Reshape your cost structure by attacking product, process, and organizational complexity. Complexity costs creep in slowly over time but must be taken out in chunks.
Cost reduction is rarely off the CEO agenda. Even a company focused on growth needs cost-efficiency to ensure capital is deployed to the right areas. This 'dual focus' means it is critical that leaders today have a more nuanced and precise view of cost reduction, as well as new tools and approaches to address the rise in complexity costs. These costs, driven by variety, are the #1 driver of cost-competitiveness today. They are also a big opportunity. By identifying and attacking complexity costs, many companies have increased their EBITDA by 25%.
Many cost reduction efforts focus on functional benchmarks, cost line items, or across the board 'belt-tightening' decrees. These can be valid approaches and can suggest opportunity areas. But they also tend to quickly run out of steam, risk undermining value-creating areas, or sink morale with their lack of precision.
A better approach is one that diagnoses how complexity costs (non-value-add costs in a business) creep in, and then removes that cost in chunks. As we discussed in Waging War on Complexity Costs, these costs grow geometrically with an increase in complexity.
As companies introduce new SKUs, they add new processes and organizational overhead until, at some point, the costs outweigh the benefits. To unwind this cost, therefore, you need to deploy an approach that reflects these dynamics, making adjustments to portfolio, processes, and the organization to unlock cost benefits. This breaks through the self-imposed ceilings on cost reduction. Companies that focus on function or line-item targets miss the cause-and-effect or web of dependencies that 'trap' costs in a business, and ultimately yield shallow results.
Wilson Perumal & Company is the leading authority on how to assess and unwind complexity costs in your business. We have written widely on the topic, including the best-selling book Waging War on Complexity Costs. And we have worked with companies around the world on significant cost-reduction initiatives to:
A consumer durables company was looking to simultaneously enter new channels and reestablish previous levels of profitability. Wilson Perumal & Company strategically guided expansion while drastically reducing supply chain costs and inventory, resulting in:
Most companies have implemented cost reductions in response to the pandemic and are looking deeper at structural and organizational costs. WP&C accelerates capturing cost reductions by leveraging three complementary lenses to identify next-level cost reduction opportunities.
In Waging War on Complexity Costs (McGraw-Hill), Stephen Wilson and Andrei Perumal deliver a potent and practical approach to reclaiming cost advantage. This executive-level resource presents definitive answers to key questions:
Learn how we helped a global provider of drilling services and equipment double EBIT in two years
“WP&C is helping us transform our business. Their insights are phenomenal!”
“Wilson Perumal & Company's approach treats complexity as the enemy. Declaring war is the most direct route to an efficient, profitable enterprise. We declared war on the complexity in our portfolio, resulting in streamlined customer offerings and a more nimble business.”
“This was a quick and painless way to understand our true product profitability, and it challenges how we think about our business. I am extremely pleased with the results.”
“WP&C’s insights into our portfolio, cost structure and growth drivers have changed the way we think about our business. The brand management playbooks they developed for the business will be critical to how we make decisions going forward.”
“I have been more than pleased with what you have been able to accomplish in this time. Beyond my expectations...Spectacular!”
“Fantastic piece of work! You’ve really shed a lot of light on our business. Inmarsat will benefit enormously from your contribution and we will be using your structured thinking to guide us through the decision-making to come.”
“If you take all six times [past projects] where we looked at this, over the past ten years, and rolled them all up together, and multiplied by ten, it would still not be as good as this work.”
“Army personnel credit the collaboration between Joint Munitions Command, CAAA's higher headquarters, and consulting firm Wilson Perumal & Company for identifying areas to improve the munitions distribution process.”