Making cost reductions stick

Some cost-cutting measures are easy to lock in; others tend to slip away as time passes. Executives need resolve to keep expenses under control through each phase of the economic cycle. A framework that maps cost savings programs over time can help to reveal areas that require closer scrutiny.

 
Lowering overhead costs is hard, but making those reductions stick is tougher than many executives realize. Cost-cutting measures are generally borne of difficult times, and once things get better a range of pressures conspire to encourage managers to abandon the effort. The failure to sustain an expense reduction program, however, causes more damage than just higher costs: it can weaken a company's resolve to face difficult issues and even undermine management's credibility. Establishing principles, such as limiting management layers and reducing planning cycle times, can help identify the programs most likely to slip and thus highlight areas that may require scrutiny and extra diligence.

For more on making cost reduction programs sustainable, read "Managing overhead costs." (Premium)