Results of a survey I participated in at the beginning of the year around business improvement groups. An opportunity to break away from the competition during hard times !
Who is increasingly instrumental in helping CEOs and Boards make high-impact decisions – the choices and trade-offs that build or destroy enterprise value? CFOs.
Based on input from more than 1,900 CFOs and senior Finance leaders worldwide, the IBM Global CFO Study indicates that the demands on CFOs are rising and extend well beyond traditional financial control and supervision.
But in a constantly changing environment, how can CFOs provide their enterprises with a competitive edge? How can they help the business make not just faster but smarter decisions?
In the 2010 study, one group of Finance organizations – called Value Integrators – consistently outperforms their peers. They are not only more effective, but their enterprises also perform better financially.
Their secret? Driving a combination of two key capabilities – Finance efficiency and business insight – across their organizations. Although study results show that each capability provides important benefits, the highest performers excel at both.
Read the study to learn more about this multiplier effect and how to create it within your own organization.
Results of a survey I participated in at the beginning of the year around business improvement groups. An opportunity to break away from the competition during hard times !
Who is increasingly instrumental in helping CEOs and Boards make high-impact decisions – the choices and trade-offs that build or destroy enterprise value? CFOs.
Based on input from more than 1,900 CFOs and senior Finance leaders worldwide, the IBM Global CFO Study indicates that the demands on CFOs are rising and extend well beyond traditional financial control and supervision.
But in a constantly changing environment, how can CFOs provide their enterprises with a competitive edge? How can they help the business make not just faster but smarter decisions?
In the 2010 study, one group of Finance organizations – called Value Integrators – consistently outperforms their peers. They are not only more effective, but their enterprises also perform better financially.
Their secret? Driving a combination of two key capabilities – Finance efficiency and business insight – across their organizations. Although study results show that each capability provides important benefits, the highest performers excel at both.
Read the study to learn more about this multiplier effect and how to create it within your own organization.
For many organisations there is an ever-increasing need to reduce cost.
Still, it’s as important as ever not to overreact. Failure to understand the impact of choices made now will squander an opportunity to add real value. It will also risk inflicting lasting damage that will make recovery needlessly difficult, and all amid a crisis of unknown duration.
This e-book from Hudson&Hayes provides a pragmatic approach to optimising operational costs in times of radical change and uncertainty. Amid the unusual conditions created by COVID-19, this approach is especially valuable.
For further information, please visit https://www.hudsonandhayes.co.uk/pragmaticcostreduction
LearningObjectivesAfter studying Chapter 12, you will be .docxcroysierkathey
LearningObjectives
After studying Chapter 12, you will be able to:
Explain relationships among the costs of quality categories.
Understand the concepts of target costing and kaizen costing.
Distinguish between value-added and nonvalue-added activities.
Describe various types of non�inancial performance measures.
Identify non�inancial performance measures for multinational companies.
Comprehend the elements of a balanced scorecard.
Describe benchmarking techniques to improve productivity and quality.
12 Costs of Quality and Other Cost ManagementIssues
jacoblund/iStock/Thinkstock
Explain strategies to enhance productivity such as downsizing and business process
reengineering.
TQMandtheNeedtoMeasureQualityCosts
Pete Moss, considered the ace troubleshooter for DeKalb Fertilizer Company, was sent to its Georgia regional
of�ice by “Big Dan” DeLion, president of DeKalb, about 15 months ago. What he found was “big trouble.” The
region was losing about $400,000 per month—mostly from waste, low productivity, and customer warranty
claims. Revenues were declining, and too many customers were unhappy. This was Spring 2018, long after
Total Quality Management (TQM) was a cliché and a norm in most �irms. Yes, DeKalb had a TQM program that
“Big Dan” had announced in late 2019. Signs had been posted about quality being “No. 1.” A consulting �irm
had conducted seminars for workers, statistical control charts were maintained, and managers had
increased inspections. Faster response to warranty claims had been implemented through a costly system to
guarantee a 24-hour response to any customer problem.
Yet, productivity declined, scrap was up, and warranty costs soared. Workers saw the TQM program as a
management project. Managers blamed much of the problem on the lack of union cooperation and of
employee concern. No speci�ic quality goals were set. Everyone lacked a sense of urgency. Pete’s arrival
brought a sudden change: meetings with line workers quickly pointed to key production problems, warranty
claims were grouped to identify failure causes, landscape designers and on-site supervisors were brought
together to analyze failures, and certain changes were made “overnight.” A goal of cutting scrap by 50% in
three months was set.
