5 Steps to More Strategic Cost Management

The best-run companies see cost management as a way to support their strategy, searching for ways to cut bad costs so they can redirect resources to invest in their strengths, says a recent Harvard Business Review article from PwC’s Strategy&.

The authors offer five tips to help organizations manage costs more efficiently:

• Connect costs and strategy. Every opportunity to cut costs provides a chance to channel investments toward strengthening your value proposition. This means viewing costs as a multiyear investment in differentiating capabilities designed to help your company execute its strategy.

• Rethink costs in terms of capabilities. Unravel functional budgets and sort out the strategic implications of your current spending patterns to enable a meaningful discussion among executives about what is needed to win in the market.

• Break free of past budgetary practices. List all the expenses related to the activities of the enterprise and then, one by one, decide which are most important. Differentiating capabilities will get the resources they need while extra costs are cut.

• Make your cost-management plan sustainable. Build financial systems that create more transparency around costs associated with differentiating capabilities and those that are dispensable.

• Be proactive. Make a plan before your company is in trouble to avoid rushed decision-making and long-term problems. Create a continuous cost-management mindset that connects costs to strategy to ensure your company never gets out of shape.

See the full article from HBR, “How to Cut Costs More Strategically.”