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Five Ways CFOs can use an IWMS to make costs cuts stick Posted: 09 Aug 2010 08:15 AM PDT Like most weekends, this weekend I have been reading a substantial amount of literature during our annual family weekend in Wilmington, GA. One article in particular I found quite interesting. In May 2010, McKinsey Quarterly published an article of Ankur Agrawal, Olivia Nottebohm, and Andy West about how CFOs can make cost cuts stick. So why is it so difficult to make costs cuts stick? "Because most reduction programs don't address the true drivers of costs, or are simply too difficult to maintain over time. " (Source: Agrawal, Nottebohm, & West, 2010) The authors propose five ways to make these costs cuts stick: 1. Assign accountability at the right level Although involvement of senior managers is important in costs reduction programs, most cost innovation happens at a very small and practical level. As P&L statements are in many cases reported on high levels CFOs lack actionable information which will cause their cost reduction program to fail. Integrated Workplace Management Systems IWMS) can provide valuable and actionable information even at the most practical level. IWMS enables CFOs to break down Facility and Real Estate costs to individual business units or departments, but more importantly assign accountability for these costs. When organizational units are held accountable for their Facility and Real Estate Costs, such as space occupancy costs, meeting room usage costs, catering costs, etc., line managers stimulate desired behavior and awareness.  These costs reductions are more likely to stick. 2. Focus on how to cut, not just how much "In many cases managing costs to a number has simply failed because top management leaves the decisions to meet cost reduction targets to individual line managers. A more enduring approach includes changing the way people think about costs by setting new policies and procedures and then modeling the desired behavior. "(Source:  Agrawal, Nottebohm, & West, 2010) IWMS can play a very important role in setting new policies and procedures. As most IWMS are process based, they enforce desired behavior through work flow, authorization and business rules. Most Facility and Real Estate processes can be optimized to reduce costs. Combining process optimization and assigning accountability at the right level is extremely powerful in reducing costs. 3. Don't let P&L Accounting get in the way of cost reduction "CFOs often manage cost reduction efforts by tracking accounting data in their companies' P&L statements. Over the long term P&L categories don't give the per-unit insights that help to focus cuts in units that can best afford to cut them. " "To resolve this problem companies must continuously track the expenses behind the P&L to identify areas of underperformance without worrying about the formal accounting of these costs. " (Source:  Agrawal, Nottebohm, & West, 2010) This is exactly where an IWMS comes in. Without an IWMS CFOs aren't able to get the detailed per-unit insight about facility and real estate costs. Underperformance or overconsumption needs to be identified to enable CFOs to create sustainable cost reduction programs. 4. Clearly articulate the link between cost management and strategy "Strategy must lead to cost-cutting efforts, not vice-versa. The goal cannot be merely to meet a bottom-line target. " (Source:  Agrawal, Nottebohm, & West, 2010) Unfortunately, many companies do not explicitly link cost reduction initiatives to broader strategic plans. In most cases every business unit has to do' its fair share' although this could be devastating for the organization as a whole. For example, hospitality costs need to be cut by 20% whereas your strategy could be to provide the best possible service to visiting customers. This could potentially damage the image of the organization. IWMS can provide management with decision data enabling them reduce costs in line with organizational strategy instead of conflicting with that strategy. 5. Treat cost management as an ongoing exercise "Most companies treat cost management as a one-off exercise driven by the need to manage short-term profit targets. Yet such hasty cost-cutting activity typically goes into reverse once the pressure is removed and rarely results in sustainable changes in cost structure." (Source:  Agrawal, Nottebohm, & West, 2010) By implementing an IWMS, your CFO can start a cost management program instead of a one-off cost reduction exercise. Integrated Workplace Management Software simply empowers CFOs with a unique tool to constantly reduce facility and real estate costs while aligning with organizational strategy. Related Posts Case Study: Discover How Nokia Reduced Costs and Carbon Emissions with TRIRIGA The Secret Art of Reducing Maintenance Costs and Increasing Operational Effectiveness The Art of War In Reducing Costs – New Post Series Announcement

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