At every step, the same question came up: “What’s this costing us?” Pete, knowing that this question was key
at other plants, sought out Rose Bush, the plant cost accountant. Rose was in the middle of an ABC study and
had begun to de�ine new activity centers and cost drivers. While not an easy task, Rose was able to modify
her system rather quickly to identify quality costs: which, where, and how much. Pete and Rose became allies,
promoting each other’s views to managers and employees alike. Within two months, Rose gave Pete a 2019
costs of quality analysis. These costs totaled a surprising 15% of revenues. Of this, little was spent on
prevention, about 30% was spent on appraisal, nearly 45% went to �ixing internal fai ...
Competing to Win in the Media & Entertainment IndustryCognizant
To outperform in tough times, media and entertainment companies must rejuvenate their business, operating and technology models by jettisoning nonvalue- adding activities and reinforcing core strengths that provide sustainable growth, despite funding challenges.
Closing Complexity and Integration GapsDean Sorensen
Research estimates the cost of complexity at up to five percent of sales for global organizations. What’s more, most executives view internal complexities as a key barrier to growth – one that needs to be better managed. By extension, complexity management is a challenge that’s becoming of similar importance to Finance executives – especially those in treasury and financial planning and analysis (FP&A) roles.
One major obstacle stands in the way of more effective complexity management: the processes and structures that organizations use to plan, manage and govern their business. More specifically, immature and outdated ones that obscure risk, rein-force functional silos, suboptimize resource allocation and impede change. The underlying problem: inadequate integration
By Alex Baum, David F. Larcker, Brian Tayan, and Jacob Welch
Stanford Closer Look Series, October 9, 2017
Board members rely on information provided by management to inform their decisions. Unfortunately, some research calls into question the adequacy of the information the board members receive and, by extension, the quality of decisions they are able to make. Based on observations by ValueAct Capital, this Closer Look examines shortcomings that plague corporate board books and provides recommendations for remedying them.
We ask:
• In general, what is the quality of information that public company directors receive?
• What can board members do to improve information quality and presentation?
• What are the institutional impediments standing in the way improving board books?
Enhancement in NDT inspection for operational effectiveness, efficiency and e...Innerspec Technologies
We intend to show that any change shall be linked, not only to improvement, but also to immediate cost reduction so that all management structure can conceive quick implementation as
part of its department strategy & enhancement in their budget cost.
For that, concepts such as effectiveness, efficiency and excellence must be approached. We will give clear saving cost ways which will follow the terminology.
In Financial terms and without a deep analysis, we can conrm cost savings above 30% from current prices are achieved.
La empresa de congelados gallega ha confiado en Expense Reduction Analysts para guiarle en un proceso
de optimización de costes que está logrando resultados muy positivos
For many organisations there is an ever-increasing need to reduce cost.
Still, it’s as important as ever not to overreact. Failure to understand the impact of choices made now will squander an opportunity to add real value. It will also risk inflicting lasting damage that will make recovery needlessly difficult, and all amid a crisis of unknown duration.
This e-book from Hudson&Hayes provides a pragmatic approach to optimising operational costs in times of radical change and uncertainty. Amid the unusual conditions created by COVID-19, this approach is especially valuable.
For further information, please visit https://www.hudsonandhayes.co.uk/pragmaticcostreduction
LearningObjectivesAfter studying Chapter 12, you will be .docxcroysierkathey
LearningObjectives
After studying Chapter 12, you will be able to:
Explain relationships among the costs of quality categories.
Understand the concepts of target costing and kaizen costing.
Distinguish between value-added and nonvalue-added activities.
Describe various types of non�inancial performance measures.
Identify non�inancial performance measures for multinational companies.
Comprehend the elements of a balanced scorecard.
Describe benchmarking techniques to improve productivity and quality.
12 Costs of Quality and Other Cost ManagementIssues
jacoblund/iStock/Thinkstock
Explain strategies to enhance productivity such as downsizing and business process
reengineering.
TQMandtheNeedtoMeasureQualityCosts
Pete Moss, considered the ace troubleshooter for DeKalb Fertilizer Company, was sent to its Georgia regional
of�ice by “Big Dan” DeLion, president of DeKalb, about 15 months ago. What he found was “big trouble.” The
region was losing about $400,000 per month—mostly from waste, low productivity, and customer warranty
claims. Revenues were declining, and too many customers were unhappy. This was Spring 2018, long after
Total Quality Management (TQM) was a cliché and a norm in most �irms. Yes, DeKalb had a TQM program that
“Big Dan” had announced in late 2019. Signs had been posted about quality being “No. 1.” A consulting �irm
had conducted seminars for workers, statistical control charts were maintained, and managers had
increased inspections. Faster response to warranty claims had been implemented through a costly system to
guarantee a 24-hour response to any customer problem.
