From benchmarking to process optimization and organizational restructuring, companies are employing a variety of methods to achieve their cost-reduction goals. But not all of these methods yield the same results—neither in terms of sustainable performance nor team engagement. Here’s a closer look at the myths and realities of this strategic yet delicate endeavor.
Summary
Cost-reduction initiatives are based on a set of methods that are complementary rather than contradictory. Each method has its own merits, depending on the timeframe under consideration and the desired outcome.
It seems to us, however, that the choice of method(s) is a major strategic decision: whether “top-down” or “bottom-up,” each method can fail if its implementation leads to a loss of motivation, particularly among management.
The client must, in fact, become convinced that the approach is genuinely aimed at addressing the root causes, rather than at short-term gains or, worse still, at initiatives that fail to address the structural difficulties that will arise later with even greater intensity.
Contents
Meeting Two Conflicting Objectives
Cost-reduction projects are caught between two conflicting objectives. On the one hand, they must quickly achieve what is often an ambitious target; on the other hand, they must preserve the resources needed to meet medium-term goals.
Finding a balance in the face of this paradox is complex: many cost-cutting initiatives, driven by a short-term mindset, simply cut spending—particularly external spending—that is deemed avoidable.
As a result , the first steps usually involve postponing or halting ongoing projects or contracts that can be terminated quickly and without penalties.
This “cash burn”-focused approach yields quick and respectable results with minimal effort. These results are reinforced by a tendency toward “self-restraint” among the teams, who voluntarily curb their investment requests to avoid conflicting with the cost-reduction strategy.
However, in the medium term, such an approach does not ensure the ability to finance the necessary transformations, keep pace with market or technological developments, or seize investment opportunities that pave the way for the future.
So how can we resolve this contradiction—by cutting short-term spending while still maintaining the resources needed to finance growth, product development, and infrastructure upgrades?
From our experience in consulting within the industrial sector, we have observed that companies generally use several methods—each with its own strengths and weaknesses—to find the right “balance.”
A First Approach to Cost Reduction: Benchmarking
The external benchmarking method, which once enjoyed its heyday, very often runs into issues related to access, confidentiality, and the interpretability of non-public data.
How can you be sure you're comparing yourself to the right competitors without knowing (for obvious confidentiality reasons) the exact composition of the benchmark—or even how the figures are calculated?
Ensuring the comparability of companies and methods thus often becomes a challenging task: Are we comparing full costs (versus direct costs), comparable business or geographic scopes, equivalent underlying volumes, and so on?
These external benchmarks thus contain methodological biases that often make it impossible to accurately interpret performance differences.
Internal benchmark data is easier to obtain. However, it is not without its own comparability issues. Indeed, it is necessary to take into account the specific characteristics of the business lines and entities in question: the impact of transportation costs, product mix, obsolescence of the machinery fleet, the degree to which the industrial footprint is optimized, and so on.
Second Approach: Through Processes
This second approach, through processes, is resolutely pragmatic and is based on value analysis, the operational reality of business activities, and the identification of potential productivity gains.
Participatory, “bottom-up,” and firmly grounded in the field, this approach involves the stakeholders directly affected, thereby facilitating ownership by the teams and change management. It takes the form of workshops to analyze the various stages of the process, the associated risks, and performance challenges—with the goal of optimizing (or even eliminating) low-value-added tasks and standardizing or simplifying the process steps.
However, this approach also faces certain forms of resistance linked to work habits, the specific characteristics (real or perceived) of each unit, and, at times, directives from senior management that impose a uniform, top-down cost-reduction goal without taking into account the efforts each unit has made in the past.
As a result, “good practicers”—who are already engaged in continuous improvement initiatives—are assigned cost-reduction targets expressed as percentages (regardless of their performance to date) and find themselves unfairly penalized compared to other, less advanced entities, which find it easier to meet their targets.
This brings us to the heart of the issue of how the overall effort is distributed among each contributor, with the risk that participants’ energy will be diverted toward internal balances rather than toward achieving the overall goal.
Third Approach to Cost Reduction: Through Organizations
The third method frequently used by companies in their cost-cutting initiatives is organizational harmonization. Who hasn’t heard these statements of intent aimed at “breaking down silos,” “standardizing work methods,” and so on?
This rational approach aims to create organizations that are more transparent, comparable, and consistent—regardless of who runs them.
This vision of a homogeneous ideal is based on the following premise: If organizations are well understood, formal procedures are in place, and objectives are clearly defined, then organizations can only become more efficient, provided that team members are highly qualified. Thus, one could isolate the human factor—the final variable in the equation…
In practice, however, we see that performance depends just as much on organizational mechanisms as it does on individual behaviors —which are fundamentally rational. These behaviors involve finding pragmatic solutions in response to day-to-day operational challenges (by balancing objectives, resources, and constraints…).
As a result, many organizational overhauls aimed at increasing uniformity (with their set of procedures, structures, job descriptions, etc.) are only partial successes, due to a lack of understanding of the challenges faced by work groups and the factors that shape individual behavior.
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FAQ – Cost-Cutting Project
What are the common mistakes and key considerations to keep in mind in cost-reduction projects?
Purely short-term projects focused on immediately cutting spending can undermine investment capacity and slow down necessary transformations. In contrast, a structured cost reduction strategy—based on process analysis, investment prioritization, and addressing root causes—creates room to maneuver while preserving growth and competitiveness in the medium term.
Is benchmarking a reliable method for reducing costs?
Benchmarking can serve as a useful reference point, but it has significant methodological limitations. External comparisons often suffer from a lack of transparency regarding scope, calculation methods, or sector-specific factors. Even internal benchmarks can be skewed by differences in product mix, logistical constraints, or the age of equipment. When used in isolation, benchmarking risks leading to theoretical objectives that are ill-suited to operational reality. It must therefore be supplemented by a detailed analysis of processes and organizational structures.
What is the most effective method for ensuring the success of a cost-reduction project?
There is no single method. The most robust approaches generally combine several methods: benchmarking, process optimization, and organizational alignment.
The challenge is not to choose a tool, but to define a strategy that is consistent with the company’s context, its level of operational maturity, and its medium-term ambitions. Success depends above all on management buy-in and the ability to address structural causes rather than merely financial symptoms.
