Using cost optimization to preserve long-term value

Despite US inflation cooling off in recent months, CFOs continue to be met with rising costs. Something they may not notice while trying to mitigate these costs? Traditional cost-cutting strategies have also gotten more expensive—and might not create the long-term value finance leaders seek in an increasingly volatile environment.

Straightforward cost-cutting tends to focus on short-term reductions that may result in a weaker competitive position. Cost optimization, on the other hand, offers an approach to managing costs that preserves business agility. It provides a way for finance leaders to free up capital that can then be reinvested in pursuing strategic, long-term growth opportunities.

Cost optimization requires CFOs to take a disciplined, enterprise-wide view. Taking a siloed approach can result in actions that boost results for the next quarter but do little to preserve options for the long term. For some CFOs, that may mean investing in replacing compartmentalized networks with holistic systems that can make information instantly available throughout the organization. Why? Because understanding the intertwined relationships between company functions is a critical component of cost optimization. Cuts in spending in one part of the business might have an unwanted impact downstream.

With costs from an entire company to choose from, how do CFOs pinpoint areas that are ripe for cost optimization? And what tools can serve them best in freeing up capital for reinvestment and growth? The answers differ depending on the industry. Deciding which areas to focus on requires knowing what drives long-term success in a particular sector. For example, banks may prioritize standardizing and streamlining data flows or using strategic pricing more effectively. Manufacturers, on the other hand, might be drawn to rethinking product engineering or asset maintenance and management.

No matter the industry, the overall approach to cost optimization changes less than the exact steps it takes to implement it. After identifying which project to take on, CFOs will want to look at a set of drivers that could boost results. Indeed, there are seven levers they can reference to help them achieve gains from cost optimization.

Download the full article to learn more about the levers, the interplay between each, and how they all can contribute to a finance team’s winning cost optimization strategy.