How companies view cost management – and the ability of this process to extend beyond purely financial concerns and benefits – can have major implications. Improvements like responsiveness to more efficient workflows and better oversight of key functions are all possible with optimal cost management strategies..
The limitations of traditional cost management
Older approaches to cost management aren’t by definition deficient or not worthwhile. Taking the appropriate steps to review budgets, track spending, trim away excess expenditures and carry out similar tasks can still pay off for businesses. Keeping costs low is simply a rational business practice. It allows decision-makers to dedicate resources to the areas where they’re needed most. However, there’s a much broader context to consider when it comes to positive change driven by a more efficient financial strategy.
The issue that emerges with the traditional cost management approach is a lack of the bigger picture. With the focus only on spending, little thought is given to improving operations in a cooperative, synergistic fashion.
The University of Pennsylvania’s Wharton School of Business shared a discussion involving Chris Ittner, accounting department chair at Wharton, and Omar Aguilar, a strategic cost transformation leader at Deloitte. This conversation offered insight into the three major stages of evolution for the cost management concept:
- Exclusively focused on financial considerations: Reducing expenses without much if any consideration for broader business benefits. This narrow view can result in better budgeting and lowered expenditures, but it doesn’t drive organizational transformation.
- Addressing budgetary needs while also considering organizational benefits: Finances continue to be the driving factor, but their relationship to other improvements is taken into account. Savings are often used to fund development, but the models for activities like growth, research and development and expansion remain the same.
- A key component of broader transformation initiatives: The relationship between cost management and other business areas is fully embraced. Company leaders look for ways to change for the better and use their cost savings to fuel new, more efficient and effective strategies.
Understanding where your enterprise sits along this spectrum is valuable for making adjustments to its overall strategy. Viewing cost management as a component of a larger transformational process, with connections to nearly all parts of the business, provides the right context for positive and pervasive change.
Shifting to a comprehensive cost optimization strategy
A full migration to the most modern stage of cost management, also called cost optimization, requires a focus on the right solutions to provide insight and track the progress of the many individual projects that make up a transformation initiative. Forecasting, planning and management platforms play key roles in positioning a business for reaching valuable yet achievable goals.
Keeping up with and, ideally, staying ahead of competitors is a practical motivator for change. Cost optimization’s value in maintaining and growing market share and business relevance is clear in some of the responses to Deloitte’s 2019 Global Cost Survey. The “save to grow” mindset, which represents the second stage of the cost management concept that we previously detailed, was common as recently as 2017. By 2019, however, survey responses across a variety of more specific questions, such as increasing focus on digital enablement and cloud implementation, indicate a shift to the “save to transform” mindset. This represents the modern, holistic strategy of cost optimization.
Ultimately, businesses have to combine a variety of important tools and concepts to realize a sustainable and effective cost management plan. The transformation mindset – not only improving older growth models but also creating entirely new ones – is crucial. So is the use of a digital transformation solution that enables the work needed to establish, monitor and reach goals across an organization.
This platform provides the right degree of insight for all relevant staff members, from team and project managers to top executives, Such a solution allows for effective prioritization of opportunities, measurement of goals and objectives, tracking of risks and delays and the establishment of long-term best practices for governance, among many other benefits.
Shibumi provides a dependable solution for business transformation that embraces a more powerful – and increasingly common – strategy of comprehensive cost optimization. To learn more, get in touch with us today.