Masterclass: Cost reduction

How to re-engineer your cost base

Last Updated: 09 Oct 2013

What is it? The business cycle, which some people led us to believe had been abolished, has reappeared. We've had the boom, and now ... well, something not so nice. So it's time to relearn a few basic principles that have gone out of fashion. Keeping costs down, for example. We all know what happens when things are going well. A hiring spree. Business-class flights. Nice hotels. Celebratory meals in top restaurants. Lavish corporate sponsorship of events. The next 18 months will be different. Belts will be tightened. And most items listed above will disappear.

Where did it come from? Cost reduction is where management consultancy came in. As Chris McKenna explains in his book The World's Newest Profession (CUP, 2006), accountants rebranded themselves in the pre-war years, putting a focus on 'cost accounting', which they offered as a consultancy service. The forgotten art of 'time and motion studies' was also about the costs of doing business. And a venerable old firm like PA Consulting makes no bones about its core purpose of finding efficiency savings and cost-reductions. Sleeves rolled up, they are better placed than other more pretentious consultancies in a market such as today's.

Where is it going? Things are likely to get very busy for the masters of cost reduction in the next year or so. Some businesses will be forced to take a 'blank sheet of paper' approach and re-engineer their entire cost-base. Downturns are a time when tough and unpleasant decisions on costs can no longer be put off. So suppliers will have to look out as buyers cast an ever more sceptical eye on the prices being charged. And if any lower-cost alternative providers are setting up here or abroad, watch out. They may just be about to eat your lunch.

Fad quotient (out of 10): Eight and rising - like costs.

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