In order to achieve success in a cost-improvement-program, it is important to follow a number of simple rules.
- One Program – single cost-improvement-program for all activities. Multiple disconnected activities, means the overview is quickly lost and can lead to duplication of efforts and poor reporting to management.
- Management Commitment & support throughout program. Often management is there at the beginning, creating an awareness and sense of importance. With time and other operational distractions, this focus can be lost, and the urgency of the program in the eyes of the organization can dissolve.
- Adequate Processes to drive cost reduction. It important that a clear process exists to identify measures, which support the companies savings targets, and that these measures can be coordinated, tracked and reported. A clear process will help prevent confusion, in-transparency and missed targets.
- Clear Communication to employees about the program objectives. Everyone in the organization should understand the background and reason for implementing a cost-improvement initiative, and indeed the targets. This makes the implementation process easier to manage, and when done well can get the entire organization behind the efforts.
- Intensive Monitoring of measure implementation. Following the measures closely has two main effects, firstly, management can forecast (financially) more easily, knowing the status of the measure implementation. Secondly, adjustments can be made for measures, which are slow or derelict, by adding additional or new measures
- Achievable Targets – The spirit of the team is a critical factor in reaching the organizational goals. Unrealistic targets can lead to a defeatist tendency among the team, and optimal results may not be achieved.
- Base Line and Financial Transparency across the organization. Understanding the starting position, ensures that the success rate of the finished measures can be gauged more accurately. Also, the measures may not be immediately obvious in the financial (ERP) system, due to process lag and other issues. Therefore, taking the starting position, and adding the net impact of the measures, allows an accurate forecast to be attained.
- Quick Implementation. Targets and measures should be established and implemented by fiscal year. Longer term targets and measures can be broken-down into milestones by FY. This ensures to keep the focus on the current activities, and to reduce complex forecasting activities.
Recent research has shown that programs, which did not follow some or all of these factors, had a success rate of only 8%.