However, this is only one aspect of cost management. Companies also need to consider how well they are geared up for high performance.
- How efficient are they?
- Is further simplication of the business model possible?
- Was the business model correct in the first place?
Your approach to these questions will likely reflect on the organisations performance aspirations. If you prefer to ignore them and focus on simply responding to and addressing any instability in your current cost base, then high performance levels may be unattainable.
The common problems faced when tackling this issue
Modest reduction targets, that are not achieved. The lack of ambition is the problem. You cost management programme will only deliver short-term tactical gains. It cannot deliver long-term sustainable improvements.
Organisations often believe that genuine cost management requires too much investment, which is difficult to justify when revenues are growing steadily on their own.
The degree of complexity in an organisation can be a problem. Can the organisation simplify and streamline? Are key business units departments empowered to perform or are they tangled in red tape?
So what should you do
- Seek to optimise your cost structure. This is not a quick or easy fix, it means embedding a culture of cost management throughout your organisation while creating strong incentives for eliminating waste.
- Keep focused on costs, especially during periods when business is good, as this is when you have the time and space to create sustainable change. Be prepared to adopt bold strategies to retain cost-efficiency.
- Rethink the business model. New models are emerging that suggest organisations should keep at the heart of their strategy a coherent vision, talent management, accelerated design and innovation, and the capability to execute change rapidly.
KPMG advisors help by advising on:
- driving cost optimisation by making strategic changes to the business model
- aiming at optimising efficiency in systems and controls within finance, procurement, the IT function, treasury and HR
- increasing capacity for high performance through technology, the supply chain and through sourcing and shared services.