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What worked in cost cutting—and what’s next:
McKinsey Global Survey results

Sources     : McKinsey Quarterly
Posted  by : HSFAMES GLOBALMINDS ( Jan 20,2010 )
 
A hard look at the bottom line

Even as moderate optimism about the global economy returns, cost cutting remains a top priority for nearly three-quarters of all respondents to this survey. More than half say their companies have cut up to 10 percent of overall costs since September 2008, nearly one-third say their companies have reduced costs by 11 percent to 20 percent, and 9 percent of executives report cutbacks of 20 percent or more.

More than half of all respondents say the cost-cutting programs undertaken by their companies since September 2008 were targeted at labor, with overhead labor accounting for the lion’s share of labor cost reductions. Forty percent of executives say they cut costs in all categories: frontline and overhead labor, nonlabor, and capital assets (Exhibit 1).

 

The predominant motivation for cost reduction of any kind was to lower variable costs in response to lower demand (Exhibit 2). Nevertheless, a large proportion of respondents note that company-wide-improvement programs—such as lean or Six Sigma—were strong motivators as well. This finding suggests that many companies have an interest in making long-term, transformative changes to their cost structures.

On strategy, just over half of all respondents say their companies took a targeted approach (focusing on a particular geography or function), whereas 44 percent say their companies’ approach was an across-the-board cost reduction. Large companies—those with annual revenues of more than $1 billion—and public companies were far more likely than their smaller or privately owned peers to take an across-the-board approach.



Where did cutbacks occur? Among respondents whose companies took a targeted approach to cutbacks, a full 75 percent say their organizations trimmed costs in operations, and nearly half cite HR—the next most frequently chosen option (Exhibit 3). No area was spared, however: cuts were widely distributed across business units, geographies, and regions. Indeed, 9 percent of executives say their companies cut everywhere.
 
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