Yet, productivity declined, scrap was up, and warranty costs soared. Workers saw the TQM program as a
management project. Managers blamed much of the problem on the lack of union cooperation and of
employee concern. No speci�ic quality goals were set. Everyone lacked a sense of urgency. Pete’s arrival
brought a sudden change: meetings with line workers quickly pointed to key production problems, warranty
claims were grouped to identify failure causes, landscape designers and on-site supervisors were brought
together to analyze failures, and certain changes were made “overnight.” A goal of cutting scrap by 50% in
three months was set.
At every step, the same question came up: “What’s this costing us?” Pete, knowing that this question was key
at other plants, sought out Rose Bush, the plant cost accountant. Rose was in the middle of an ABC study and
had begun to de�ine new activity centers and cost drivers. While not an easy task, Rose was able to modify
her system rather quickly to identify quality costs: which, where, and how much. Pete and Rose became allies,
promoting each other’s views to managers and employees alike. Within two months, Rose gave Pete a 2019
costs of quality analysis. These costs totaled a surprising 15% of revenues. Of this, little was spent on
prevention, about 30% was spent on appraisal, nearly 45% went to �ixing internal fai ...
Competing to Win in the Media & Entertainment IndustryCognizant
To outperform in tough times, media and entertainment companies must rejuvenate their business, operating and technology models by jettisoning nonvalue- adding activities and reinforcing core strengths that provide sustainable growth, despite funding challenges.
Closing Complexity and Integration GapsDean Sorensen
Research estimates the cost of complexity at up to five percent of sales for global organizations. What’s more, most executives view internal complexities as a key barrier to growth – one that needs to be better managed. By extension, complexity management is a challenge that’s becoming of similar importance to Finance executives – especially those in treasury and financial planning and analysis (FP&A) roles.
One major obstacle stands in the way of more effective complexity management: the processes and structures that organizations use to plan, manage and govern their business. More specifically, immature and outdated ones that obscure risk, rein-force functional silos, suboptimize resource allocation and impede change. The underlying problem: inadequate integration
By Alex Baum, David F. Larcker, Brian Tayan, and Jacob Welch
Stanford Closer Look Series, October 9, 2017
Board members rely on information provided by management to inform their decisions. Unfortunately, some research calls into question the adequacy of the information the board members receive and, by extension, the quality of decisions they are able to make. Based on observations by ValueAct Capital, this Closer Look examines shortcomings that plague corporate board books and provides recommendations for remedying them.
We ask:
• In general, what is the quality of information that public company directors receive?
• What can board members do to improve information quality and presentation?
• What are the institutional impediments standing in the way improving board books?
Enhancement in NDT inspection for operational effectiveness, efficiency and e...Innerspec Technologies
We intend to show that any change shall be linked, not only to improvement, but also to immediate cost reduction so that all management structure can conceive quick implementation as
part of its department strategy & enhancement in their budget cost.
For that, concepts such as effectiveness, efficiency and excellence must be approached. We will give clear saving cost ways which will follow the terminology.
In Financial terms and without a deep analysis, we can conrm cost savings above 30% from current prices are achieved.
La empresa de congelados gallega ha confiado en Expense Reduction Analysts para guiarle en un proceso
de optimización de costes que está logrando resultados muy positivos
El ahorro de costes conduce a la obtención de beneficios.
Este es uno de los principales resultados de este estudio
que abarca a 281 empresas europeas. Particularmente, las
empresas de éxito usan este extra
financiero para mejorar su situación,
volviéndose más sostenibles en las
condiciones de competencia. Así, el
25% de las compañías líderes invierte
hasta un 46% más en su crecimiento
empresarial y hasta un 34% más en
I+D y marketing y ventas, frente al 25% de las compañías
menos exitosas.
El boom del e-commerce
y el desarrollo tecnológico
brindan un
sinfín de posibilidades al sector
retail y de distribución. Sin
embargo, también han multiplicado
exponencialmente las
necesidades. Las empresas
deben hacer fuertes inversiones
en tecnología, que deben
ser amortizadas rápidamente.
Lo que hoy es nuevo no lo
será mañana.
Expense Reduction Analysts Business Newsletter
En este numero hablamos de RSC y supply chain y casos de nuestros clientes: ABB (España) y DEBORAH (Italia). Igualmente, analizamos como enfocar la optimización de los costes bancarios.
Buena lectura!!
Cost Savings - Expense Reduction Analysts European Quarterly NewsletterManuel A. Velazquez
Cost Savings (Optimizando Costes) - Expense Reduction Analysts Quarterly Newsletter.
Insights and client testimonials on cost savings for mid-sized companies. In this number: how the Ukranian crisis will affect energy prices (electricity and gas) across Europe.
