Finance / Cost Optimization

Cost Optimization – Introduction

While economic recovery from the COVID-19 pandemic is underway in certain industries, impacts are still being felt globally from travel and hospitality to healthcare and insurance to oil and gas. For some business segments, recovery may not be coming fast enough.  The pandemic has put extreme pressure on executive leaders to address budget and forecast shortfalls without sacrificing long term stability and recovery.

American Airlines is reporting 19,000 employee furloughs through October. Coca-Cola saw sales drop 28% in its second quarter and has announced 4000 voluntary employee layoffs.

Industry leaders have experienced volatile financial situations before but never at a time when the global digital economy has created such tightly interconnected supply chains across almost every industry.  Even for organizations that have been financially insulated during the crisis, such as home improvement, technology, and pharmaceuticals, now is the time to understand and optimize the enterprise cost structure for sustained growth.

In this cost optimization series, Thought Logic will explore a structured and systematic approach to identify key areas for improvement and potential quick cost management wins across the enterprise.

  1. Building the case for change / Understanding trends and opportunities
  2. Avoiding common pitfalls using a balanced approach
  3. Understanding the levers to maximize ROI
  4. Mobilizing a team for a quick start
Building the case for change /
Understanding trends and opportunities
Avoiding common pitfalls using a balanced approach Understanding the levers to maximize ROI Mobilizing a team for a quick start

As suggested, cost management is a strategic imperative for companies looking to grow, maintain continuity, or gain market share in a dynamic, highly competitive global marketplace.​

While the case for change is certainly easy to defend, especially during a time of crisis or periods of uncertainty, companies that quickly cut across the board may not see the desired benefits.  In a McKinsey Quarterly 2009 study, “79 percent of all companies have cut costs in response to the global economic crisis—but only 53 percent of executives think that doing so has helped their companies weather it.”  It will be an interesting case study to see if history repeats itself as companies quickly drive to stabilize their balance sheets.

At Thought-Logic Consulting, we believe that following a holistic optimization strategy can help companies sustain operational and financial health.  It is critical to look across entire enterprises and consider alternative businesses and operating models that take advantage of current and projected operational trends.  Some current trends we have observed include:

  • streamlining business processes
  • taking a renewed focus on cost and external expense policies and compliance
  • aligning organizational structures to reduce complexity and decision-making
  • evaluating automation and third-party relationships

Cost optimization is not an undertaking that should be initiated as the result of an economic downturn or market uncertainty.  It should be an ongoing process that helps companies solidify their balance sheets, but more importantly, maintain focus on business areas to invest and divest.  That being said, there has never been a better time than now to evaluate cost structures and scale businesses for the future.

As part of the overall cost optimization series, our next article will explore building the case for change and analyze current trends and opportunities in the marketplace.  Utilizing the right approach for driving cost optimization will help your organization be better poised for sustained growth.

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