Sustained Cost Reduction


Right sizing departmental silos usually doesn't affect the cost structure permanently. Because the underlying work hasn't gone away, the fat creeps back. The cost reductions last only until everyone goes back to their old ways in a few years.

 The pattern is like the behavior of someone who goes for repeated liposuction surgeries without changing his lifestyle to permanently keep his weight under control.

An alternative approach to cost cutting is built into the "Six Sigma" methodology as popularized by GE. Companies launch process improvement projects with hard financial targets. These projects get costs out, but  when the project leaders ("Black Belts") leave and move on to their next project, the costs creep back. The quoted financial savings from Six Sigma projects, while valid, aren't having long-term effects on their cost structure.

To perennially keep costs down companies need to change the way that work is accomplished — the business processes of the organization. By continually focusing on improving the experiences that customers have with the organization, the quality of offerings, and the time it takes to bring them to market, they will get cost effectiveness as a byproduct. The most important move is inspiring every employee to think about how they do their work and how to improve it.

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