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RIDING THROUGH ECONOMIC CYCLES
What advice do you have for businesses to align their cost cutting with their overall business strategy for future growth?
While cost cutting may have the primary objective of lowering the cost structure of companies, it can also be used as an opportunity to ensure that businesses position themselves for future growth. It should be looked at strategically, and ensure that freed up resources are channelled to fund the necessary transformation initiatives and contribute towards long-term growth.
To do this well, businesses need to first identify and understand the different categories of cost and how they contribute towards a company's overall business goals:
1. Costs which do not align with the overall growth strategy - these should be the first to get cut, so as to channel resources to better areas.
2. Costs which drive initiatives and strategies aligned with growth strategy - these can potentially be streamlined for greater cost efficiencies, and any cost cuts should be based on an understanding of how they would impact clients.
3. Costs which build and expand a company's differentiated capabilities - freed up resources should be focused on strengthening the differentiators that make a firm unique and set apart from the competition.
Strategic cost cutting therefore means maximising investment in the most impactful costs and minimising exposure to costs from low value add initiatives.
The key for businesses would be to understand how cost management overlaps with what customers are looking for, and to ensure that there continues to be investment made into enhancing products and improving the client experience.
For companies which have a diverse footprint, part of cost management would entail looking at ways to be leaner and more streamlined, and to evaluate their market share and opportunities in the countries they are present in.
This approach to cost management helps create a more resilient growth model, which is critical especially in times of uncertainty and challenging operating environments.
- The writer is market head, South and South-east Asia, Standard Chartered Private Bank.