Cost Optimization to Increase Earnings

Cost optimization potential is usually sought within operational functions. Of course, it makes sense to keep looking for savings potential in every department. However, experience shows that the departments themselves work professionally. The greater cost optimization potential often results from the elimination of deficits in cooperation.

It even happens that savings measures in one area have negative collateral effects on other areas or the entire operational interaction. In many cases, such effects are not recognized because problems are viewed in isolation and not in their operational context.

Example: A manufacturer of mass-produced articles for the construction industry, which was integrated into a group and suffered greatly from overcapacity in the market and the comparability of products, was asked by the group to reduce costs drastically.

The production manager single-handedly wanted to make his mark on the corporate superior and implemented radical cost savings by changing the characteristics of the products so that they only just met the presumed requirements of the customers. However, the cost reductions actually realized were not reflected in the company’s bottom line, as the sales team had great difficulty selling what were now perceived to be inferior products on the previous scale. In addition, the cost-cutting measures increased the costs for scrap and adjustment of the production machines. Sales and earnings fell sharply under the supposed optimization measures, in short: costs were cut without taking into account the overall effect.

Every identified potential for cost optimization is valuable for the company; however, a quick implementation of an isolated project usually is not. Ensure a finely tuned approach. Cost reduction programs should not be driven by good intentions, but by effects.

The reciprocal, dynamic causalities and effects within the organization must be recognized even before concrete plans are made. In this context, it is very helpful to visualize the actual workflows, processes, interrelationships and dependencies within the company. Involve those directly and indirectly affected in your planning, and take well-founded objections and justified concerns seriously. Also consider the effects on the external perception of your organization, and take these findings into account in the planning of your specific cost optimization projects.

The ?CyberPractice? method developed by Dr. Boysen is recommended for implementation.

During a crisis, the pressure to reduce costs is particularly high. However, cost reduction must not stifle the operating business.


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