Cost cutting & strategy

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How many firms are currently failing dismally to deliver cash-flow growth because of an obsession with cost-cutting ? The depressing focus on cost ratios features yet again in McK-Q’s Five ways CFOs can make cost cuts stick, which features meaningless time-charts of industry-wide overhead ratios and urges bench-marking to identify cost-reduction targets. As McK-Q itself has noted, raising ROIC and delivering cash-flow growth are not the same, and frequently conflict.

And there are several things wrong with benchmarking:

  • Your business is not the same as anyone else’s
  • Your possibilities are not the same as theirs, so you should likely be spending on different things
  • The difference between what is best to do, vs. custom-and-practice, is often vast
  • … so it is entirely likely that your benchmark comparators are doing entirely the wrong thing in any case.

At least the article acknowledges that strategy should inform cost-cutting, though offers only superficial guidance as to how this might be done.

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