Driving Down Cost: How to manage and cut costs intelligently
DRIVING DOWN COST sets out a structured practical approach to intelligent cost management:
- A Cost Manager Toolkit of key ideas and cost management strategies
- Frameworks for analysing cost
- Practical techniques for implementing cost reduction programmes – one-off or continuous
The book addresses the topic of cost in a general and holistic way. It is relevant to all private sector businesses, and to public sector organisations. There is a bias in the material towards services businesses and service activities, rather than manufacturing – there is a lot new to say about services cost, while production cost already has a rich literature.
DRIVING DOWN COST is for the general manager and the general reader, providing an overview of the broad sweep of cost management, rather than detailed coverage of specialist sub-topics. So for example I discuss procurement, but not at the level of detail needed to become a professional Procurement Manager. I discuss management accounts, but not at the level of detail expected of a CPA or Finance Director. There are dozens of detailed technical manuals available on procurement and on cost and management accounting, and that is not what this book is about.
One of my motivations for writing this book was that, when the idea first came, I could not find any business book that sets out a generalised approach to the topic of cost management. Given that so many consulting projects, and so much management energy and attention, are focused on cost reduction, this gap was surprising. It gave me reason to believe this book would find a good audience.
“Managing” or “Cutting” Cost?
I and my publishers had a chewy debate on whether this book should talk about “cutting” cost or “managing” cost. “Managing” sounded grey and dull. “Cutting” sounded a lot sexier, the Errol Flynn of business topics.
But you only need to engage in high-profile cost-cutting if you haven’t been effective at long-haul cost management. Cost-cutting sounds like something you have to do in extremis, a one-off cost reduction programme. This book does cover those one-off programmes, but that’s not the main theme. Most managers are very interested in sustained cost management, but less interested in one-off cost-cutting.
So “managing” is the main theme, and “cutting” is the secondary theme.
The Research Base
Firstly, I draw on my own experience as a consultant and line manager. I started as a business consultant in the mid-1970s. I worked with Booz Allen & Hamilton in London and New York, and with Boston Consulting Group in Boston, while I got my Harvard MBA. I ended up as a senior partner with OC&C Strategy Consultants in Europe.
I have run at least fifty big one-time cost reduction projects, mainly in America and Europe, plus a few in Asia. My client has always been the CEO, or another Board-level manager, or the head of a business unit. Recently, my clients have included new private equity owners – I have run several “First 100 Days” profit improvement programmes on their new acquisitions. These projects and clients have covered many business sectors: consumer goods, retailing, travel and transport, financial services, software and IT, information and media services, telecommunications, commercial services.
With those cost reduction projects, the client usually needs to get cost out quickly, but without killing future growth potential. A project will take three to four months. We set up working parties with management teams, do the analysis, identify cuts, develop action programs. It is an iterative and argumentative process. I have done it for big global businesses with a billion-dollar cost bases and thousands of staff, and for small individual departments with fifty staff.
I have also been CFO of two technology businesses, a software firm based in Seattle and an offshore IT business based in India. And I have been Strategy Director, and manager of strategic projects, for a global travel business, for a large UK physical distribution and retail group, and for a fashion and department store retailer. In these positions I have managed cost over the long haul, under regular planning, budgeting and reporting cycles.
Research material was also developed specifically for this book, in 2006 and 2007, and again in 2009 and 2010, covering both the private and public sectors.
Who the book is for
The book is for managers at every level and in every function.
Cost management is not an issue only for the CEO, or for senior management. Junior managers who are proactively tight on cost is learning good habits for the future, ones that will bring them recognition and advance their climb up the organisation chart.
Senior managers promote people who make tough decisions themselves and take full responsibility for those decisions. They promote people who come with solutions, not problems. Too many junior managers take a long time to get to that coming-of-age realisation. They prefer cosy after-work drinks with their teams, telling their staff that it’s the boss making nasty decisions about not funding extra resources, or getting rid of under-performers. They will still be having those cozy drinks in ten years’ time, when their take-it-on-the-chin cost-cutter colleague is in the boardroom.
Most of the case studies in the book are about quite large businesses, of the size of a Fortune 500 or FTSE 250 company. But the ideas and actions are equally valid for smaller companies. Indeed, for small private companies and their owner-operators the cost imperative is very direct and personal.
Most of the material is about private sector business. But I conclude with a chapter on the public sector, where cost management can be a huge challenge. So I hope that the book also finds an audience, and a usefulness, among public sector managers and policy-makers.
How the book is structured
Chapter 1 – Good Cost Management looks at the unsung hero the cost manager, and at how intelligent cost management helps an organisation’s operations to be cheaper and better.
Chapter 2 – Leadership considers how the top team – the CEO, COO, Business Unit heads, the heads of Finance and HR – needs to take the lead and set the tone on cost.
Chapter 3 – Techniques & Tactics lays out a set of ideas, approaches, tips and tricks that I have found effective, in cost reduction programmes and in ongoing cost management.
Chapter 4 – People tackles the most difficult and most critical cost area: full-time staff. Because it is problematic, it is usually left till last in any cost discussion. We take it on early.
Chapter 5 – Suppliers covers all other cost categories, from raw materials to outsourced services.
Chapter 6 – A Cost Cutting Case Study gives a blow-by-blow account of a four month cost reduction project I managed for a European business services company that had been acquired by private equity.
Chapter 7 – Wired & Global explores two of today’s high profile cost reduction themes that have huge potential: the Internet and globalisation (the China model and the India model). In a decade or two they may be played out, but right now they are incredibly powerful.
Chapter 8 – Lateral Thinking turns some conventional thinking about cost on its head. It looks at the sneaky ways cost can get created, and the smart ways it can be cut – like getting your customers to do your work for you, or turning cost into revenue.
Chapter 9 – Cost Management as Strategy discusses how good cost management can underpin business strategy, including delivering value via acquisitions, using pricing as a competitive weapon, and discovering more new growth opportunities.
Chapter 10 – Cost in the Public Sector employs the frameworks of the previous chapters to look at the particular challenges of managing and cutting government spending. This chapter has been largely updated since the first edition to reflect the enormous cost-cutting pressure now on governments to sort out post-crunch deficits.
Chapter 11 – Conclusion summarizes how the various parts of the cost manager toolkit fit together.
