COOs face an urgent need to cut costs. Efficiency is always at the top of their agenda, but today stubborn inflation, rising interest rates, tariff uncertainty, and other factors are exerting even more pressure on them to make operations more efficient. The COOs’ goals? Not only to reduce costs but also to ensure that their companies are well positioned to invest strategically in the talent, technologies, and capabilities needed for growth.
In a recent BCG survey, roughly a third of corporate leaders said that cost reduction is their most critical priority. Yet companies that launch cost-cutting programs often struggle to generate sustainable improvements. In another survey of C-level executives on costs and growth, 48% of COOs reported that costs crept back up following previous reduction efforts.
Many manufacturers have targeted costs in specific areas, such as the
supply chain,
but adopting both short-term and long-term measures across the entire end-to-end value chain offers a bigger opportunity to improve efficiency. According to Magdi Batato, former COO at Nestlé, director at Carlsberg, chairman of IDH, and senior advisor to BCG, “Successful COOs are able to effectively cut costs without jeopardizing the ability of the company to win in a sustainable way. They have business acumen and leadership skills, allowing them to align with their peers and collaborate internally and externally with suppliers and customers. They consider their stakeholders as true partners aiming to extract maximum value from the end-to-end supply chain.”
Short-Term Priorities
In the short term (over the next three to six months), COOs can take several no-regret actions to generate momentum and capture the value needed to fund a longer cost transformation:
- Reduce indirect and services spending, particularly in relatively accessible categories such as IT and logistics.
- Implement low-cost, off-the-shelf digital solutions that do not require introducing complex changes to IT enterprise architecture or systems. For example, commercial offerings are available for optimizing final-mile routes, scheduling a warehouse workforce, managing inventory tools, auditing contracts, and handling purchasing.
- Identify cost disparities and best practices across business units and production sites, and leverage external benchmarks to assess cost performance relative to competitors. Priority areas to evaluate may include the full external spending base, inventory levels, logistics network design, and operating model efficiencies. Use this evaluation to develop an implementation plan for medium-term and long-term cost reduction measures.
Three Comprehensive Cost Measures
In the longer term, COOs can pursue more comprehensive, end-to-end optimization and build a future-ready operations function. Three key steps that COOs can take to attack the problem are to think cross-functionally, to implement AI and generative AI (GenAI), and to collaborate with external providers.
Think Cross-Functionally
Faced with so many competing C-suite priorities, COOs can find it challenging to drive cross-functional alignment for their cost agenda. But companies have the most to gain when they avoid treating cost as a siloed exercise in operational improvement. COOs need to coordinate with other function leaders to address costs cross-functionally. This approach calls for the COO to set the vision but then to work across organizational boundaries to execute that vision.
“Generally, the stickiest savings opportunities require enterprise changes, beyond the purview of just sourcing, manufacturing, and logistics,” said Elaine Boltz, former COO and chief transformation officer at Crocs and a senior advisor at BCG. “Often, these changes seem to be the most difficult, because they require a real collaboration with cross-functional partners—design, product development, data/technology, and commercial functions. However, this approach, built on solid relationships, makes an organization more cost-effective and builds new competitive advantages in a time of considerable uncertainty.”
Among the steps available to COOs in pursuing cross-functional collaboration are these:
- Partner with CIOs and CTOs to invest in technology more strategically, with a cost/ROI focus. The old process of refining processes and then automating them no longer applies. Technology can obviate the need for some processes, dramatically accelerate others, and eliminate still others. COOs need to work with the tech function to transform their processes and upgrade their technology at the same time. The COO-IT partnership is also crucial in terms of data flows, ensuring that the entire company works off the same set of accurate, timely data across the entire value chain.
- Partner with CFOs to track the results of change programs and ensure that productivity gains are leading to financial savings. Such savings may go either to improving margins or to funding investments in growth. This is a big challenge, however. It means controlling for variables such as volume and sales mix in order to gauge the impact of the cost program itself. Success won’t happen without strong CFO involvement.
- Partner with CHROs to communicate key messages about change programs and motivate employees. COOs should take a differentiated approach that takes into account the preferences of different demographic and employee groups. CHROs can also help COOs navigate the changing workforce requirements of the operations function, including different team composition, new skill and capability requirements, and redesigned roles. In some cases, companies looking to reshore particular components of their operations (for example, to reduce exposure to supply-chain disruptions) may encounter shortages in the supply of frontline talent they need.
