Enterprise Cost Reduction
External factors such as slow market growth rates and adverse exchange rate movements impose significant pressure on business profitability. A CFO's response usually includes a review of the cost base.
The CFO Operations team has completed a number of Enterprise Cost Reduction engagements to help clients target and implement cost efficiencies.
Enterprise cost reduction is driven by several factors. Recent changes in the macro environment and stakeholder dissatisfaction have increased the importance of enterprise cost reduction. M&A activity has, next to this, changed the company structure which has led to possible redundancies and inefficiencies. Other important drivers for enterprise cost reduction are caused by drops in the top line, pressure on operating margin and high costs within the organization.
Drivers of Change
Symptoms related to the need for enterprise cost reduction are various. It can be that costs are increasing while the drivers for why are not completely understood. Also, poor cost discipline and excessive use of high cost products and services are usual symptoms. Deterioration of the operating margin is, next to this, a clear sign as well. Enterprise cost reduction can also be needed when personnel are performing activities that are unclear or do not seem to add value. Lastly, an over-customization of reporting leading to an enormous work burden and a large finance organization is symptomous as well.
An enterprise cost reduction program will lead to improvements and can overcome these symptoms. An outcome will be defined based on the client`s needs including the sense of urgency and limiting factors. By defining cost drivers for the organization, future cost control will improve by prioritizing time and effort. This will lead to an effective and lean organization focused on little or no `waste` in terms of time and resources. Enterprise cost reduction is also beneficial as it will increase the flexibility on external pricing as a benefit of lower cost pressure. Next to this, it will release cash for alternate uses, such as investment in critical business drivers for growth. Another benefit would be that redeployed personnel will enjoy more value adding and contributing work. A last, significant, benefit of enterprise cost reduction is better share performance.
Benefits and outcomes