Reframing Costs as Capabilities

Written by

Davin Wilfrid

Published on

October 24, 2019

This post is excerpted from our eBook Rethinking Cost Management in the Digital Age

In a previous post, we discussed the reasons traditional cost management is broken. So how do smart organizations succeed in tying cost management to strategy — and in executing on those initiatives despite the obstacles? 

The answer is a shift in perception: They reframe costs as capabilities

Cost is just money out the door. It’s the ballooning obstacle to profitability and the villain of the balance sheet. Capabilities, on the other hand, are opportunity. They are the pistons of your organization’s growth engine — the discussion should be about how many pistons you need and which direction the engine should face.

CFOs and business leaders already recognize that costs and people are closely linked. That’s why so many of the most common cost management tactics are focused on reducing people-related costs (Figure 3).

FIGURE 3

Most common tactics in cost management.
How many are directly related to people?

Headcount Reductions

Spending Freezes

Budget Freezes or Reduction
Zero Based Budgeting

Automation

New Technologies

Process Optimization

Shared Services

Continuous Improvement

Internal Transformation

Consulting Firms

ERP

Procurement

Supply Chain Management

Offshoring

Thinking about costs as capabilities (the collective skills, abilities, and expertise of the organization) will help shift the cost conversation from “how do we spend less money?” to “what is the most valuable work we should be funding?” Business and finance leaders should be prepared to answer these questions:

  • Which capabilities are required for us to execute on our strategy?
  • How will we assess the impact of the work done toward our strategic goals?
  • How will we choose which capabilities to invest in, and which to cut?

Not only does reframing costs as capabilities help clarify the connection between cost and strategy, but it also provides a better unifying principle for the entire leadership team. Gone are the days of annual mandates to slash 10% of spending, replaced with an ongoing discussion of capabilities and their impact on strategic initiatives.

rethinking cost management in the digital age cutting and growing at the same time? Image.
Written by

Davin Wilfrid

Published on

October 22, 2019

Davin is the Director of Content Marketing for Catalant. In his spare time, he builds terrible-sounding instruments.