Como reducir los gastos generales en nuestras organizacionesManuel A. Velazquez
Documento elaborado por EXECYL (Fundación para la Excelencia Empresarial de Castilla y León) en colaboración Expense Reduction Analysts sobre estrategias para la reducción de gastos generales en empresas de todos los sectores.
Expense Reduction Analysts consigue un elevado
ahorro en las bodegas al optimizar la gestión
La empresa de análisis reduce costes al negociar con proveedores, mejorar
procedimientos y diversificar el riesgo
Los comercios españoles pagan un sobrecoste del 60% en comisiones de tarjetasManuel A. Velazquez
Expense Reduction Analysts ha estudiado los gastos financieros de las empresas españolas y este sobrecoste se reduciría con un cambio de procedimiento.
Buscamos personas que nos pongan en contacto con
Directores Financieros y Directores Generales de
medianas y grandes empresas, para desarrollar
proyectos de reducción de costes.
What is the TDS Return Filing Due Date for FY 2024-25.pdfseoforlegalpillers
It is crucial for the taxpayers to understand about the TDS Return Filing Due Date, so that they can fulfill your TDS obligations efficiently. Taxpayers can avoid penalties by sticking to the deadlines and by accurate filing of TDS. Timely filing of TDS will make sure about the availability of tax credits. You can also seek the professional guidance of experts like Legal Pillers for timely filing of the TDS Return.
Personal Brand Statement:
As an Army veteran dedicated to lifelong learning, I bring a disciplined, strategic mindset to my pursuits. I am constantly expanding my knowledge to innovate and lead effectively. My journey is driven by a commitment to excellence, and to make a meaningful impact in the world.
Cracking the Workplace Discipline Code Main.pptxWorkforce Group
Cultivating and maintaining discipline within teams is a critical differentiator for successful organisations.
Forward-thinking leaders and business managers understand the impact that discipline has on organisational success. A disciplined workforce operates with clarity, focus, and a shared understanding of expectations, ultimately driving better results, optimising productivity, and facilitating seamless collaboration.
Although discipline is not a one-size-fits-all approach, it can help create a work environment that encourages personal growth and accountability rather than solely relying on punitive measures.
In this deck, you will learn the significance of workplace discipline for organisational success. You’ll also learn
• Four (4) workplace discipline methods you should consider
• The best and most practical approach to implementing workplace discipline.
• Three (3) key tips to maintain a disciplined workplace.
Kseniya Leshchenko: Shared development support service model as the way to ma...Lviv Startup Club
Kseniya Leshchenko: Shared development support service model as the way to make small projects with small budgets profitable for the company (UA)
Kyiv PMDay 2024 Summer
Website – www.pmday.org
Youtube – https://www.youtube.com/startuplviv
FB – https://www.facebook.com/pmdayconference
What are the main advantages of using HR recruiter services.pdfHumanResourceDimensi1
HR recruiter services offer top talents to companies according to their specific needs. They handle all recruitment tasks from job posting to onboarding and help companies concentrate on their business growth. With their expertise and years of experience, they streamline the hiring process and save time and resources for the company.
Digital Transformation and IT Strategy Toolkit and TemplatesAurelien Domont, MBA
This Digital Transformation and IT Strategy Toolkit was created by ex-McKinsey, Deloitte and BCG Management Consultants, after more than 5,000 hours of work. It is considered the world's best & most comprehensive Digital Transformation and IT Strategy Toolkit. It includes all the Frameworks, Best Practices & Templates required to successfully undertake the Digital Transformation of your organization and define a robust IT Strategy.
Editable Toolkit to help you reuse our content: 700 Powerpoint slides | 35 Excel sheets | 84 minutes of Video training
This PowerPoint presentation is only a small preview of our Toolkits. For more details, visit www.domontconsulting.com
Tata Group Dials Taiwan for Its Chipmaking Ambition in Gujarat’s DholeraAvirahi City Dholera
The Tata Group, a titan of Indian industry, is making waves with its advanced talks with Taiwanese chipmakers Powerchip Semiconductor Manufacturing Corporation (PSMC) and UMC Group. The goal? Establishing a cutting-edge semiconductor fabrication unit (fab) in Dholera, Gujarat. This isn’t just any project; it’s a potential game changer for India’s chipmaking aspirations and a boon for investors seeking promising residential projects in dholera sir.
Visit : https://www.avirahi.com/blog/tata-group-dials-taiwan-for-its-chipmaking-ambition-in-gujarats-dholera/
Enterprise Excellence is Inclusive Excellence.pdfKaiNexus
Enterprise excellence and inclusive excellence are closely linked, and real-world challenges have shown that both are essential to the success of any organization. To achieve enterprise excellence, organizations must focus on improving their operations and processes while creating an inclusive environment that engages everyone. In this interactive session, the facilitator will highlight commonly established business practices and how they limit our ability to engage everyone every day. More importantly, though, participants will likely gain increased awareness of what we can do differently to maximize enterprise excellence through deliberate inclusion.
