The Lunacy of Cost-Cutting by Cutting Costs


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A new McKinsey study reports: “Only 10% of cost-reduction programs sustain their results three years on.” What goes wrong? Two things. Companies either: 1.) ignore process and just cut bodies; or, 2.) redesign “how” work is done for cost-cutting purposes. The first approach should be discussed in a “Dick & Jane” group, not here. The second approach not only ignores the root causes of inefficiency, but it’s like pulling a coiled spring and expecting it to stay extended. Three years to spring back? Lucky if it takes three months. Or three weeks. Or even three days.

To create lasting change, companies have to remove the spring, not pull on it. By that, I mean they have to change “what” work is being done; “who” functionally is doing it;” yes, “how” it’s done, although that’s not the most important element; and the underlying technology support. Doing all four creates sufficient change to eliminate the “recoil route,” which is essential to avoid reversion. But how does this reduce expense better than making “how” work is done more efficient – in other words, “cutting costs?”

Simplement, my friends. By letting customers determine: “What” work should be done; “Who” should do it; “How” it should be done; and the technology that should support the new work. Wait, letting customers drive work saves money? You betcha. Customers HATE: layers of bureaucracy; dealing with un-empowered employees; excess supervision; relying on complex policies instead of common sense; work designed to maintain internal silos instead of delivering customer value – all the damn stuff Outside-In process eliminates, thereby cutting far more cost than accomplished by cutting one body at a time or using a process knife to trim surface fat.

Republished with author's permission from original post.


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