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Getting Creative About Cutting Costs

Getting Creative About Cutting Costs

David Rutley's picture
David Rutley
March 3rd, 2017

We kicked off the year promising to deconstruct the process of meaningful change. And we noted that meaningful change requires designing strong and intentional solutions to address business challenges. Below is our second installment in our current series that focuses on how we support this design process through Collective Creativity.

The economy has seen significant top line growth, but consumers remain cost conscious and companies in mature industries face significant pressure to achieve savings through scale and efficiency. For companies seeking ambitious goals around cost reductions, the available levers appear limited. You can lay people off…cut professional services… close a location…terminate a product line… While it seems counter intuitive, this is the moment to hit pause and spend some time—even some money—on getting creative.

Let me paint a picture: You are a leader under pressure to achieve immediate cost reductions. You find instant savings in laying-off the majority of your design team. Six months later you’ve developed an exciting new product, one that will ensure you stay on pace with your competition. Unfortunately, instead of focusing on your launch plan, you’re scrambling to rehire, retrain, or contract with the designers you need. Hitting your short-term target cost you speed to market and resulted in long-term expense growth. This is what can happen when companies assume a reactive stance in trying to solve for scale and efficiency.

Rather than short-term quick fixes, the goal must instead be to create sustainable solutions. Myriad consulting companies from Bain to Deloitte to CapGemini recognize this need and seek to shift focus from the short to the long-term through what they call strategic “cost transformation.” Many of the tenets of this approach are spot on relying on a cross-organizational lens and consideration of organizational identity. However, our emphasis at Collective Next is slightly different. We foreground collective wisdom, creativity, and a human approach. Solving for the long-term requires thinking differently not about how to do the same business more cheaply but how to do business differently.

Doing things Differently

So what does this mean? To come up with a different rather than just a less costly approach, you need to tap into the collective knowledge and insights held by individuals across your company. For example, in today’s world, companies often look to centralization as a means of achieving scale and efficiency. The rationale is simple: if we centralize a function such as IT then we can leverage it across multiple lines of business and geographies to avoid duplication of effort. The pitfall lies in the fact that companies don’t tend to engage the individual lines of business or geographies in how this might best occur. The result: shadow organizations. Particular BUs or locales don’t believe their needs are or will be met by the centralized function and thus continue to operate versions of their original IT or other service under another name. Suddenly your P&L is full of these hidden pockets across the organization.

Doing things Collectively

To be clear, this doesn’t mean centralization is a mistake, but rather that the approach to achieving it has been misguided. When an organization devotes resources (e.g., time and money to hire a third-party organization) to engage a broad stakeholder base across the organization this has at least two major benefits: first, the resulting plan for centralization becomes more widely informed and thus more likely to serve the myriad needs it is intended to meet; second, there then develops broad based understanding of why and how the intended change is occurring. People feel they are part of the change rather than victims of the change.

Overall, you will get more long-term lift with such a collective and creative approach upfront.

The wisdom of the collective approach applies to more than just efforts to achieve scale and efficiency through centralization. It applies equally to a scenario of across the board cuts. Say, for example, a company mandates 20% cost reduction across all BUs. This approach drives each business to focus all attention internally, to stay siloed in their quest to lower expense. In contrast, a process that favors using collective creativity to solve for scale and efficiency invites diverse stakeholders to consider the smartest trade-offs to make given the goals of the company as a whole. Tapping into the wealth of knowledge, insight and creativity across your organization sets you up to reimagine how the existing parts of the organization might fit together, as opposed to remaining trapped in a vision of the way this are or once were. When you frame the discussion in this light, you are able to plan for the needs that will arise and the capabilities that will differentiate you in the future. For example, you would avoid cutting the BU that is filled with new talent that isn’t growing revenue today but which might be your big bet for 10-years from now.

Doing things “Humanly”

Of course, the underlying reason that our collective creativity approach is so effective is that it is fundamentally a human process. It relies on individuals coming together authentically and openly. When we talk about scale and efficiency, the dark underbelly is that people’s jobs are often on the line. Organizational leaders can believe that a dispassionate, numbers-focused approach is the answer to dealing with such a challenge. In fact, while layoffs may be inevitable, the approach you take is not. And your approach sends a strong message to your organization about who you are culturally. In raises questions in the minds of each person in your organization: am I part of a company that is fair, thoughtful, farsighted, inclusive? These cultural messages and the questions that follow from them impact longer-term sustainability: employee engagement impacts net promoter scores which impacts sales and so on. It is not about not making cuts but about doing it in a human way.

From our perspective, the bottom line is that while scale and efficiency efforts are ultimately designed to improve your cost structure, they do not have to be conducted at the cost of creativity. Instead, use these moments of transition to pause and apply some collective creativity. This will ensure that your organization moves forward holistically and positioned for long-term success.

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Collective Creativity