What is Enterprise Excellence?
Enterprise Excellence is a holistic approach that's aimed at achieving world-class performance across all aspects of the organization.
What might I learn?
A way to engage all in creating Inclusive Excellence. Lessons from the US military and their parallels to the story of Harry Potter. How belt systems and CI teams can destroy inclusive practices. How leadership language invites people to the party. There are three things leaders can do to engage everyone every day: maximizing psychological safety to create environments where folks learn, contribute, and challenge the status quo.
Who might benefit? Anyone and everyone leading folks from the shop floor to top floor.
Dr. William Harvey is a seasoned Operations Leader with extensive experience in chemical processing, manufacturing, and operations management. At Michelman, he currently oversees multiple sites, leading teams in strategic planning and coaching/practicing continuous improvement. William is set to start his eighth year of teaching at the University of Cincinnati where he teaches marketing, finance, and management. William holds various certifications in change management, quality, leadership, operational excellence, team building, and DiSC, among others.
VAT Registration Outlined In UAE: Benefits and Requirementsuae taxgpt
Vat Registration is a legal obligation for businesses meeting the threshold requirement, helping companies avoid fines and ramifications. Contact now!
https://viralsocialtrends.com/vat-registration-outlined-in-uae/
"𝑩𝑬𝑮𝑼𝑵 𝑾𝑰𝑻𝑯 𝑻𝑱 𝑰𝑺 𝑯𝑨𝑳𝑭 𝑫𝑶𝑵𝑬"
𝐓𝐉 𝐂𝐨𝐦𝐬 (𝐓𝐉 𝐂𝐨𝐦𝐦𝐮𝐧𝐢𝐜𝐚𝐭𝐢𝐨𝐧𝐬) is a professional event agency that includes experts in the event-organizing market in Vietnam, Korea, and ASEAN countries. We provide unlimited types of events from Music concerts, Fan meetings, and Culture festivals to Corporate events, Internal company events, Golf tournaments, MICE events, and Exhibitions.
𝐓𝐉 𝐂𝐨𝐦𝐬 provides unlimited package services including such as Event organizing, Event planning, Event production, Manpower, PR marketing, Design 2D/3D, VIP protocols, Interpreter agency, etc.
Sports events - Golf competitions/billiards competitions/company sports events: dynamic and challenging
⭐ 𝐅𝐞𝐚𝐭𝐮𝐫𝐞𝐝 𝐩𝐫𝐨𝐣𝐞𝐜𝐭𝐬:
➢ 2024 BAEKHYUN [Lonsdaleite] IN HO CHI MINH
➢ SUPER JUNIOR-L.S.S. THE SHOW : Th3ee Guys in HO CHI MINH
➢FreenBecky 1st Fan Meeting in Vietnam
➢CHILDREN ART EXHIBITION 2024: BEYOND BARRIERS
➢ WOW K-Music Festival 2023
➢ Winner [CROSS] Tour in HCM
➢ Super Show 9 in HCM with Super Junior
➢ HCMC - Gyeongsangbuk-do Culture and Tourism Festival
➢ Korean Vietnam Partnership - Fair with LG
➢ Korean President visits Samsung Electronics R&D Center
➢ Vietnam Food Expo with Lotte Wellfood
"𝐄𝐯𝐞𝐫𝐲 𝐞𝐯𝐞𝐧𝐭 𝐢𝐬 𝐚 𝐬𝐭𝐨𝐫𝐲, 𝐚 𝐬𝐩𝐞𝐜𝐢𝐚𝐥 𝐣𝐨𝐮𝐫𝐧𝐞𝐲. 𝐖𝐞 𝐚𝐥𝐰𝐚𝐲𝐬 𝐛𝐞𝐥𝐢𝐞𝐯𝐞 𝐭𝐡𝐚𝐭 𝐬𝐡𝐨𝐫𝐭𝐥𝐲 𝐲𝐨𝐮 𝐰𝐢𝐥𝐥 𝐛𝐞 𝐚 𝐩𝐚𝐫𝐭 𝐨𝐟 𝐨𝐮𝐫 𝐬𝐭𝐨𝐫𝐢𝐞𝐬."
Implicitly or explicitly all competing businesses employ a strategy to select a mix
of marketing resources. Formulating such competitive strategies fundamentally
involves recognizing relationships between elements of the marketing mix (e.g.,
price and product quality), as well as assessing competitive and market conditions
(i.e., industry structure in the language of economics).
