Like all management initiatives at the corporate level, cost improvement requires the commitment of management. Not just in the setting of targets and being present at the kick-off meeting, but more importantly to make it part of the business strategy, to be visibly involved and critically providing political cover to those implementing this policy.
Additionally, employees are sensitive to management commitment. In one Fortune 500 Corporation, we witnessed enormous enthusiasm and success when the individual contributors were given the opportunity to present their activity status to the CEO. However, at later meetings, where the CEO absented himself, and sent only a subordinate, both the enthusiasm and results were measurably weaker.
Cost improvement like sales planning, and budgeting needs to be a part of the business strategy. As part of the business strategy it holds a position of importance in the organization and protects the long-term perspective. This long-term perspective is critical when seeking sustainable measures and not just quick actions to get through another quarter-end.
Dividing-up the cake into smaller pieces, which can be addressed on the micro level is a key function of management in Cost Improvement. This means understanding the business and where improvement opportunities can be found. It also ensures that areas which need to be addressed are targeted, while performing areas are protected. Wide-sweeping cost reduction measures often ignore this point, and can damage the organization, by distressing healthy efficient units.
The assignment of “project managers” or what we call Measure Owners is also a function of management. The Measure Owner must be equipped with the know-how and the authority to plan and undertake the required actions, while understanding the risks and context of the activities.
Best in class organizations hold monthly steering committee meetings or review meetings, chaired by the CEO or CFO and reviewing both business unit and critical individual measures, setting targets and discussing corrective action where required. Additionally, cost improvement scorecards are now becoming part of the standard presentation by business units at quarterly business reviews.
In a 1960 Guide to Cost Improvement at General Electric, management was told to: communicate, participate, (assign) responsibility, recognize and reward. 50 years later, while the type of cost improvement measures have significantly changed, these principles still hold true.
In conclusion, management has a far larger role than just setting high-level targets. A successful cost improvement program is strategic in nature and cared-for as a management priority, with ongoing personal involvement.