Mar 032012

Managing financial discontinuities effectively is key to the longer-term viability of any organization in the current economic climate. Many enterprises approach this issue simply by cutting discretionary cost and reducing head count. Yet this approach can actually increase risks to the long term viability of an enterprise by reducing flexibility, the ability of an organization to adapt to changing conditions.

Zebra’s proven approach to cost structure improvement therefore focuses on flexibility. An enterprise with a flexible cost structure is better positioned to take advantages of market opportunities as they arise. Conversely, flexibility allows an enterprise to retrench rapidly if an important stream of revenue or profit becomes impaired.

Cost structure improvement may take multiple forms. For example, three common types are:

  1. Variabilisation of fixed cost, e.g. through creation of a contingent labour pool, outsourcing of activities or deployment of Software as a Service;
  2. Peak shaving through demand management;
  3. Raising utilisation of the asset base, e.g. economies of scope, economies of scale or simply through extended working hours.

Although every situation is different, there are usually four main steps in a cost structure improvement program:

  1. Diagnosis: establishing the potential for improvement;
  2. Options: deciding on feasible courses of action, some of which may be overlapping or complementary;
  3. Action planning: determining who will do what when, and what prerequisites exist
  4. Execution and evaluation: carrying out the plan and driving benefit realization.

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