Management SummaryStern Stewart Research // Volume 61

Global competition forces companies to optimize their cost structures – even those companies that did not have to worry about price-oriented competitors in the past due to their superior technologies and outstanding product characteristics. Enterprises that combine innovativeness and product quality with low costs are becoming ever more common, causing repeating impacts on the own company and cultural change with regard to its relationship to the outside world. This in turn has the corresponding implications for the company's self perception and internal interactions. This transition is particularly difficult for companies, for which costs had previously "never been an issue", and it also comes with its share of risks.

Cost-reduction programs are often poorly designed: they take too long and are insufficiently coordinated, which paralyzes the organization; they are too tentative, so that the people within the company, who fight to retain the status quo prevail; or they depend too much on benchmarks, which reduces their internal acceptance and diverts the focus from the actual sources of potential. Temporary initiatives for a specifically targeted "Cost Out" are often a more effective way of freeing up cash, capital and resources. What matters is the way a Cost Out program is structured and executed. Five principles help make a success of a Cost Out ...