money today and how this will change in the future—and therefore invest selectively. 

 

3. Develop a Future Back View 

 

Projecting the future state of the market, and the company’s desired position in that market, prompts a very different approach. With a future-back view, external benchmarks must be combined with other determinations of cost, notably what activities should cost given their role in the company’s strategy.

 

4. Rethink & Reengineer 

 

To permanently reduce costs, managers often need to change how work gets done. This could involve a range of measures: eliminating unnecessary or merely nice-to-have activities, reducing service levels where appropriate, automating low-value activities through digital processes, bundling and shifting volume to the best-value suppliers, and controlling internal demand for services.

5. Swift Action 

 

Time is a precious currency. It can take months to identify, prove and build out the right transformation initiatives, especially those that require changes to IT systems—and competitors are not standing still. Owner activists know the virtues of moving quickly. They test promising new ideas, assess them in short order and scale them up or kill them quickly depending on the early results.

 

6. Culture Change 

 

Taking a clean-sheet or zero-based approach to resource planning, with a true understanding of the cost of complexity, allows the senior team to challenge conventional thinking here. 

 

Once a company lands back on its feet through an accelerated transformation, it will have better financials and a war chest to fund investments for an even broader transformation agenda.