Sustainable Cost Reduction Requires a Different Mindset

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All business leaders strive to manage costs on a long-term basis. However, near-term events may occur that result in a need to pursue immediate cost reductions. While this sense of urgency may result in successful cost reductions, what will be the impact once the urgency abates?

To ensure that cost reductions “stick” you need to foster a culture that reinforces the potential long-term benefits of the immediate action.

Consider an example of a company that decides it needs to reduce travel costs as quickly as possible. In order to accomplish this goal, the company implements video conferencing.  While this move greatly reduces costs, it also eliminates the benefits associated with face-to-face interactions (such as the loss of full visualization of body language) as well as reduces the time team members spend together. When a decision is made solely on the basis of the potential cost reduction, the gains that are experienced (cost savings) may be outweighed by other factors (in this case, less intimate customer or colleague relationships).

Contrast this with the same company that instead decides to implement video conferencing as an initiative for continuous improvement. It is not just a tactic to reduce travel costs, but a technique to improve time and priority management. The company does save money on travel costs, and it also experiences less-tangible productivity gains. For instance, they may gain an advantage by making time spent in a car or an airplane more productive.

In each scenario, the initial problem is the same: a desire to reduce travel expenses. But when the organization frames it in broader way—an opportunity for continuous improvement—the action will reap both short- and long-term benefits. And while both scenarios will still present the challenge of how to nurture relationships online vs. face-to-face, the second example helps the company frame it as part of a longer-term improvement initiative, increasing the likelihood that cost reductions will stick.

Costs can and often must be reduced on short notice, but that does not mean the response should be purely reactive. Quick action can still result in long-term gains when the reductions are seen to be in line with the organization’s long-term strategy and are consistent with its culture.

Robert S. Olszewski can be reached at Email or 215.441.4600.

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