Posts Tagged ‘cost cutting’

Home Depot echoes Lowe’s with focus on costs

November 16th, 2010 Comments off

Photo credit: David Neubert on Flickr

Here’s is a Reuters piece from today that focuses on costs at the two largest home improvement retailers in the headline.  Notice, however, the other things mentioned that relate to what we discuss in class (and that seem to me to be even more important than the cost cuts):

  1. A focus on supply chain improvements
  2. Use of cash and the importance of having strong cash flow
  3. Continued investing in improvements even when cost cuts are emphasized

Read more:

Home Depot echoes Lowe’s with focus on costs | Reuters.

Cut Costs, Grow Stronger

October 6th, 2010 Comments off

Money Bag in Blue
I don’t know how I managed to never post this here, but I’m getting a new computer and found the PDF version of this article on my Desktop while I was cleaning things up for the transition.  In fact, I think it was this article that first brought me to the strategy+business website, a great resource that I highly recommend.

This article focuses on cost cutting in the beginning, as evidenced by statements like this:

Dramatic cost cutting gives you a chance to refine or even reformulate your company’s overall strategy.

…but it quickly becomes a piece about strategy, capabilities, and execution as well:

On its own, for example, PepsiCo’s high-performing capability for launching new food and drink products might not amount to much. But PepsiCo also has a related capability: a world-class skill at retail outlet distribution. That capability has made PepsiCo one of the most successful food companies in the world.

There is much to be learned from this great article.  We are perhaps the point where most companies are dramatically slashing costs, but knowing what to do “next time” and focusing on the strategic issues in here are still important.  Keeping strategy at the center of any major decisions, such as which costs to cut, is important and because it at least gets everyone “on the same page.”

Cut Costs, Grow Stronger. To reduce expenses for the long term and lead the way to recovery, start by taking a strategic view of your capabilities. By Shumeet Banerji, Paul Leinwand, and Cesare R. Mainardi. strategy+business.  September 15, 2009

Cut Costs Without Cutting Meaning

February 17th, 2010 Comments off

Some great thoughts in this short piece from Harvard Business Review on topics that we discuss in several points during the semester. From cost analysis and cost cutting to product design and emotional impacts of products and marketing, many factors are impacted (even though they aren’t always considered) when decisions are made.  Recently many companies have been creating stripped down products with a “value” focus to appeal to recession-weary consumers.  A good example of this was detailed in a post I made last August about Tide Basic.  For some companies, this might be a great plan in the short-term, but it potentially carries great risk in the long-term.

Cost cutting needs to be done surgically and with great care.  The bigger the brand-name the more care that is required or there is great risk that the brand will be damaged.  During hard economic times some companies are cutting costs wildly just to maintain sales volume, but the true test may be when recovery begins and consumers once again have more freedom to choose products on the basis of how they are made to feel rather than on cost alone.

In reaction to the Great Recession and the forecasts that consumer demand in the US, Europe, and Japan will remain anemic for the foreseeable future, many companies are focusing on stripped-down “value” products. In doing so, they risk making a big mistake: Assuming that consumers in hard times care more about utility and low price and less about the emotional and social dimensions of products.

While people, of course, do care about price, they care even more about how products give meaning to their lives. Even when they are pressed financially, they do not want to feel poor. So the challenge for companies is to cut costs without cutting meaning.

Cut Costs Without Cutting Meaning – The Conversation – Harvard Business Review.

Cutting Costs & Growing Stronger: Strategy is the Key

September 15th, 2009 Comments off

sb-t-sb_logo_mainOne of my favorites sites lately is the one for strategy+business magazine.  Today they posted a rather lengthy piece called Cut Costs, Grow Stronger that relates to so many parts of our class that it really is impossible to capture them all here.  The main theme of this article as I see it, is to reinforce the idea that cutting costs simply for the sake of cutting costs is not a good idea.  Rather, cost cutting should be a action driven by other factors that pushes us to refocus the company’s strategy while looking for opportunities to save costs.

Dramatic cost cutting gives you a chance to refine or even reformulate your company’s overall strategy. After all, you’re never just cutting costs. You’re making a decision that something is no longer strategically relevant, and that other things are essential to keep. Yes, you may have to lose some product lines and activities, and perhaps some of your employees and customers. You also, however, have the opportunity to help your company grow stronger in the process.

It is important to keep corporate strategy central to all decisions including cost cutting initiatives or there is risk that a company will become weaker by cutting the “wrong” costs.

Another reason to keep strategy in mind is that it helps to focus company personnel on their company’s unique capabilities as opposed to playing follow-the-leader trying to emulate competitors.  Trying to do what the competition does can mean lost focus in areas in which a company excels at the very time they need that focus to remain competitive.  Seldom do two competitors even in the same industry compete in the same way — that is the core of differentiation strategy: finding things that you do better than everyone else and emphasizing that differentiation to the marketplace.

The best definition of capabilities, in our view, reflects this essential quality: Capabilities are the interconnected people, knowledge, systems, tools, and processes that establish a company’s right to win in a given industry or business. The right to win, in turn, is a clear path to sustained profitability, higher market share, or both, supported by the critical set of capabilities that will make a difference in that market.

It might seem that companies in the same sectors would need the same capabilities to win in the market, but that is rarely the case. Apple and Dell both compete in the computer market, but their capability sets are completely different. Apple’s success depends on continued product and service innovation combined with a deep understanding of the way in which people interact with technology; Dell’s success depends on rapid delivery, low-priced customization, and high-quality customer service.