Unveiling the Secrets How Does Generative AI Work.pdfSam H
At its core, generative artificial intelligence relies on the concept of generative models, which serve as engines that churn out entirely new data resembling their training data. It is like a sculptor who has studied so many forms found in nature and then uses this knowledge to create sculptures from his imagination that have never been seen before anywhere else. If taken to cyberspace, gans work almost the same way.
Unveiling the Secrets How Does Generative AI Work.pdf
5 ways CFOs can make cost cuts stick
1. 1
M AY 2 0 10
c o r p o r a t e f i n a n c e p r a c t i c e
Five ways CFOs can make cost
cuts stick
Successes in cost cutting erode with time. Here’s how
to make them last.
Ankur Agrawal, Olivia Nottebohm, and Andy West
str ategy
2. 2
Optimism is on the rise that a solid economic recovery is taking hold around the world,
but the cost cutting so prevalent during the recent recession looks to remain a strategic
priority for some time. Indeed, the number of executives reporting steps to reduce
operating costs in the next 12 months increased significantly between February and April,
even as confidence in the economy grew.1 Yet any successes companies have at cutting
costs during the downturn will erode with time. Many executives expect some proportion
of the costs cut during the recent recession to return within 12 to 18 months2—and prior
research found that only 10 percent of cost reduction programs show sustained results
three years later.3
On either schedule, any programs initiated in the early months of the downturn are
already beginning to fail—just as savings would be most useful to finance growth. Sales,
general, and administrative (SG&A) costs prove to be particularly intransigent. While
manufacturing efficiencies have enabled an average S&P 500 company to reduce the cost
of goods sold (COGS) by about 250 basis points over the past decade, SG&A costs have
remained at about the same level (Exhibit 1).
Why is it so difficult to make cost cuts stick? In most cases, it’s because reduction
programs don’t address the true drivers of costs or are simply too difficult to maintain
over time. Sometimes, managers lack deep enough insight into their own operations to
set useful cost reduction targets. In the midst of a crisis, they look for easily available
benchmarks, such as what similar companies have accomplished, rather than taking the
time to conduct a bottom-up examination of which costs can—and should—be cut. In other
cases, individual business unit heads try to meet targets with draconian measures that
are unrealistic over the long term, such as across-the-board cuts that don’t differentiate
between those that add value or destroy it. In still others, managers use inaccurate or
incomplete data to track costs, thus missing important opportunities and confounding
efforts to ensure accountability.
While there’s no single silver bullet to ensure that cost-management programs will
stick, large, multibusiness unit organizations can better their chances by improving
accountability, focusing on how they cut costs, drawing an explicit connection to strategy,
and treating cost reductions as an ongoing exercise.
1
Fifty-four percent of the executives surveyed in April indicated that they would take steps to reduce operating costs in the
next 12 months, compared with 47 percent in February. In April, two-thirds of the respondents rated economic conditions in
their countries as better than they had been six months previously, and another two-thirds expected further improvement
by the end of the first half of 2010. See “Economic Conditions Snapshot, April 2010: McKinsey Global Survey results,”
mckinseyquarterly.com, April 2010. The online survey (in the field from April 5, 2010, to April 9, 2010) received responses
from 2,059 executives representing the full range of industries, regions, functional specialties, and tenures.
2
See “What worked in cost cutting—and what’s next: McKinsey Global Survey results,” mckinseyquarterly.com, January 2010.
3
Suzanne P. Nimocks, Robert L. Rosiello, and Oliver Wright, “Managing overhead costs,” mckinseyquarterly.com, May 2005.
3. 3
MoF 2010
Granularity of cost
Exhibit 1 of 2
Glance: While total costs of goods sold have declined over time, sales, general, and
administrative costs have not.
Exhibit title: Intransigent costs
Exhibit 1
Intransigent costs Median cost of goods sold (COGS) and sales, general, and administrative (SG&A) costs
for S&P 500 companies,1 % of revenue
64.5
64.0
63.5
63.0
62.5
62.0
–2.7%
61.5
61.0 COGS
22.5
22.0 SG&A
–0.1%
21.5
0
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
1 S&P 500 index as of 2008; SG&A includes R&D expenses.
Assign accountability at the right level
Few would dispute that the support of top executives is necessary for cost-management
efforts to succeed. Involved CEOs and CFOs, in particular, can help mediate the inherently
political nature of such exercises and provide critical energy and motivation. Yet in our
experience, the involvement of top managers is not by itself sufficient—especially in a
period of growth, when they naturally turn their attention to other initiatives.
