Certainly, all controllers support the elimination of waste and the implementation of best practices. Key point: When these measures are in place, employees are bet-ter able to use their natural problem-solving abilities to cut costs and work more effectively.
Even so, top management has to clarify how these cost-reduction efforts fit with the company’s strategy. Cost cutting that occurs without reference to an over-all strategy feels like torture to employees. Yes, they are happy to have jobs as their companies, say, downsize. If they do not know where the cost cutting is headed, though, they may consider cost reduction a mere tactic to pile more work on their desks, with top management lacking a real vision for converting spending and costs into business growth.
Writing for the Harvard Management Update, Bain consultant Vernon Altman described the importance of strategic cost cutting as follows:
Managers have to address two critical questions. What is the urgent situation that requires reducing costs? How will the company use cost discipline to build momentum for growth? A company’s leaders must make their reasons clear, communicating them over and over, so as to create a collective will for tackling the issues.
It has been emphasized that the payback for helping employees work more efficiently is enormous. Altman observed: “The basic insight is that a company that manages to lift the efficiency of its employees from 65% to 70% gets a 5% improvement in productivity. In terms of cost-discipline, that is huge.”
