Making cost cuts stick

3 Jun 2010 Sandeep Mehta

According to one recent study, 90% of the organizations fail to sustain cost savings beyond two years.  McKinsey quarterly has an interesting check-list to ensure cost cuts stick:

  • Assign accountability at the right level
  • Focus on how to cut, not just how much
  • Don’t let P&L accounting data get in the way of cost reduction
  • Clearly articulate the link between cost management and strategy
  • Treat cost management as an ongoing exercise
  • All very interesting points.  I think the first two are quite relevant in an R&D environment.  However, several are very difficult to implement in R&D.  I remember an old boss talking to me about his problems predicting R&D costs.  He remarked that when he went to get his car serviced, they had a pretty good handle on what different services would cost and how long they would take.  Why could we not do the same for R&D?

    Predictability normally comes with repeatability.  Unfortunately, finding repeatability in R&D is pretty tough – as R&D always involves developing something new.  In fact, it is more developing knowledge that can be used to produce that new item.  Without repeatability and associated cost data, it becomes very difficult to understand what things should cost to develop in the first place.  How do we define how much cost to save?  As we get to more and more complex devices, this will likely become even more difficult…

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