As cyclical growth returns to many industrial sectors, few executives expect a repeat of the easy ride they enjoyed in the late 1990s. Opportunities abound, but most leading industries must face up to a prolonged period of extreme competition.1 Signs of the new turbulence are everywhere. Pharmaceutical companies have recently seen their margins and market values plummet by 25 percent or more, companies in traditional manufacturing sectors (such as the automotive industry) are losing ground to rivals from developing countries, and high-tech companies must contend with the growing power of Asian competitors as well as slowing demand.
Such pressures mean that many businesses desperately need a new approach to managing costs—one that reduces them over the long term. Much has been written about how to cut operating costs through "lean" and other techniques but not about how to apply disciplined cost reduction thinking to overhead functions, including finance, human resources, IT, and legal. No company can sustain a long-term program without tackling these areas, whose costs typically match the profit margins of most of today's corporations and are often growing faster than revenues.
The process of lowering overhead costs sustainably is deeper and more subtle than most companies realize....