Well thought-out cost optimization can stimulate growth, investment and innovation. Yet companies often struggle to impose rigorous, concrete measures that last beyond the first year. To implement an effective and sustainable program, executives need to ensure greater financial transparency, define benchmarks, establish accountability, manage spending at all levels, and dedicate savings to driving strategy.
How to implement successful cost optimization?
Establish clear responsibilities: For cost optimization to be sustainable, it must be seen as a discipline systematically followed by the managers of your business units, and become an integral part of your corporate culture. Rigorous management of a given budget is a proactive approach, and may justify less scrutiny if cost optimization is now perceived as a corporate priority. What’s more, pursuing these cost-optimization measures allows you to invest in the capabilities that will be required in the future by the company’s strategy.
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Use cost reductions to guide corporate strategy: It’s the duty of every manager to constantly evaluate and question expenses. You need to reduce and optimize expenditure wherever possible, in order to finance new measures that will enable the company’s strategy to be implemented. To do this, you first need to determine how you can make the most of savings. By asking your function managers the following pertinent questions, you will discover where you need to focus, devote time and money, as priority objectives are likely to change over time: What different measures are currently being implemented to meet the needs of key stakeholders? How do these activities help guide the company’s overall strategy? What support do you need to implement these projects?
Set targets and benchmarks
You can then compare your expenses with those of your peers through external benchmarking. This allows you to take stock of the situation on an ongoing basis, and narrows the scope of your search for expenses that can be optimized. Define a benchmark for expenses. Evaluate performance using external sources. Take stock of improvements over time. Take note: when increased spending has no demonstrable link with improved business performance, question the spending.
Guarantee total financial transparency
Track expenses against results to better understand their value to the company. It also helps you assess which expenses need to be optimized. Analyze your budget according to the following four variables: The amount you spend on basic resources. This includes labor, facilities, services, hardware and software. Operational tasks carried out with your core resources, such as marketing campaigns or training programs that deliver results. Operational tasks allocated according to the company’s capabilities. Whether internal or external, each function has an influence and must be understood by the stakeholder, who in turn must value it and be prepared to pay for it lead generation, product marketing, recruitment and retention, etc.