Instead, most cost innovation happens at a very small and practical level. Breaking costs
out in this way helps managers to find the specific groups or individuals responsible for
them and to identify and swiftly deal with pockets of expense mismanagement. Take, for
example, the cost-cutting program at one multinational high-tech company. Initially, the
CFO had little actionable information on who was responsible for which costs. Profit-and-
loss (P&L) statements were reported only for product-based business units, even though
geographic sales units had higher costs. This lack of detail made it very difficult to assign
responsibility for overall cost reductions. For instance, if freight costs for a business unit
increased from year to year, it was difficult to determine whether this happened because
of shipping behavior by factories or costs incurred by the sales organization in delivering
third-party parts to customers.
To resolve these issues, the company redefined the way it collected and reported
information, to ensure that costs were broken out for each of 100 organizational units.
That helped managers quickly identify two headquarters units and a sales organization
4. 4
that were responsible for large cost increases. Together, the managers came up with a
plan to control future costs. Among other things, the plan assigned cost accountability to
the company’s more than 60 separate organizational units. This approach ensured that
the people managing costs were those closest to the decisions, who could ensure that cost
management was not hurting the business.
Importantly, the process planners who run such programs as Six Sigma improvement
efforts are generally the wrong choice to manage cost-cutting programs. Typically, they
lack both the content expertise and the authority to make difficult trade-offs in areas that
often require more detailed knowledge of where costs occur and the ability to make keen
subjective judgments about which costs to cut. Only someone at the level of, say, a sales
manager has the detailed knowledge and authority to decide whether it’s really necessary
to travel to one client meeting in person, while conducting another by videoconference.
Such informed cuts are more likely to endure because the people responsible for them can
be held accountable through appropriate incentives, such as performance evaluations, that
consider both costs and business performance.
Focus on how to cut, not just how much
Cost reduction programs often lose effectiveness over time because top management
kicks off the effort with broad cost reduction targets (“How much do we want to save?”)
but then leaves decisions on how to meet those targets to individual line managers. The
presumption is that they have a more detailed understanding of their particular area of
the business and will take the right actions to control costs. While this is true in some
instances, we have seen too many cases where managing to a number has resulted in
flawed decisions, such as delaying critical investments, shifting costs from one accounting
category to another, or even cutting costs in a way that directly undermines revenue
generation. Clearly, the benefits of such cost cuts are likely to be illusory, short lived, and at
times damaging to long-term value creation.
A more enduring approach includes changing the way people think about costs by, for
example, setting new policies and procedures and then modeling the desired behavior. If
a company announces, say, a new travel policy, senior managers need to set the tone with
their own actions—for example, by aggressively using videoconferences instead of travel
or eliminating catering for in-person meetings. Even something as simple as no longer
providing sandwiches for lunch meetings can be part of a pattern of behavior that signals
real and enduring change. And since backpedaling on this kind of behavior when the
economy picks up again would send the reverse message, managers should model only cost
cuts they intend to stick with. If they know they’ll eventually restore catering for in-person
meetings, it could well be better not to cut it in the first place.
Benchmarks matter. External ones on some measures may be difficult to get, but where
they are available—for example, on travel expenses—they can enable managers to compare
5. 5
performance across different units and identify real differences, as well as trade-offs
that may not be in line with the organization’s overall strategy. Internal benchmarks are
easier to access and provide great insights, especially because managers are more likely to
understand and adjust for differences among their company’s organizational units than
among different companies represented by external benchmarks.
One multinational capital goods manufacturer combined the two perspectives, analyzing
the major categories of expenditure and developing targets based on both internal and
external benchmarks. Using external ones for travel spending, managers found that the
company’s travel costs were higher than those of any peer—both per employee and as
a percentage of revenue (Exhibit 2). They then set an aggressive target to reduce travel
expenses—and, to make the effort stick, instituted new travel policies on booking hotels
and airfares. By examining internal benchmarks across suborganizations (such as
departments, business units, or locations), managers also identified which executives
needed to better educate their organizations on travel policy. In addition, they increased
Web 2010
Granularity of costs tracking each unit’s performance on a monthly basis to measure
accountability by
Exhibit 2 of 2 and encouraged underperforming divisions to manage their travel costs more
compliance
Glance: Using external benchmarking, one multinational capital goods company found that its
travel costs were higher than those of any peer company.
Exhibit title: Benchmarking costs
Exhibit 2
Benchmarking costs For a multinational capital goods manufacturer
Part I: Travel expenditures benchmarked against peers of a
multinational capital goods manufacturer
Average = 1.2
8,000 Company’s peers
Company
6,000
Travel expenditures Average = 4,650
4,000
per employee, €
2,000
0
0 0.5 1.0 1.5 2.0 2.5 3.0 3.5
Travel expenditures as % of company revenues
Part II: Internal benchmarking of travel expenditures to find
areas of opportunity within the organization
20,000 Business units
15,000
Travel expenditures
per employee, € 10,000
5,000
0
0 1 2 3 4 5 6 7 8
Employees, thousands
6. 6
aggressively. The effort changed travel behavior across the entire organization as subunits
shared best practices.
