Cost Reduction and Profitability Improvement Programs

Cost Reduction and Profitability Improvement Program – And the management needs to keep the focus on the daily business at the same time. Is this possible without delays and higher expenses?

The company is showing red numbers and the management needs to act now. Owners and investors are worried. Reducing costs will increase profitability, but there are many things to consider before the goals are reached. In most cases, the experience of leading cost reduction programs is lacking internally, leading to delayed, expensive, or even failed, projects.

These actions, among others, may show significant results, but unless you identify the real problems behind your decreasing financial performance, this will be a short-term achievement. To perform a cost reduction and profitability improvement with sustainable effects, various analyses need to be made to find out where the problem areas are, and subsequently develop a strategy and implement it.

Many cost reduction programs are not always communicated through all levels in the company, making it hard to get understanding, engagement, and motivation throughout the organization. If there are competing interests and internal disagreements, the project may be delayed and much more expensive than expected. ?

“I am proud of what we have achieved and how all employees have acted. We have done a fantastic job together. The most important thing is to bring along the employees and maintain the enthusiasm.” Interim CEO leading a substantial cost reduction program for a Swedish retail company.

?To lead a change program, you need to have experience

Cost reduction programs are usually led by the CEO or CFO, but sometimes it is the CEO and/or management who are responsible for the poor results and are therefore not the most suitable persons to lead the process.

To perform a successful cost reduction and profitability improvement, you will need a specialist who has done the same journey many times. This could be an interim CEO, or an experienced Project or Program Manager (PMO). Seeing the business with new eyes, bringing experience and the right leadership, is a good way to ensure a successful process while the organization can keep the focus on the daily business.

?Her is a case study that I want to share with you:

A B2B company had lost a large number of their customers during the last 3 years and some of the key employees had left the organization. The profitability was low, and the employees were demotivated and had lost their trust in the management. The CEO was occupied with the daily business and handling the owners’ and investors’ demands and decided to hire an Interim Manager to lead a cost reduction project.

?To reduce the costs and improve the profits, the management structure was reorganized with clear areas of responsibility, the various competencies were analysed, leading to the replacement of some employees. New processes for financial control were implemented, the decision was taken to lay down one of the three warehouses, and the customer service was improved. By taking these measures, the company could reduce its costs significantly. Within six months after the new ways of working, the profitability had increased considerably.