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(CFOZone) By Anne Field
Companies have been slashing costs with abandon since fall of 2008--and they aren't likely to stop anytime soon. In fact, in April, 54 percent of more than 2,000 executives surveyed by McKinsey reported that they plan to reduce operating costs over the next 12 months, compared to 47 percent in February.
Trouble is, such cost cutting seldom has much of a long-term payoff. According to McKinsey, only 10 percent of cost reduction programs show sustained results three years after companies wielded the ax.
All that pain for almost no gain.
But, it doesn't have to be that way. In fact, the folks at McKinsey suggest a number of steps to make cuts stick. There's a lot to their analysis, which you can read here . But, generally, the bottom line comes down to the following: The devil is in the details. It's all about cost cuts done on a small, practical, in-the- trenches level. In other words, you have to break costs out where they happen, not from a viewpoint of 30,000 feet.
To that end, it's people at the level of, say, sales manager, not uber-Six Sigma black belt-wearers, who should be involved in pinpointing the places to cut. These lower-level folks can analyze whether they really need to travel to see a client or can do it by videoconferencing. But, then, you need to hold these cost cutters accountable for their decisions by, for example, including the outcome of those decisions in performance evaluations.
Also, by looking at really detailed data you can determine what areas have a low ROIC and which are growing, so you don't make cuts in places in which you actually might want to step up investment.
Ultimately, says McKinsey, the goal is to create an on-going cost-management system, rather than indulging in the one-off cost-reduction efforts companies usually adopt.
None of this is rocket science. But it's certainly worth considering. Why go through the sturm and drang and just plain unpleasantness of cost cutting if you can't make the benefits last?
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