The 10 of Cost Reduction and Productivity Improvement. While maintaining conditions for growth and innovation.

1. Distinguishing the inventory of the maximum improvement potential of setting a target in cost reduction and productivity improvement. As evident as it may sound, the latter often acts as a hindrance to the former within organizations.
2. Analyze the maximum improvement potential in cost reduction and productivity improvement. In variants. What could be possible? Empirical fact: results, even in the short term. Cost reductions and productivity increases between 10% and 30%, which directly translate into EBIT (Earnings Before Interest and Taxes) increases, are often the result. At the same time, this creates cost awareness and decisiveness within the organization, laying a foundation for structurally better operational performance of the company over many years. Showcase the improvement potential in variants: maximum, medium, and minimum. So that thoughtful choices are possible and the organization is not ‘broken’ and damage is not incurred to the conditions for growth and innovation. Utilize empirical facts:
   1. 25 – 35% productivity improvement, hidden in processes.
   2. Classic cost interventions using benchmarking and overhead value analysis ‘forgotten’, 10 – 15% in potential.
   3. ‘Revenue leakage’: 20% of services are provided for free.
   4. Reverse Pareto: 20% of products account for 80% of costs.
   5. Procurement: underutilized potential despite formal procurement functions.
   6. Measures regarding costs & productivity do not intervene in the heart of processes.
   7. Projects: insufficient control and result-oriented management.
   8. ICT: always the best business case beforehand, never the expected benefits afterwards.
   9. Culture: insufficient ‘cost awareness’ or alternatively ‘penny wise, pound foolish’.
   10. Management information: too extensive to effectively steer.
3. Do not waste time mapping process models, use proven existing ones. See: S=E Annex 9.
4. Set a target in cost reduction and productivity improvement. And allocate it over time. Work as target-setting as possible. This type of issue is only realized when approached with clear and as simple as possible target-setting.
5. Choose a concise approach. However, many trajectories do not result in substantial reduction of the cost base and improvement of productivity and EBIT. What then are the success factors to quickly achieve cost efficiency and productivity improvement in your organization? An integral approach is the key to success. Limited focus on one discipline or, conversely, a ‘slicing’ of the entire organization often leads to suboptimization or – worse – cutting into muscle. Our methodology is based on an integral approach and follows the proven phases of our Strategy = Execution method. In the initial analysis, a brief integral analysis is conducted, issues are identified, and solution directions are developed. Based on management’s vision of the medium term, the breakthrough in structural improvement of profitability is determined, and the necessary support is obtained. Priorities for urgent measures are set, and the business case is concretized. Due to the clear picture of the possibilities in your organization, step 1 is often an interesting separate step that immediately clarifies the options for the organization. This enables a clear Go/No-Go decision.
6. Focus on the most relevant perspectives for analysis and interventions. An effective approach is based on a coherent assessment of the four most relevant cost and productivity perspectives: A: processes, B: assets, C: procurement, D: customer & product portfolio. Explanation:

1. 1. Redesign processes. Processes and their organization and control are assessed for effectiveness, impact, and efficiency. Focused redesign of core processes is an effective way to achieve breakthroughs in productivity and cost reduction. More focus on value-enhancing activities, standardization, and control of relevant operational indicators are typical solutions that reduce process costs.

1. 2. Optimize asset deployment. Optimization of the use of locations, IT systems, and production resources will increase productivity and utilization rate. Freed employees become available for strategically more important activities, and assets can be divested, providing significant cost benefits in organization, personnel deployment, and financing.

1. 3. Procurement: Make-Buy or Ally. The procurement portfolio is assessed for structure, composition, and costs. Reconsidering make-or-buy decisions may be necessary. Potential solutions relate to volume bundling, rationalizing specifications, and alliances.
   4. Rationalize customer and product portfolio. Based on improvements in processes, production resources, and procurement, cost prices are recalculated, and improved profitability of PMC’s (Products, Markets, Customers) is reestablished. Expect poorly performing customers and products to be identified. Decisions to divest in PMC’s are based on a solid foundation.

7. Use specific methods for specific issues, ‘you also put a plaster on a broken arm’. Such as: benchmarking, overhead value analysis (OVA), and DuPont analyses. See building block 5 and figure 23 of the Strategy = Execution method.
8. Simplify simultaneously. If you have to delve into processes and organization anyway, you want to simplify processes, structures, and control at the same time. Of course, cost and productivity measures almost always work simplifying. But there are also independent simplification measures that help employees do their jobs better. And thus contribute to HR goals of retention and employee satisfaction. See the 10 of simplification. << URL to the 10 of simplification >>
9. Break the interventions down into manageable chunks. Usually, the analyses lead to “quick wins” that can be implemented immediately and show savings quickly. The larger ‘breakthrough’, including the necessary adjustments in the organization, is often realized within 3/6/9 months.
10. Pay above-average attention to ownership and communication, set up benefit management, and secure the benefits. See the building blocks from the Strategy = Execution method: building block 3, building block 4, building block 9, and building block 13.

Users of this 10 also often use: the 10 of Lean, the 10 of simplification, and the 10 of synergy.

Apply the Strategy = Execution method for the execution of the chosen simplification measures.