Don’t let P&L accounting data get in the way of cost reduction
CFOs often manage cost reduction efforts by tracking accounting data in their companies’
P&L statements. These can be a useful starting point in a crisis, if other data are
unavailable. But over the long term, P&L categories, such as overall SG&A costs, don’t give
the kind of per-unit insights that help focus cuts in, say, travel expenses on the units that
can best afford to cut them.
Unfortunately, few companies have the kinds of systems they need to track costs at a fine-
grained level—and they face a number of challenges in establishing them. Multiple data
systems may make it difficult to aggregate and compare data from different geographies.
Inconsistent accounting practices between businesses or time periods may lead to
significant distortions. Changes in organizational structure (as a result of acquisitions,
divestitures, or even changes in the allocation of overhead costs) may similarly distort
tracking. Finally, one-time expenses in either the baseline or the tracking period may
become excuses for deviations from the plan. As a result, business or functional managers
often use data issues to divert attention from their lack of progress.
Indeed, one medical-product company experienced all these issues simultaneously in
the initial stages of its cost transformation program. Business unit heads objected that
tracking numbers from the central financial database were flawed because of a range of
factors. 4 As a result, the company couldn’t reduce costs during the first several months
of its program, and discussions focused on the integrity of the data rather than potential
initiatives.
To resolve the problem, companies must continuously track, in some detail, the expenses
behind the P&L to identify areas of underperformance, without worrying about the formal
accounting of the costs. Identifying, measuring, and controlling their most important
drivers is more important than how the savings are booked and reported. To manage costs
at the necessary level of detail, the CFO of the company above gave each business unit
head and controller full access to a centralized cost database linked to the official P&L.
Each controller received a standardized template to record any adjustments affecting the
baseline, along with exact amounts, periods, and offsetting adjustments. The CFO then
aggregated the data into a simple cost-tracking report that he shared with all involved.
After two months, the increased transparency eliminated all data disputes—and the
organization met its full-year cost reduction target in just six months. Two by-products
4
These included changed accounting practices that shifted costs from one P&L category to another, the transfer of a shared cost
center from one business unit to another, changes in allocations of corporate overhead, and special one-time initiatives, such as
product launches.
7. 7
were increased standardization of internal accounting and a dramatic reduction in several
cost categories bucketed under “other costs.” By getting the data right and moving quickly
beyond questions about data integrity, the organization significantly simplified the effort
of cost reporting, making it much easier to maintain the cost program over time.
Clearly articulate the link between cost management and strategy
Strategy must lead cost-cutting efforts, not vice versa. The goal cannot be merely to meet
a bottom-line target. Indeed, among participants in a November 2009 survey, those who
worked for companies that took an across-the-board approach to cost cutting in the recent
downturn doubt that the cuts are sustainable. Those who predicted that the cuts could be
sustained over the next 18 months were more likely to say that their companies chose a
targeted approach.5
Yet in our observation, many companies do not explicitly link cost reduction initiatives
to broader strategic plans. As a result, reduction targets are set so that each business
unit does “its fair share”—which starves high-performing units of the resources needed
for valuable growth investments while generating only meager improvements at poorly
performing units. Moreover, initiatives in one area of a business often have unintended
negative consequences for the company as a whole. For example, a global low-tech
medical-device company’s initiatives to reduce manufacturing and product costs were
led at the plant level, without input or customer insights from sales and marketing teams.
The leaders of the cost-cutting effort in manufacturing nearly rendered several products
defective because they did not know how customers used the products. Consequently, the
effort led to the loss of accounts and market share.
To create value through cost cutting, managers need to understand the best ways
to allocate operating expenses, such as selling costs and R&D. To do so, they must
understand, at the most detailed possible level, the return on invested capital (ROIC) and
the growth of the markets in which a company plays. Mapping costs against business units
and geographies will reveal both opportunities for cost reductions and areas in which the
business should increase its investments to take advantage of growth opportunities or to
“double down” in high-ROIC businesses. At a high-tech company, for example, the granular
mapping of R&D spending by product families identified some that despite their aging
technological and growth profiles were still receiving R&D and marketing investments.
Clearly, these low-ROIC businesses did not warrant a high level of new resources.
Management could redirect them to growth units because it was able to map costs at a very
granular level.
With such insights, managers will also be able to deliver a consistent message on how cost
reductions would make a company stronger—a message reducing short-term resistance
5
See “What worked in cost cutting—and what’s next: McKinsey Global Survey results,” mckinseyquarterly.com, January 2010.