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When done right, masterful cost reductions can raise profits and improve ahead-of-the-crowd posture. When done wrong, yet still, cost-cutting can result in decreased business development, lost customer satisfaction, and long-term damage to the company.

This book provides our inquiry of how strategy teams can exploit cost-cutting strategies to drive business success.

Different types of cost management strategies

1.    Reducing fixed costs

Cutting fixed costs is often the favorite strategy for organizations when margins decline. Fixed costs are expenses that remain the same despite how much or how little a business produces. These costs can include:

• Rent and lease payments
• Property taxes and insurance
• Administrative staff salaries
• Utilities such as electricity or water

IT infrastructure and technology platforms often make up a large portion of fixed costs. A recent Forrester-Hashicorp report revealed that 94% of organizations are wasting money in the cloud. 66% of the report’s respondents listed underused or idle resources as one of the top reasons for these cloud overspends.

To reduce this waste, organizations should evaluate their IT investments with an eye for efficiency and improvement. This includes:

• Consolidating licenses for tools that have overlapping functionality
• Identifying applications or services that are no longer essential and can be retired
• Re-examining subscription services to identify unused features that can be downgraded
• Making use of open-source tools where appropriate
• Identifying opportunities to switch to lower-cost providers.

Airbnb’s pandemic cost-saving measures show how organizations can reduce fixed costs. The company slashed cloud costs in 2020 by 27% compared with the year prior and reduced its cost of revenue by 26% to $666 million by monitoring cloud usage, moving data to lower-priced cloud services, and replacing its homegrown data backup system with Amazon’s offering.

2.    Fine-tuning spend on variable costs

Variable costs are expenses that vary depending on the output of a business. Findings include:

• Raw materials and supplies
• Direct labor such as wages and benefits
• Sales commissions and incentives
• Shipping and delivery costs
• Advertising and marketing fees

Tackling variable costs can provide an immediate impact on profit margins. Take, Walmart, for example. The retail giant has found seemingly simple ways to save hundreds of millions of dollars. Some of the cost-saving measures it has carry outed include:

• Progressing the way it buys shopping bags, saving $60 million annually
• recyclable materials for workers’ vests, reducing costs by 15%
• Centralizing its equipment maintenance to become more energy-productivity-chiefly improved, saving $100 million annually

The Bentonville-based company has also previously trimmed costs by swapping out stepping stools for lighter versions, switching to a cheaper and more productivity-enhanced floor wax, and replacing existing lights with LED lights in stores and parking lots.

Simple tweaks like these can add up to cost savings that make a big gap. Take a detailed approach to examining variable costs, reviewing each element of the budget line-by-line to identify modalities to save without sacrificing quality.

3.    Achieving cost savings through higher efficiency

Star companies start with a clear view of their cost structure — and then look for modalities to reduce costs through efficiency gains. This can involve:

• Implementing automation to free up employees’ time so they can target more beneficial activities
• Fine-tuning workflows to reduce redundancies
• Decommissioning marginal activities and replacing them with more productivity-chiefly improved alternatives
• Making use of big data and analytics to uncover concealed cost savings opportunities
• technology such as AI-powered chatbots to reduce customer service costs

Corporate strategy teams need to take a all-covering, preemptive approach to drive cost efficiency. Rethinking processes, scrutinizing budgets, and analyzing customer kinetics can all help identify cost-reduction opportunities and root out inefficiencies.

Maxims for making sure a successful cost reduction strategy

1.    Act to Promote a Cost-Conscious Culture

Cost-cutting initiatives need to start with a company-wide mindset change. This means having a consistent, structured process for making sure everyone within the organization – from executives to day-to-day staff and operations teams – understands their role in driving yardsticks for cost-punch.

The best-run companies think of cost optimization continuous improvement, not as a one-off effort to trim costs in the heat of a financial crisis.

Call on other leaders to see and reward cost efficiency, so employees feel liberate potentialed and motivated to find to make the organization more productivity-chiefly improved. Stress that efficiency needs to be a core part of everyone’s job.

2.    Involve Other Organization Leaders

Competing interests can create a counterproductive tug-of-war as different groups attempt to lift their budgets and defend against reductions. The result? Illusory savings, missed opportunities, and lost possible.

