Sustainable Cost Reduction

In light of the volatile macroeconomic environment, most companies during the past couple years aggressively pursued cost reduction wherever they could, as quickly as they could. The key competitive differentiator among companies aiming to resume growth will be the extent to which their recent cost reduction measures are sustainable. For several reasons, many companies face the prospect of reversing most or all of their recession-driven cost reduction actions as business ramps back up:

• Most companies’ cost reduction approach centered around across-the-board staff reductions and discretionary spending freezes. These types of cost reduction might be sustained for a short while into recovery, but eventually market pressures will dictate expansions of staff, increases in compensation, and restoration of marketing, travel, and training budgets.
• Many companies employ non-standardized internal processes that don’t scale well and that are difficult to outsource cost-efficiently. Often non-standardized processes require process-specific knowledge and skills, so a ramp-up in business requires a ramp-up in staffing and costs.
• Similarly, many companies have not fully leveraged process automation opportunities. While automated processes have a very low marginal cost and are highly scalable, companies whose processes are manually intensive can’t scale up output without scaling up staff.

Optimizing G&A service delivery yields sustainable cost reduction

Research by The Hackett Group^®, a global strategic and operations consulting firm, has found that the strongest driver of sustainable cost reduction is a strategically designed service delivery model. Companies that over the years have developed and executed an optimized service delivery strategy – one that purposefully and intelligently defines how certain work gets done, where, and by whom – are far better able to achieve sustainable, scalable cost reduction in their operations. Rather than relying strictly on across-the-board staff reductions and discretionary spending freezes to pare costs, these top-performing companies have developed global service delivery strategies that leverage business process improvement programs, shared services centers, and business process outsourcing opportunities to attain structural cost reduction that delivers competitive advantage regardless of whether the economy is on the decline or on the rise.

The Hackett Group can help you optimize your G&A service delivery

The Hackett Group delivers business benchmarking services, advisory programs, and transformation consulting solutions that can help your company develop and execute an optimized service delivery strategy. The Hackett Group provides fact-based cost optimization consulting that’s backed by extensive hands-on experience and by our renowned repository of process metrics, benchmark data, and best practices derived from our more than 26,000 benchmarking engagements with leading companies worldwide. We can give you insight into how top-performing companies structure and deliver their back-office functions, identify the most consequential gaps between your performance and world-class performance, and help you develop and execute a transformation roadmap.

To learn more about how The Hackett Group can help your company achieve sustainable cost reduction, contact us.