By Doug Hudgeon
The Cost Reduction Tip
In this tip I discuss embedding a cost conscious culture where you have a number of comparable operating units. Examples include retail banks or multi-site operations such as a national insurance brokerages, consulting firms, law firms, or logistics providers. Where you have the multiple operating units, you have the opportunity to compare their cost profiles, identify best practice, build relationships between key staff and embed best practice across the organisation. Whilst this sounds somewhat utopian, it is achievable when you meet the following pre-conditions:
- The operating units view themselves as somewhat analogous,
- The management accounts are comparable across the units,
- The cost reduction initiative has CEO/Board support, and
- The designated managers are key staff in their units – you will get great value from selecting the heir-apparent for each unit for this role. Not only does this prove to the staff in each unit the importance of the initiative but it provides the heir apparent with the opportunity to build deep relationships with heirs in other units and see the entire range of operating models across the organisation.
Once you have met these pre-conditions, the steps are pretty obvious: get the designated managers together monthly to do a guided review of their cost lines. In these reviews, across each cost line, identify and highlight the practices of the best performers and call out the practices of the worst performers. The job of the person guiding these reviews is to set targets for the worst performers and hold them to it next month.
The key to making this work is unrelenting persistence in assessing performance against targets in subsequent sessions. See also Tip 1 and Tip 5 . Related web sources When creating a cost conscious culture in your organisation, you need to enlist your key staff. Without their support, you will not embed a new culture. Academics studying this areas refer to it as Normative Social Influence.
This area of research has shown that you can use social or peer pressure to influence behaviour when the person highly values the members of the influential group and is regularly updated on their activities. This dynamic is easily created by putting an influential team in place and updating staff regularly on progress. A future tip will focus on why you must not be squeamish about making this a high-profile activity in your organisation if you are going to embed a cost conscious culture. Doug Hudgeon who is lawyer and vendor management professional who has branched into finance and accounting shared services management.