Cost Management Initiatives – Ensuring Success

Recently re-published in LINKAGE magazine

During periods of market instability and global recession, the area companies most often put their attention on is cost management - whether that’s to reduce overheads, streamline operations, or in negotiating contracts to ensure the greatest return on investment.

However, according to studies carried out in recent years by a variety of respected research bodies, less than 30% of these cost management interventions are successful, even though companies spend a significant amount of time and financial resources on these change initiatives. And while there’s no shortage of logical reasons and explanations for this statistic, and valid suggestions on how to successfully deliver value-adding cost reductions, these perspectives often fall short of making the sustainable impact that’s required to elevate performance.

In our work with organizations over the past 33 years, one of the pitfalls we have seen leaders fall into is taking for granted that the cost management initiatives they determine to be the priority are clearly communicated and translated to the rest of the company. Paying insufficient attention to these initiatives often results in everything becoming a priority with nothing getting accomplished.

Another pitfall is that people focus on the cost reduction process itself, rather than examining whether the process is actually delivering the intended outcomes. Stopping to ask the question along the way “are the changes we’re implementing sufficient to address the issue?” not only enables leaders to get a reality check on progress, but also affords the opportunity to intervene in any and all potential inefficiencies.

When the market environment is challenging, an employee’s natural reaction may often be one of fear; fear of job security, reduction in salary, bonuses, benefits, etc. It is widely known and accepted through the discoveries made in neuroscience that the evolutionary function of the brain is to predict – and when the brain can’t predict, the circumstances occur like a threat. An ‘amygdala hijack’, a term coined by Daniel Goleman in his 1996 book ‘Emotional Intelligence: Why It Can Matter More Than IQ’, is when a certain part of the brain perceives such a threat, which results in a person reacting irrationally and counter-productively, in one of three ways - fight (resist the situation by complaining, gossiping, and undermining the change initiatives), flight (find another job that looks like it would provide a higher degree of security), or freeze (pretend that you’re on-board and bought-in, while doing nothing in the hopes that you will make it through).

So what is required to ensure that change initiatives are effectively implemented and produce the results they are intended to deliver?

Firstly, it is crucial to clarify the context for the intervention, answering the question “why are we bothering with this?” If the context for new actions isn’t communicated sufficiently to ensure people are aligned and have it in front of them, it becomes diluted. It is also essential to generate adequate conversations where individuals have an opportunity to engage in, and contribute to a dialogue which includes discussions on potential pitfalls and challenges in implementation. This is distinct from people being told how to do something, which is known to trigger the pain centers in the human brain, resulting in a desire to be defensive and deflect input from others, no matter how good-intentioned it is. As the old proverb states: “The road to hell is paved with good intentions”.

Secondly, alignment on one, two, or three priority focus areas that are closely managed to completion is critical, where single points of accountability with clear deliverables and deadlines are established. In addition, to ensure consistent delivery it is essential to establish regular touch-points where questions such as: “what’s this in service of?”, and “how do we go about delivering this?” are posed at all levels in the organization. The deeper into the organization you go, the more frequent the touch-points need to be, given the increased intensity of implementation.

To summarize, in preparing to engage your people in a dialogue where you have a commitment to implement change initiatives, such as cost management, ask yourself and engage your team members in answering some of the following questions: 

  • Why are we doing this? What’s this change in service of?
  • What are the probable constraints and barriers to implementation?
    • What might be the consequences if these changes aren’t successfully implemented?
  • What are the possible ways I can engage people in moving things forward?
  • What are the high leverage pathways for implementation?
    • What might be the early victories, or ’low hanging fruit’ to target?
  • What are the key areas for action?
    • Who’s taking ownership of delivery?
    • What are the deliverables?
    • By when are they due?
  • What’s an effective way to measure implementation against the desired outcomes?
    • How are we going to know if this is making a difference? What will be signs of progress?

 

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