Why most cost-cutting initiatives fail to stick

An interesting article from McKinsey “Rethinking the rules of reorganization” finds that around 60% of companies in the S&P 500 had launched large-scale cost red
uction initiatives in the past five years, however only 26% had successfully prevented cost from creeping back up

In addition to some good practical advice on targeting reorganization and change, they identify three specific areas that we’ve been focusing on for many years – meetings, decision-making processes and reporting as particularly areas where we can find savings and improvements.

We would also add travel which is often driven largely by attending internal meetings.

So why don’t these changes stick? Many people complain about travel, they hate meetings and filling in unnecessary reports. Temporary reductions seem very easy to achieve – for example by just having a travel ban. However these meetings, trips and reports seem to creep back as soon as we stop focusing on them – why is that?

In our work to help organizations embed new and sustainable matrix, virtual and global ways of working we have found that it’s really hard to change these habits. Part of the problem is that, let’s take the example of travel, it’s not only about travelling to do the work.

• If your company emphasizes visibility as an important component of career development (and nearly all global companies do) then travel and meetings are a great way of staying visible
• if your company prides itself on high touch face to face management then it’s hard to be valued in that culture unless you jump on a plane and get face to face
• if your company places a great value on people who “show up” when there is a problem or crisis and show their support by being there, whether the meeting is necessary or not
• if your culture signals status by who gets invited to meetings

… Then it’s a risky decision not to travel.

We did some work to reduce the number of meetings and encourage virtual meetings with a large multinational. Senior leaders bought into the changes which have the opportunity to trim nearly $1 billion per year of unnecessary meetings and travel cost. However, when the first person chose to attend a board meeting by videoconference rather than travelling, she was asked “didn’t you think this was important enough to come to the meeting?” That one comment from a senior executive was enough to undo a lot of hard work.

It’s not enough to focus just on things like meetings, decisions, reporting and travel. We have to get behind the explicit behaviors to the corporate cultural assumptions that support those behaviors. If we don’t make a change at this level then it’s hard to sustain cuts at the more superficial level.

To make a sustained reduction in travel, for example, we need to work on how people are going to be visible, valued and rewarded for not travelling. If we don’t find a way to enact these important elements another way, then expect the old ways to resurface as soon as the pressure is off.

If you would like to find out more about how to do this, why not give us a call.