Cost is an evergreen problem. Corporate leaders routinely invest in efforts to manage cost and become more efficient. Yet, they complain about inadequate returns on their efficiency investments.

When initiatives to manage costs don’t create the intended value, it’s often because leaders don’t address the core factors driving organizational costs. To succeed, a cost management program must incorporate changes to roles, work-group sizes and structure, KPIs, and depending on the situation, the organization’s overall model. If a change program bypasses this essential step, the enterprise ends up with a workforce that is a mismatch for the resource levels, competencies, behaviors, and skills it needs to operate in a new, lower cost environment.

How leaders address cost is paramount to a transformation’s success. We suggest following a multistep approach to implement an organization design that is both more efficient and creates sustained value.

Key Steps in an Organization Redesign

Successful redesigns incorporate a sequence of key steps:

Analyze the current state. In the initial phase of a cost transformation, leaders create a vision and goals for the future-state organization. The process starts with a diagnostic to determine the range of opportunities to improve costs. Such an assessment also identifies structural and process inefficiencies, talent gaps, and duplicative activities. An assessment could reveal, for example, that two departments have similar functions or teams competing with each other for resources and work. Leaders then translate the findings into principles for effectiveness and savings targets that will direct the organization design.

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Read more on Cost Management

Cost Management

BCG’s cost advantage approach resets costs within a framework that is customized, precise, and thorough.

Reset the organization model. With the new vision and principles in hand, leaders design an organization model to secure immediate efficiencies and optimize cost for the long term. To do so, they align the new organization design with the organization’s strategy and performance goals and establish a framework for cost-conscious behaviors and decisions. The framework reinforces the strategy through accountabilities, KPIs, and performance measurements and reporting.

Remove low value work. Concurrent with organization design, leaders must seek opportunities to aggressively cut out work. They can do this by:

• Identifying and cutting low-value activities.
• Rationalizing the portfolio and footprint of work to ensure that the areas in which they continue to invest have a strong ROI.
• Optimizing processes to create greater outputs with the same or fewer inputs.
• Digitizing or automating work where possible.

Redesign roles. Once leaders redefine how work will be done, they can use a cascaded approach to quickly design a detailed structure and the roles required to deliver it. In this process, leaders create, modify, reallocate, or reduce positions to achieve a leaner organization, with resources focused on high-value work that aligns with the enterprise’s go-forward strategy and objectives. One client we worked with on an efficiency project used this process to determine that it needed to reduce positions by 12% and significantly change the responsibilities for a quarter of the remaining roles.

Optimize talent. After leaders complete a detailed role redesign, they can begin to identify individuals to fill specific roles. Staffing the right talent to the right role is as important as making the right structure or work-design choices. To do so, leaders must identify, consider, and select the best talent from across the organization while simultaneously ensuring the process is fair and is carried out quickly. Following a rigorous process is essential when filling senior leadership roles, since those individuals choose and manage the midlevel managers who will direct and sustain cost-related changes through the rest of the organization. If matching people to roles reveals gaps in skills or capabilities, filling them by upskilling or reskilling current employees is generally a more cost-effective first step than resorting to external hires.

Actively manage the change. Transparency and strict program management protocols are preconditions for a successful organizational reset. Communications about changes should articulate target behaviors, so teams understand how to perform and make decisions in the leaner and faster organization. Leaders must also model the values, tempo, and commitment they expect to see from their teams.

Leaders put their cost efficiency objectives at risk when they cut budgets but don’t change the organization’s structure, work, behaviors, or people. Resetting the organization to be more efficient and effective requires creating clear objectives, and designing an organization that is aligned with those objectives. An organization reset also requires redefining roles and ways of working, staffing the best-fitting talent throughout, and following a structured process to quickly drive and secure the change.