Building a global client portfolio across a wide spectrum of customers – from health care and government to heavy industries, private equity and printing – Lean management specialists Four Principles are using Sustainable Cost Reduction to help businesses in crisis. But what exactly is Sustainable Cost Reduction and how does it work?
A crisis is an opportunity, not a catastrophe.
Sticking your head in the sand and hoping the crisis will pass is not a strategy. Even if you manage to weather the storm and the market recovers, conditions will have changed and you will be even further behind. A crisis needs to be viewed differently. There is no greater motivation to change than a crisis. Success stories such as Toyota and Porsche were born in crises. A crisis should be viewed as a gift. Four Principles’ Sustainable Cost Reduction approach helps you use the crisis to your advantage by tackling two key stumbling blocks; avoiding the negative affects of cost cutting and the fact that there are no resources available to implement improvements even if there is motivation.
Isn’t this just cost cutting?
In a word, no. Whilst cost cutting is a financial and strategic cul de sac with benefits that only accrue in the very short term – if at all. In fact, through repeated cost-cutting “interventions” cost actually grows over time. Here is a simple truth: you cannot set the price of a product; the customer or market does this. And, during a crisis, prices drop as competition heats up. Therefore, reducing cost is the only lever you have to maintain profitability. The word “sustainable” means that the cost reductions are permanent and done in a way that does not damage the business. I.e. this must be done without affecting or even improving quality and delivery service to the customer. The only sustainable way to reduce cost permanently is to reduce Waste.
How does it work?
The Four Principles Sustainable Cost Reduction approach tackles exactly the two barriers that block you from making improvements during a crisis. First, how to avoid damaging cost cutting. Together with the impacted staff, the actual value of the product or service to the customer is brought back into question. The value to the customer changes over time but dramatically so during a crisis. This re-calibration is used as a north star to allow the team of consultants and staff to isolate the healthy and necessary parts of the organization that need to be nurtured while identifying the not necessary or purely wasteful activities to be removed without causing damage. The second is to free us resources such as key people and cash to support further improvement. Together, the team works quickly to implement on the ground. They target specifically wasteful activities that can be implemented quickly and when removed, do not affect the quality or delivery service to the customer.
What’s the end game?
Simple, to get you out of the crisis and able for the path to systematic continuous improvement. The freed-up resources provide the stamina to nurture the value adding parts of the organization. A sustainable plan for the detailed process reengineering work is then developed. The result of which is to actually improve the quality and delivery service while further reducing cost. Through teamwork between Four Principles consultants and staff.
Does it work?
Using, the Sustainable Cost Reduction Approach, Four Principles has helped multiple organizations weather the current storms and improve further. Operation losses were turned into profits during the toughest of times. More than the financials however it was making the organizations healthy and better able to serve customer needs was the real long-term benefit, in a word sustainable.