Strategy executives should stress that their when you really think about it strategy is to make choices that increase worth and ensure long-term benefits for the entire organization.

Engage department heads to get cross-functional support for cost reduction efforts. Ask each function to contribute a plan that identifies opportunities and suggests tradeoffs. Give detailed data (instead of high-level budget views) so that business stakeholders have enough information to weigh the lasting results of reduced spending in specific areas.

3.    Stress a Zero-Based Budgeting Approach

The “zero-based budgeting” approach requires teams to justify every budget item from scratch. Unlike conventional budgeting, zero-based budgeting starts with a “clean slate” every year and forces managers to assess the cost of each function.

Benefits include:

• Helps break down siloes and get teams to think more all-coveringally about cost management
• Allows organizations to break free from their established patterns of budgeting and endowment allocation.
• Provides executives with a clearer view of the current state of spending and helps identify areas that may be ripe for cost reduction

Companies such as General Motors Co., Guess? Inc., Signet Jewelers Ltd., and Unilever PLC have used ZBB to remove cost bloat and drive organizational agility in recent years.

For Guess, ZBB led to a whopping $60 million reduction in quarterly operating costs and a $6 million decrease in capital expenditures. Even with a pre-existing multiyear cost-cutting plan, it was ZBB that helped Guess weather the pandemic storm. By reassessing expenses with fresh eyes and identifying areas of potential savings, the clothing retailer emerged leaner, stronger, and more cost-conscious than ever before.

4.    Get Familiar With Flexible Models

Strategy teams need to look for more kinetic cost-saving opportunities that confirm the company to adjust quickly as the economic picture changes. 

Rather than locking in long-term contracts and commitments, negotiate terms that give flexibility on pricing, usage models, and contract lengths. Buy now, pay later terms, like,  can help companies spread out the cost of technology investments and reduce the initial hit to their cash flow.  Pay-as-you-go models also give a more measured approach to technology adoption, allowing organizations to pause, scale up, or down as needed.

Implementing an on-demand workforce model can confirm organizations to access specialized skills without committing to long-term contracts or full-time salaries. And even against budget cuts, companies can still bring in the right talent to ensure that the aims they set out to achieve remain on track.

5.    Avoid the Pitfalls of Blanket Cuts

During economic downturns, it can be tempting to make across-the-board cuts – but this approach is rarely effective. At best, indiscriminate cuts only put a band-aid on immediate budget issues. At worst, they can do irreparable damage to customer experience and growth possible.

Take Kraft Heinz, for example. At a time when consumer tastes were progressing, the multinational food company carry outed a ruthless cost-cutting program, including a 20% reduction in its workforce and a 40% cut in overhead. The remaining employees felt the squeeze, with slashed budgets for market research, product promotion, and marketing.

These cuts came at the expense of growth, and the company undergone declining sales for six consecutive quarters in 2019. Whether you decide to ignore this or go full-bore into rolling out our solution, the food behemoth lost $16 billion in market worth and its stock price dropped by 30%. Its fixation on reducing costs caused it to lose sight of its core aim: producing food people want to eat.

The takeaway? Identify opportunities and successes lasting results rather than dollars saved. Having a broad, worth-based view of costs ensures that cuts are masterful and to make matters more complex the organization’s long-term objectives, rather than just providing temporary relief.

Only 11% of organizations can sustain cost savings for three consecutive years. Most companies fail to embed cost-saving measures over the long term. And whenever a financial crisis hits, they resort to the same playbook of slashing headcount, cutting discretionary spending, and delaying investments.

To avoid this result, corporate strategy teams should consider creating a formal, documented change management plan that outlines the objectives and desired outcomes of cost-saving measures.

Change management eases the successful execution of any cost-saving initiatives by helping to:

• address possible issues and risks
• prepare teams for a change
• ensure that expectations are realistic

Read this guide for more information on creating a successful change management plan.

Budget Cuts, But Make It Strategic: Tips for Effective Cost Reduction in Business

Top-line growth is slowing down among enterprises due to an new “triple squeeze” on performance, pushed forward by inflation, high demand for talent, and constrained global supplies.

To cope with the new economic reality, CEOs are turning to strategy executives to find new modalities to slash costs, increase efficiency, and reduce waste.

