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Managing and Cutting Costs Intelligently. Intelligent cost management and bad cost management.

Good Cost Management

Cost management is not an issue only for the CEO or for senior management. Junior managers who are proactively tight on cost are learning good habits for the future, ones that will bring them recognition and advance their climb up the organizational chart.
Senior managers promote people who make tough decisions themselves and take full responsibility for those decisions. They advance people who come up with solutions, not problems. Too many junior managers take a long time to get to that coming-of-age realization. They prefer cosy after-work drinks with their teams, telling their staff that it’s the boss making nasty decisions about not funding extra resources or getting rid of underperformers. They will still be having those cozy drinks in 10 years’ time, when their take-it-on-the-chin cost-cutter colleague is in the boardroom.
And cost management is not an issue only for the functions of finance, production control or customer call centers. The HR department, formerly full of personnel careerists who “just love working with people”, is now staffed with hard-nosed cost managers whose task is to help manage that most difficult category, people cost. Marketing departments no longer think that all problems could be solved by doubling the ad spend, they think about how to get much higher returns from fewer marketing dollars. Even investment bankers and sales reps are getting cost conscious about expenses.




There is intelligent cost management and there is bad cost management. For instance, it would be immoral to cut costs in a way that increases risk for customers, for staff or for society at large. Low-cost airlines cannot scrimp on aircraft maintenance. Chemical producers must make factories safe and dispose of hazardous waste. Rail networks need to maintain their tracks. Bad cost cutting in these areas would be unethical and actually uneconomic: the potential cost of any disaster would overwhelm the short-term savings.
It would be near-sighted and stupid not to put a high value on relationships and trust — between a business and its customers, and between a business and its staff. Clothing retailers could reduce cost by being hard-nosed on accepting product returns, but they would lose customer loyalty and future business.




Companies could treat their workers as hire-and-fire commodities, but they would decrease quality, productivity and community goodwill. These kinds of calculations are right both morally and economically. Caring for customers and nurturing employees are not at odds with good cost management.

Managing and Cutting Costs — Intelligently
This is why good cost management is so critical. It takes a great deal of time and energy to build sales and loyal customers. It’s hard to rely on revenue from one quarter to another. But costs, on the other hand: you don’t need to be a rocket scientist to get that side of the business under control. What is most frustrating is when the revenue is coming through but you’re blowing the cost line. There shouldn’t be any excuse for that.
Through the whole dot-com boom and bust around the year 2000 it was as if an entire generation of managers, investors and commentators had never heard of cost management. They were on a New Paradigm high when what they needed was a Cost 101 refresher course.
Waste is very annoying. Think of executives on change management programs at $10,000 a pop; governments squandering billions on bad IT projects; Christmas presents dumped in the trash.

And cost management really is strategic. It’s not a question of choosing between growth and cost cutting. Being a good cost manager gives you the platform to be strategic. It buys you time to make mistakes and build revenue, margin to outprice your competitors, funds to outinvest them.

    Good and virtuous: eliminating waste, increasing productivity, public-sector “reform” (a peculiar UK euphemism for cutting overstaffed public-sector jobs), streamlining.
    Dark Side: Cost cutting, downsizing, asset stripping, redundancy, termination.

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