Just cutting costs won't cut it

Just cutting costs won't cut it

Finance and other support functions won’t succeed unless they're actively identifying customer needs and shaping demand.

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Just cutting costs won't cut it

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Support functions keep trimming costs, but their internal customers aren’t cheering.

Over the past two years, companies cut an average 18% of their general and administrative costs, according to a recent Bain & Company survey of support function heads and executives who run business units in roughly 770 U.S. companies. Yet these results did not translate into higher satisfaction for many operating executives. Some 60% of the executives survey surveyed still rate their support functions as high cost, ineffective or both.

Meanwhile, the leaders of those support functions often fret that continued cost cutting hurts service quality and leads to lower satisfaction. But the data show otherwise. For example, we analyzed data provided by SAP about finance departments at 4,000 companies worldwide. The top performers in service quality consistently performed better on efficiency metrics, whether based on revenue or headcount.

For CFOs, the challenge is two-fold. First, it’s getting harder to make cost savings stick. In the Bain survey, while 78% of executives were confident in their ability to achieve their cost savings goals, only 58% successfully delivered on their targets, and only one in four sustained their savings after two years.

Second, support functions have to adapt to the changing expectations of their internal customers. Business leaders want finance, human resources, marketing and so on to evolve from operating resources and cost centers into full-fledged partners in executing strategies.

To create lasting improvements in efficiency and effectiveness, high-performing companies focus on getting four things right...

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