Getting started can be as simple as outlining a compelling cost ambition and then convening a steering group under the co-leadership of operations, IT, finance, and HR. Teams are more likely to collaborate effectively when change happens with them, not to them.
Implement AI and GenAI
Tracking real cost savings is particularly tricky with AI, which increases short-term tech costs and is better at reducing labor costs and manual tasks than at introducing broad operational improvements. However, BCG research has identified several situations where GenAI can lead to a step change in cost performance. For example, it can increase the efficiency of processes that rely heavily on codified knowledge or interactions with a large base of customers.
Two such situations are particularly relevant for COOs:
- Large Supply Bases. Manufacturers and other organizations with large supply bases can use GenAI to optimize their inventory levels, predict supply chain disruptions, route final-mile deliveries at lower costs within service level windows, identify price discrepancies, and efficiently execute sourcing events (including tender document processing and smart contracts). Improvements in these areas can lead to advances in efficiency of up to 20% across most operations’ functions, with the potential for even more gains depending on the company’s ambition and the state of current processes.
- Significant Field Forces. Companies that have large workforces in the field, such as maintenance or sales teams, can improve their operational workflows with GenAI, increasing the productivity of individual employees by up to 20%. In these examples, productivity benefits result from AI-driven data integration across multiple systems and subsequent algorithms that provide predictive maintenance or next-best-action tools for the field force.
Several companies are developing interesting AI applications in their operations functions:
- A logistics company developed a customized AI model to continually optimize the flow of goods across its network, last-mile transportation routes, and scenario planning. Pairing these measures with operating model changes, the company reduced total transportation costs by 15% and CO2 emissions by 10% to 15%.
- A CPG company deployed a demand-planning tool with automated machine-learning forecasting, supply-demand matching, and commercial scenario simulation capabilities. When coupled with improvements in data management and process discipline, this tool enabled the company to improve the accuracy of its demand forecasts by more than 10 percentage points, leading to a 20% reduction in inventory levels.
To get started with AI, select one or two high-value yet readily implementable use cases that demonstrate the possibilities and benefits of the technology and thus generate institutional support. From that foundation, use AI to begin methodically tackling bigger enterprise-wide technological challenges, such as data integration and system harmonization. “We’re putting in a forecasting and replenishment system that has capabilities with AI and machine learning so that we can really learn faster and have our folks do more value-add work versus Excel acrobatics,” said Joseph Hurley, chief supply chain officer at Sprouts Farmers Market.
Collaborate with External Providers
Many COOs report feeling bound by the high level of fixed costs in the operations function, particularly those from manufacturing and distribution facilities. The solution is to convert such costs into variable costs as much as possible by working with a broader ecosystem of external partners and providers. In some cases, doing so entails outsourcing basic processes to an external provider that may have a cost advantage (such as a contract manufacturing organization in the biopharma or electronics industry) or working with third-party logistics providers in lieu of internal logistics operations. This ecosystem approach increases cost variability and makes operations functions more flexible and responsive to variations in supply or demand.
Often, COOs can partner with their peers to objectively identify their true source of advantage, whether it be in bespoke intellectual property, lowest-cost production, guaranteed supply, portfolio diversity, or other factors. This type of collaboration can empower the COO to pursue external partners in a way that lowers fixed costs and allows the company to focus on what enables it to win in the marketplace.
Increasingly, external providers are providing a source of advantage in a new way: innovation. For example, by moving beyond transactional contract manufacturing to true partnership, companies can access emerging technology faster and more cost-efficiently. Whether in chip design for consumer electronics or in commercial-scale production of new biopharmaceutical modalities, external providers can provide cost and innovation advantages.
Externalizing a company’s operations may come with risk and skepticism from your C-suite peers. Engage your peers in commercial, product, and R&D to candidly distinguish between the core differentiators of your business and commodity or scalable activities and products. A clear understanding of this distinction can provide the basis for a reliable roadmap that identifies where you can explore external partner options to develop alternative network scenarios and outline the cost advantages available to your company.
When implemented thoughtfully, cost programs do more than reduce expenses. They unify the organization around a shared vision of efficiency, resilience, and long-term value creation. By engaging cross-functional leaders, implementing AI, and working with ecosystem partners, COOs can turn cost transformation into a catalyst for collaboration. The result is not just a leaner operation, but a cost-aware culture and a stronger, more connected enterprise.
