Are You Addicted toCost Cutting?

Competition – Technology – Change - Customer• We reside in a state of flux• Forces out there drive us to be better – more efficient,

more profitable, more customer-centric, better corporate citizen, better rating by investors• We continue to strive to better ourselves• It is a journey and we need to keep moving

How are companies managing costs?

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Cost Cutting• Part of life• Seen as a logical consequence of

macroeconomic factors• It helps the business bottom line in the

short run

• We do not cut costs because we feel we had been reckless in spending it. But that means, cutting costs would lead to projects getting starved and growth drying up

Consequences of Cost Cutting• Heads roll• It hampers the core activities• It is not possible to keep the costs low• Since most firms cut costs when in dire straits, they

make lousy decisions• Companies suffer in the long run

And Yet...• The ability to keep cost low is a competitive

advantage• Some companies are able to do it effectively and

sustainably

• Ad hoc• Cost cutting hurts• Not sustainable• Win-lose situation• Never welcomed• Shows lack of preparation and inadequacy• Hurts the business

Cost Cutting Versus Strategic Cost Management

• Aligned to overall corporate objectives• Proactive• Sustainable• Win-win situation• Helps the business

• Traditional procurement is based on lowest price• Strategic cost management is based on best solution• Cost management based on total cost values• The business becomes more productive, where they

spend less and get more done• Therefore, more cash flow

Strategic Cost Management

• Put a process in place before you need it• Cross functional team• Proper scale for comparison• Get the buy-in of the front-line• It is a change in mindset – a culture that needs

nurturing

Strategic Cost Management

Costs are a consequence of what you do, so don’t let them control you – it should be the other way around.

• We do not believe in cost cutting

How ERA works

Analysis Opportunity

Implement Review

Moving Forward• Break out of the traditional• Take a step back, consider

activities and how costs are incurred

• Consider the processes• Analyse them• Simplify/Uncomplicate them