Creating competitive cost advantage is all about utilizing your costs to invest in the future.
Looking at cost reduction simply as a means of survival misses the opportunity to reinvest for future growth, stability, and strategy. Reducing cost is actually about freeing up resources to invest in important strategic moves, growth for the future, building capabilities in the team, and critical initiatives like climate and sustainability.
In order for leaders to determine which cost reduction approaches are right for their organization given the current context, they have to answer questions like what is the magnitude of savings they require? How quickly do they want savings to come out of the organization? Are they willing to make tough decisions about labor, operating model, and fundamental core processes? And where is it viable to actually reduce procurement cost and spend, given things like regulatory requirements, customer needs, and supply shortages out in the market?
The quickest way to savings is to look at things like layers within your organization, and aim to reduce indirect labor costs. Next, you can move towards procurement spend, both direct and indirect. If you're willing to go a little more strategic then you can look at your operating model, fundamental functional handovers, and processes that transverse those functions.
And finally, the most strategic and holistic approach is to look at an end-to-end operational transformation and actually reduce complexity, optimize on things like design to value and take a digital thread through your organization.
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