There are many great examples in this very relevant article.  Check it out when you have time and refer back to it as we cover different concepts in class.  I believe that doing so will make it easier to identify with and understand the material that comes from the textbook and our in-class discussions.  Articles like this are why I maintain this blog…I hope that you find this one particularly helpful.

Note that the links reference below may require registration to access.  In my opinion it is well worth doing so.

Cut Costs, Grow Stronger. To reduce expenses for the long term and lead the way to recovery, start by taking a strategic view of your capabilities. Shumeet Banerji, Paul Leinwand, and Cesare R. Mainardi. strategy+business.  Autumn 2009.

Government Discovers Paper Has Two Sides

June 30th, 2009 Comments off

The Wall Street Journal took a rather tongue-in-cheek look at government cost cutting efforts yesterday.  Sadly, these minimal-effect outcomes and ideas are not limited to government…it seems that when cost cuts are being discussed the incremental items get the axe first before anything of measure gets chopped from the budget.  One of the suggestions I ran across one time was to unplug the water cooler and make people drink warm water to save electricity.  I’m not sure how much money that would save, but surely not as much as 1,000 other things that could/should happen first especially if even a few people left the office for 15 minutes to go buy a bottle of cold water.

With the budget deficit soaring toward $2 trillion, the Department of Justice has figured out how to play its part: double-sided photocopying.

There are other acts of national sacrifice. The Forest Service will no longer repaint its new, white vehicles green immediately upon purchase. The Army will start packing more soldiers onto R&R flights. The Navy will delete unused email accounts.

Of course the biggest cost-cutting measure is often eliminating jobs but that seldom is suggested especially when it is one’s own job that is on the chopping block.

Only one cabinet office proposed actually eliminating a program. The Department of Labor says it will disband the nearly 40-year-old Employment Standards Administration. With it goes an assistant secretary of labor, two deputy assistants and an administrative office.

In a Savings Shocker, the Government Discovers That Paper Has Two Sides — Front-and-Back Copies, Other Wonders Help Agencies Save $102 Million — .006% of Deficit. Jonathan Weisman. Wall Street Journal. (Eastern edition). New York, N.Y.: Jul 29, 2009. pg. A.1

Boosting Engagement While Cutting Costs

June 23rd, 2009 Comments off

A great example at a health-care facility of a way to handle cost cuts while maintaining employee morale and getting them to buy-in to the new methods by letting them handle the suggestions/implementations of cost cutting measures.

Boosting Engagement While Cutting Costs. Yes, it’s possible. Here’s how one hospital turned the budget over to its employees and reaped a windfall. By Jeannie Ruhlman and Cheryl Siegman.  Gallup Management Journal.  June 18, 2009.

Cost-Cutting & Innovation in Developing Nations

May 28th, 2009 Comments off

As I have mentioned in class, The Economist does an excellent job at exploring the business world — with “world” being the key word.  Unlike many other publications that focus on larger companies/nations, The Economist often contains reports filed from outposts where other journalists dare not tread.  An article from the print edition being published today has been posted to their website and it highlights not only cost-cutting but some of the things we’ve talked about as far as the globalization of business and the fact that competition these days is not limted to XYZ Company down the street or in the next town — it very often can come from the opposite side of the world.

COBBLED together from carts, old cars and anything else to hand, the improvised vehicles used by Indian farmers are often known as jugaad. The term also has a much broader meaning—referring to an innovative, low-cost way of doing something—as goods and services are provided in India at a fraction of the cost of those in developed countries. Ingenuity is a necessity when resources are limited and customers have little money. In a global recession it also provides a way for companies in India and China to expand into foreign markets where consumers are seeking better value for money.

A snip at the price. May 28th 2009. From The Economist print edition

If you are interested in other articles from this week’s issue, there is a page that contains links to all the articles:

You may subscribe to the RSS feed of the Economist Print Edition using a tool like Google Reader or you can become an Economist Fan on Facebook to receive a weekly link to updated information.

Pepsi Seeks to Buy Bottlers to Eliminate Costs

May 21st, 2009 Comments off

Companies usually try to portray mergers as an opportunity to “trim the fat” or to create more more revenue than the individual companies can do independently.  If these were not the goals, mergers would never take place, right?

The Wall Street Journal today looks at the attempted acquisition by PepsiCo of two large bottling companies (one of which, PepsiAmericas, is based in Minneapolis, by the way).  Interestingly enough, in this situation the two bottlers have themselves looked at merging in the past but the idea was dismissed because estimates of cost savings were “deemed too modest to justify a deal.”

Synergy, like beauty, rests in the eye of the beholder. Just ask PepsiCo.

The soft drink giant is seeking to acquire its two main bottlers–Pepsi Bottling Group and Pepsi Americas–for about $6 billion. Both have rejected Pepsi’s offer. The main issue: synergy, or just how much money can be saved by combining the three companies into one?

Deal Journal / Breaking Insight from Matthew Karnitschnig. Wall Street Journal. (Eastern edition). New York, N.Y.: May 21, 2009. pg. C.3

In time we may know (assuming that one or both of these combinations takes place) if the companies are worth more together than apart, but that is unlikely.  Once the books and the operations are combined the ability to know what “would have happened” had a combination not occurred becomes difficult at best.  There have been some spectacular merger failures in the past few years but several that have gone off without a hitch as well (the failures tend to be more widely covered than the successes).  Who knows what the case will be in this situation.