Management SummaryStern Stewart Research // Volume 39

Almost every company has been sent on the journey of cost saving programs at least once in its lifetime. The purpose of these initiatives may differ from short-term cash generation to increasing operational efficiency as a base for future profitable growth.

The outcome of these programs is more often than not disappointing: Expected cost savings are not realized and – even worse – sustainability of implemented initiatives and actions is often low. In reality most programs look like defensive acts of desperation rather than targeted efficiency improvements. In the past an undifferentiated motto “10% improvements are always possible” led to undifferentiated, across the board cost cutting. However, for an active management team cost saving initiatives offer the chance to unlock enormous efficiency reserves slumbering in every organization. Focusing on the powerful driver of operational performance improvements is a real chance for substantial value creation if some simple principles are followed. Sustainable results and long-term success is based on three main principles:

1. Start from processes instead of cost centers and headcount
2. Attack structural root causes of inefficiencies
3. Control effects of single initiatives and actions intensively and keep up pressure until effects have materialized in the P&L and Cash Flow statement