Incremental approaches to reducing costs often don't result in meaningful savings. Jason Heinrich, a partner with Bain's Performance Improvement practice, describes new ways of thinking that can mobilize companies to pursue cost-saving transformations that last.
Read the transcript below.
JASON HEINRICH: One of the most critical failure points of cost transformations is that when these transformations end, costs often come back. In fact, CFOs often complain to us that they have to take the same cost out year after year. And I think one of the most common situations where that is true is where companies take much more incremental approaches to cost reductions. It's a series of small initiatives that are intended to add up to big savings.
But we find that the transformations that last are those that are deploying the real game-changing solutions that fundamentally challenge the operating model and the core ways of working in an organization. At Bain, we find that there are really three game-changing approaches, depending upon which part of the cost bar you're trying to go after.
For direct costs, an ops reinvention, looking at the full end-to-end supply chain from sourcing and procurement to manufacturing, thinking about how do you digitize and make your supply chain much more flexible and adaptable.
For SG&A and other fixed costs, we deploy a tool called zero-based redesign that allows us to take a clean-sheet view of an organization's operating model, the work that gets done, the core cross-functional processes, and how we make those organizations more agile, more digital and leaner in nature.
And for managing services costs, the real trick is to start with that customer-back view, thinking about how do we improve the customer experience and deliver that experience at much lower cost. And the game-changing tool is really around simplifying and digitizing those core processes, and delivering those experiences the customers want.
To fully implement these game-changing solutions, we need to mobilize the organization. We need to generate quick wins that are symbolic in nature, that create more organizational energy to go after these kinds of opportunities. We think these game-changing solutions are the ones that really force new ways of thinking in an organization, to force organizations to think about what the art of the possible is and how they deliver better service at much lower cost. And it's this clean-sheet or blank-sheet mentality and the commitment of the organization to take on these game-changing solutions that really create the lasting results that stick.