The Agile Cost Advantage
Position your business for success with an efficient and responsive cost structure
Achieving rapid and sustainable cost reduction is a critical business objective. As businesses emerge from the recent covid-induced economic downturn, and Governments begin to taper back emergency fiscal measures, the near-term outlook for many businesses remains challenging.
Rebalancing the cost base to reflect the new operating environment could be the difference between maximising future opportunities as economies revert to recent growth trends, or becoming another business casualty.
The Agile Cost Advantage is the culmination of 20 years’ of working with business leaders on cost reduction.
Cost reduction is a critical business objective
A focus on cost reduction is important and can deliver key, long-term, strategic benefits.
A lower cost base is an important source of competitive advantage, allowing a business to undercut competitors, or offer greater value, and gain market share.
Alternatively, a lower cost base drives improved margins, increasing capacity to fund new growth initiatives.
These include the simplification of internal complexity, and improvements to the internal culture, increasing the sense of accountability within the organisation, as well as morale.
Cutting costs sustainably is challenging, with a high failure rate
Although cost reduction programs can deliver a powerful mix of financial, strategic, and organisational benefits, the failure rates of these types of programs are very high.
A recent survey of C-Suite executives for example, found that 75% of cost reduction programs failed to meet their targets.
An agile cost advantage is therefore more about changing the way things are done within a business, to remove the hidden costs that are concealed behind overly complex processes or bureaucratic organisational structures.
The Agile Cost Advantage
At Zenith, we have spent the last 20 years helping businesses and private equity funds with performance improvement and turnaround support. A key part of our advisory work has been helping clients to structure and deliver successful cost reduction and performance improvement programs.
Based on this experience, we have distilled our insights into the Agile Cost Advantage. This is a four stage approach to cost reduction, which introduces a systematic approach to the overall delivery of cost reduction programs and eliminates common causes of program failure. The leads to greater and more enduring strategic value creation. This is why our clients typically achieve a return on program investment of 40-100x.
You can learn more about each stage of our Agile Cost Advantage approach below:
A well-structured cost reduction program starts with setting a target. Having a target is important to define the ambition up-front, establish early momentum, and provide a basis to track to success of the program. We then identify cost opportunities.
Each cost opportunity can be thought of as a stand-alone initiative targeting a specific cost area. During the identification stage, as many possible cost opportunities as possible are identified. These are then prioritised based on expected impact and riskiness / time to deliver, to arrive at a list of cost reduction initiatives to take forward as part of the program.
During the design cost initiatives stage, the list of prioritised cost opportunities are converted into actionable plans, with defined milestones, resources, and key financial and operational metrics. In parallel with working up individual plans for each initiatives, those cost opportunities that offer the most potential for delivering early savings should be fast-tracked for immediate implementation. This builds early momentum for the overall program, and in some cases can effectively fund the remainder of the program from the cashflow benefits of these quick win initiatives.
The deliver cost initiatives stage is about tracking the ongoing delivery of the initiatives, as well as tracking the actual financial benefits delivered from each initiative. It is inevitable during a complex cost reduction program that some cost initiatives will either be delayed or fail to deliver the anticipated benefits. Having the necessary tracking processes in place ensures that these variances are identified sufficiently early for additional mitigating measures to be implemented.
Benefits of the Agile Cost Advantage approach
When a cost reduction program is designed well, with a focus on eliminating the hidden costs within the organisation through operational changes and simplification of decision-making processes, the benefits can be significant. A lower cost base improves cash flow and increases the capacity of the business to fund new strategic initiatives or expansions into new markets. Businesses that implement the Agile Cost Advantage benefit from a nimbler, more agile organisation, able to respond rapidly to new opportunities or changes in the market environment.