Mail order manager cost2/1/2024 In many companies, the investments you make in capabilities are hidden within an array of functional budgets. Second, rethink costs in terms of capabilities. This entails viewing costs not merely as an in-year expense but also as a multiyear investment in differentiating capabilities designed to help your company execute its strategy. Connect your budget directly to your strategic priorities if your budget doesn’t reflect your priorities, you have very little chance of executing your vision. Look at every opportunity to cut costs as an opportunity to channel investments toward strengthening your value proposition. Today, Frito-Lay “owns the streets” in its markets, as well as several $1 billion brands.įive big mindset shifts can help you and your organization manage costs in the right way. But the action removed layers of management and many unnecessary practices, leading to a much higher level of responsiveness and effectiveness, and freed up money to invest in Frito-Lay’s distinctive capabilities - including not only the direct-store delivery capability, but also product and manufacturing innovation, and consumer marketing. This was painful, including laying off 1,800 managerial and professional people in a single day. He resolved to start by cutting $100 million - 40% - in general and administrative costs. Enrico realized that Frito-Lay had to make a major investment in product quality to meet the competitive threat. At the same time, Eagle Snacks was gaining market share with innovative new products and its own distribution system. When Roger Enrico took the helm as CEO of Frito-Lay, in 1991, the company was developing an innovative and distinctive approach to direct-store delivery that would allow it to consistently deliver the right products to the right stores at the right time. You can see this different approach to cost allocation at work in the way winning companies behave in times of adversity. This important distinction is a way of life at leading companies we have studied, like Amazon, CEMEX, Frito-Lay, Ikea, Lego, and Starbucks. They base their decisions about where to cut and where to invest on the need to support their greatest strengths: the capabilities that enable them to create unique value for customers. Management teams at such companies spend a lot of effort separating out the costs that truly fuel their distinct advantage from the ones that don’t. After all, if we aren’t directing spending to the right places, what chance do we have to grow? They put their money where their strategy is and continually cut bad costs and redirect resources toward good costs. The best-run companies, in contrast, think of cost management as a way to support their strategy, and of cost as precious investment that will fuel their growth. Most organizations wait to act until they have a problem, at which point they don’t have the time to make the right trade-offs for the long term. When doing research for our book, we found that the main reasons most companies suffer from this syndrome are that they make across-the-board cuts that are unconnected to their strategy, and fail to make the cuts sustainable. How many cost-cutting initiatives have our companies gone through in the last dozen years? More important, do we look back on those initiatives as transformative in helping us build success and leading us to growth?įor executives at most large organizations, the answer to the first question is probably “too many,” and the answer to the second is “no.” Call it cost management fatigue. And for many of us, it’s not a fond memory. We’ve all been through it - the looming cost project. To manage cost the right way, connect costs and strategy think of costs in terms of capabilities use a “zero-based” budgeting approach make your cut sustainable and be proactive. He resolved to start by cutting 40% in general and administrative costs, which freed up money to invest in assets such as direct store delivery, product and manufacturing innovation, and consumer marketing. For example, former CEO of Frito-Lay, Roger Enrico, had to make a major investment in product quality to stay competitive. To do this, management teams must figure out which costs fuel their distinct advantage, and which don’t. In order to cut costs effectively, companies must connect costs to their strategy. Most organizations also wait to act until they have a problem – at which point they don’t have the time to make the right trade offs for the long term. When companies cut costs, they often make across-the-board cuts that are unconnected to their strategy, and fail to make the cuts sustainable.
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