When done right, masterful cost reductions can raise profits and improve ahead-of-the-crowd posture. When done wrong, yet still, cost-cutting can result in decreased business development, lost customer satisfaction, and long-term damage to the company.

This book provides our inquiry of how strategy teams can exploit cost-cutting strategies to drive business success.

Different types of cost management strategies

1.    Reducing fixed costs

Cutting fixed costs is often the favorite strategy for organizations when margins decline. Fixed costs are expenses that remain the same despite how much or how little a business produces. These costs can include:

• Rent and lease payments
• Property taxes and insurance
• Administrative staff salaries
• Utilities such as electricity or water

IT infrastructure and technology platforms often make up a large portion of fixed costs. A recent Forrester-Hashicorp report revealed that 94% of organizations are wasting money in the cloud. 66% of the report’s respondents listed underused or idle resources as one of the top reasons for these cloud overspends.

To reduce this waste, organizations should evaluate their IT investments with an eye for efficiency and improvement. This includes:

• Consolidating licenses for tools that have overlapping functionality
• Identifying applications or services that are no longer essential and can be retired
• Re-examining subscription services to identify unused features that can be downgraded
• Making use of open-source tools where appropriate
• Identifying opportunities to switch to lower-cost providers.

Airbnb’s pandemic cost-saving measures show how organizations can reduce fixed costs. The company slashed cloud costs in 2020 by 27% compared with the year prior and reduced its cost of revenue by 26% to $666 million by monitoring cloud usage, moving data to lower-priced cloud services, and replacing its homegrown data backup system with Amazon’s offering.

2.    Fine-tuning spend on variable costs

Variable costs are expenses that vary depending on the output of a business. Findings include:

• Raw materials and supplies
• Direct labor such as wages and benefits
• Sales commissions and incentives
• Shipping and delivery costs
• Advertising and marketing fees

Tackling variable costs can provide an immediate impact on profit margins. Take, Walmart, for example. The retail giant has found seemingly simple ways to save hundreds of millions of dollars. Some of the cost-saving measures it has carry outed include:

• Progressing the way it buys shopping bags, saving $60 million annually
• recyclable materials for workers’ vests, reducing costs by 15%
• Centralizing its equipment maintenance to become more energy-productivity-chiefly improved, saving $100 million annually

The Bentonville-based company has also previously trimmed costs by swapping out stepping stools for lighter versions, switching to a cheaper and more productivity-enhanced floor wax, and replacing existing lights with LED lights in stores and parking lots.

Simple tweaks like these can add up to cost savings that make a big gap. Take a detailed approach to examining variable costs, reviewing each element of the budget line-by-line to identify modalities to save without sacrificing quality.

3.    Achieving cost savings through higher efficiency

Star companies start with a clear view of their cost structure — and then look for modalities to reduce costs through efficiency gains. This can involve:

• Implementing automation to free up employees’ time so they can target more beneficial activities
• Fine-tuning workflows to reduce redundancies
• Decommissioning marginal activities and replacing them with more productivity-chiefly improved alternatives
• Making use of big data and analytics to uncover concealed cost savings opportunities
• technology such as AI-powered chatbots to reduce customer service costs

Corporate strategy teams need to take a all-covering, preemptive approach to drive cost efficiency. Rethinking processes, scrutinizing budgets, and analyzing customer kinetics can all help identify cost-reduction opportunities and root out inefficiencies.

Maxims for making sure a successful cost reduction strategy

1.    Act to Promote a Cost-Conscious Culture

Cost-cutting initiatives need to start with a company-wide mindset change. This means having a consistent, structured process for making sure everyone within the organization – from executives to day-to-day staff and operations teams – understands their role in driving yardsticks for cost-punch.

The best-run companies think of cost optimization continuous improvement, not as a one-off effort to trim costs in the heat of a financial crisis.

Call on other leaders to see and reward cost efficiency, so employees feel liberate potentialed and motivated to find to make the organization more productivity-chiefly improved. Stress that efficiency needs to be a core part of everyone’s job.

2.    Involve Other Organization Leaders

Competing interests can create a counterproductive tug-of-war as different groups attempt to lift their budgets and defend against reductions. The result? Illusory savings, missed opportunities, and lost possible.

