ecmlpkdd2009.org

More controllers are working with senior managers to develop a new framework for examining and continuously reducing costs. Under this approach, top managers have decided that cost discipline will be a program, not just an implicit element of operations. Further, they expect this program to become a core competency.

In many cases, controllers who participate in these continuous cost-reduction programs are helping to remake corporate culture. Reason: At most businesses, cost discipline is an incidental reaction to events—usually a sales slump—and a byproduct of budgeting. Though this cultural change is hard work, controllers usually say the eventual success justifies the effort. Indeed, the consulting firm Bain & Company claims that businesses with successful programs of continuous cost reduction typically achieve half their increase in annual profits directly from cost reduction.

Controllers who work on these programs often emphasize two additional benefits. First, they say a business with a free-standing program of cost discipline stabilizes more rapidly in a downturn. This means that such companies are ready to grow once the business cycle turns.

Second, these firms adjust more rapidly to so-called trigger events. Bain identifies these as a collapsing market, a new technology, or a sudden increase in com-petition. Key point: All of these have a profound effect on sales and profits. In this situation, companies with weak cost discipline go into a survival mode and respond with across-the-board cost cuts. In contrast, companies with continuous cost-cutting programs tend to be low-cost producers. As a result, trigger events weaken their margins but leave room for flexible responses and decision making.