Cut Costs and Grow Faster at the Same Time -EFFECTIVE, WIN-WIN COST-REDUCTION MANAGEMENT-

1. In order to determine what amount of cost reduction is needed in order to reach an improved position over competitors that cannot be easily duplicated (and achieve a strategic advantage), you need to be sure that those operating your most valuable business areas know the answers to these questions (An efficient way to pursue this is to sit down with the operating people review their answers to these questions. Be sure to ask about both operating and capital cost sources of cost reduction. Many operating people only consider the former.):

   • What is the current cost position of each significant competitor compared to your business? (This question will tell you how well your executives understand the lowest-cost current practices in your type of business, in order to pick better ways of doing business and what your current cost levels should be.)

   • Where will the competitors' costs probably be over the next few years by year, in light of the different business conditions that are highly likely to occur? (This question will tell you how effectively your executives are setting cost targets for the future, and understanding actions people are using now to achieve lower future costs.)

   • What actions could you take that will allow you to achieve much lower costs than the most effective competitor in serving the most attractive customers, that that competitor could not easily duplicate for 3-4 years from the time the competitor discovers what you have done to improve? (Most people can find at least 5 actions after doing the appropriate research and thinking. If the research has not been done relative to costs and the most attractive customers, a major opportunity to improve profits is being missed.)

   • Taking the actions listed above, how low could your costs be for the key tasks behind these actions if the your effectiveness economically approached the limits of current human knowledge and technology, instead? (In many industries, business practices are not very good. By looking instead at other industries that have to do similar activities, you will often pick up practices that may not enter your industry for decades.)

2. Looking at current and evolving customer's needs and the needs of their customers, when was the last time that each business examined whether the entire business model of how you service customers can be changed to provide much more value at lower cost? (If you have not done this in the last two years, you are probably missing large opportunities that are driven by new trends and technologies. LEADING CHIEF FINANCIAL OFFICERS has shown that this is the highest payoff area for near-term profit improvements across all industries.)

3. When was the last time that each business considered how it could lower costs and improve its value proposition by shifting its mix of customers and products/services? (The costs of serving whoever happens to buy is much greater than picking a more select groups of products/services/customers who most efficiently match the benefits and costs of what you have to offer.)

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