Strategy executives should stress that their when you really think about it strategy is to make choices that increase worth and ensure long-term benefits for the entire organization.

Engage department heads to get cross-functional support for cost reduction efforts. Ask each function to contribute a plan that identifies opportunities and suggests tradeoffs. Give detailed data (instead of high-level budget views) so that business stakeholders have enough information to weigh the lasting results of reduced spending in specific areas.

3.    Stress a Zero-Based Budgeting Approach

The “zero-based budgeting” approach requires teams to justify every budget item from scratch. Unlike conventional budgeting, zero-based budgeting starts with a “clean slate” every year and forces managers to assess the cost of each function.

Benefits include:

• Helps break down siloes and get teams to think more all-coveringally about cost management
• Allows organizations to break free from their established patterns of budgeting and endowment allocation.
• Provides executives with a clearer view of the current state of spending and helps identify areas that may be ripe for cost reduction

Companies such as General Motors Co., Guess? Inc., Signet Jewelers Ltd., and Unilever PLC have used ZBB to remove cost bloat and drive organizational agility in recent years.

For Guess, ZBB led to a whopping $60 million reduction in quarterly operating costs and a $6 million decrease in capital expenditures. Even with a pre-existing multiyear cost-cutting plan, it was ZBB that helped Guess weather the pandemic storm. By reassessing expenses with fresh eyes and identifying areas of potential savings, the clothing retailer emerged leaner, stronger, and more cost-conscious than ever before.

4.    Get Familiar With Flexible Models

Strategy teams need to look for more kinetic cost-saving opportunities that confirm the company to adjust quickly as the economic picture changes. 

Rather than locking in long-term contracts and commitments, negotiate terms that give flexibility on pricing, usage models, and contract lengths. Buy now, pay later terms, like,  can help companies spread out the cost of technology investments and reduce the initial hit to their cash flow.  Pay-as-you-go models also give a more measured approach to technology adoption, allowing organizations to pause, scale up, or down as needed.

Implementing an on-demand workforce model can confirm organizations to access specialized skills without committing to long-term contracts or full-time salaries. And even against budget cuts, companies can still bring in the right talent to ensure that the aims they set out to achieve remain on track.

5.    Avoid the Pitfalls of Blanket Cuts

During economic downturns, it can be tempting to make across-the-board cuts – but this approach is rarely effective. At best, indiscriminate cuts only put a band-aid on immediate budget issues. At worst, they can do irreparable damage to customer experience and growth possible.

Take Kraft Heinz, for example. At a time when consumer tastes were progressing, the multinational food company carry outed a ruthless cost-cutting program, including a 20% reduction in its workforce and a 40% cut in overhead. The remaining employees felt the squeeze, with slashed budgets for market research, product promotion, and marketing.

These cuts came at the expense of growth, and the company undergone declining sales for six consecutive quarters in 2019. Whether you decide to ignore this or go full-bore into rolling out our solution, the food behemoth lost $16 billion in market worth and its stock price dropped by 30%. Its fixation on reducing costs caused it to lose sight of its core aim: producing food people want to eat.

The takeaway? Identify opportunities and successes lasting results rather than dollars saved. Having a broad, worth-based view of costs ensures that cuts are masterful and to make matters more complex the organization’s long-term objectives, rather than just providing temporary relief.

Only 11% of organizations can sustain cost savings for three consecutive years. Most companies fail to embed cost-saving measures over the long term. And whenever a financial crisis hits, they resort to the same playbook of slashing headcount, cutting discretionary spending, and delaying investments.

To avoid this result, corporate strategy teams should consider creating a formal, documented change management plan that outlines the objectives and desired outcomes of cost-saving measures.

Change management eases the successful execution of any cost-saving initiatives by helping to:

• address possible issues and risks
• prepare teams for a change
• ensure that expectations are realistic

Read this guide for more information on creating a successful change management plan.

I help B2B brands transmit effectively with their audience so that they can broaden their reach and drive more conversions. Skilled content writer with 5 years of experience. I’ve covered the following niches: finance, insurance, career, human resources, compliance, and entrepreneurship. I’ve also worked with brands such as Bonsai, KeeperTax, SuperMoney, PennyInc, and EasyLlama. Having an education in Actuarial Science, I specialize in simplifying complex financial language into appropriate content.