No question, cost optimization is an ever-present topic. Even more so during a crisis. But the strength to follow through on the cost optimization program is often lacking. And when costs do start to fall in the right places, all too many companies quickly gain weight elsewhere. A risky reminder of the yo-yo effect caused by crash diets that don’t lead to fundamental dietary change. The only difference is the obviousness of the cause.
Although the body often regains excess reserves after just a few weeks, corporate backlash usually takes a bit longer. But it happens. That is, unless the right communication and change strategy accompanies the cost optimization program. Because as soon as everyone in the company understands the need for cost optimization and has access to the right tools to regularly see costs from the company’s viewpoint, you are on the path toward sustainable health.
So, let´s start with communication. Change will be the topic of a follow-up blog. First, learn about five key communication aspects to make cost optimization programs sustainable.
1. Why communication is definitely not a nice-to-have.
Motivation is everything. Let’s first look at what happens when you communicate too little. Someone else in the company will be happy to communicate for you. The main topic will be the question of why. Insecurities and fears can quickly gain the upper hand. And the longer the rumor mill churns, the more economic factors such as employee satisfaction, productivity and innovation will come under pressure. The resulting outcome of what we call FUD (fear, uncertainty and doubt) typically results in lost performance which will quickly erode the benefits of the achieved from the cost-optimization initiatives. This can lead to lack of employee loyalty and trust. The top performers are the ones with an especially low tolerance for the unknown. Recruiting costs then come into play, forcing deep cuts in other parts of the organization. Especially when an opaque cost-cutting policy hurts your reputation on the labor market. A vicious circle that gobbles up more resources as time passes – resources that are needed elsewhere for smart investments.
2. Explain the background of the savings program to your employees.
It’s better to put your cards on the table from the beginning. You can take the wind out of the sails of potential critics early on. Nothing is more effective than an understanding of what’s behind the cost-cutting measures. Do you want to optimize the customer experience? Should the cost structure scale alongside business progress to better weather crises and react more quickly to growth opportunities? Are additional resources needed for investments in the future? Should activities that no longer support your strategy be wound down? Keep your employees up-to-date and explain the reasons to them. This is also true for short-term measures, such as weathering an acute lack of liquidity. It’s the only way to respond to the fears and reservations that would most certainly be counterproductive. It’s also excellent preparation for change management.
3. Understand that the call to action fuels change management.
Experience shows: As soon as employees feel they are being taken seriously, many develop an entrepreneurial mindset. Those who truly understand how the future prospects of a company improve by rerouting poorly used funds will react more quickly. Some managers will even be surprised how quickly employees generate an increasing number of new cost-saving ideas and how carefully they will consider which expenses will benefit the company and which will not. Change and communications efforts then become the basis for lasting and long-term behavioral changes.
4. A comprehensive communication plan ensures the success of the program.
Achieving exactly what you want requires a plan. Especially for communications. Establish as precisely as possible what components of a program should be communicated and when. By whom in the company? Using what method? What groups should be targeted? Middle management is the key hub. The more proactive your co-workers are, the lower the chance that communication will go off on a tangent. Especially clever plans usually yield more than the original cost-optimization program. The goal is to keep spirits up to avoid falling back into old habits.
5. Test your messaging and then refine it for maximum impact.
Imagine being on the other end of the communication. How do you know the various interest groups in the company will take the news? The best way is to ask employees directly. Smart project managers use simple, highly efficient and effective methods that work. There are very few important projects – especially in big companies – that don’t include a so-called reference group. Project managers bring select employees together into pilot groups to vet and provide feedback before the new ideas are released to a broader audience. The reference group acts as a small market research organization that provides insider knowledge to help develop more targeted communications efforts and to implement the respective change measures.
Would you like to learn more about successfully achieving sustainable cost optimization? ISG helps companies across industries create actionable plans to optimize cost for the short and long term. Contact us to find out how we can help your organization.
About the authors
Carolyn Becker is a knowledgeable ISG advisor who brings great experience to ISGs clients. Her clients benefit from more than eighteen years of experience in various roles and responsibilities within Service Management & Governance (SM&G). Carolyn has delivered advice on all aspects of Target Operating Model (TOM) design and implementation. Furthermore, she advised on sourcing relationships up to a total contract value of US$400 million.
Susanne is an experienced change management and communication expert with a strong background in Target Operating Model implementation and in marketing. She guides ISG’s clients in EMEA through their transformation projects with target group-oriented change measures along the complete change lifecycle.