Effective Long-Term Cost Reduction
Introduction:
‘Effective Long-Term Cost Reduction: a Strategic Perspective’ is a study by Michael D. Shields, and S. Mark Young, that deals with the Cost Reduction Programs that were employed in the late 1970s, and throughout 1980s. The study further sets forth a more viable basis for effective long-term cost reduction. The study concludes with the findings that the long-term controllable costs are caused by employees, individually and in groupings that matter to the entire organization.
The study suggests that the key to a successful long-term cost reduction is to make cost reduction a part of the organizational culture.
Analysis:
The study firstly deals with the traditional cost reduction programs which primarily suggest that a cost reduction program is a distress tactic study targeted at all employees, which starts with an immediate threat such as poor performance, loss of contracts, or price reductions etc.
There are five historical approaches which deal with different aspects of cost reduction in an organization:
APPROACH STRENGTHS WEAKNESSES
1. Technology Approach:
To replace employees with new technology for increased output. 1. Decrease in the influence of Unions,
2. Instant cost cut. 1. Increase in the requirement of highly skilled labor;
2. Increased autonomy to these highly skilled employees;
3. Increase in variable cost, as these employees are paid more;
4. Innovation never stops.
2. Lean and Mean:
Tougher policies, including lay-offs, and reduced benefits. 1. Most popular since 1980s;
2. Highest autonomy with the management. 1. Not applied in good economic times, hence increases inefficiency;
2. Rise of discontentment amongst the employees;
3. Loyalty remains on hold.
3. Offshore Retreat:
Escaping to new places for low cost labor 1. Reduced labor cost;
2. Reduced cost of production;
3. Sustains competitive prices 1. New cost of initial set up;
2. Cultural issues;
3. Regulations of the new Govt.;
4. Fluctuations in
‘Effective Long-Term Cost Reduction: a Strategic Perspective’ is a study by Michael D. Shields, and S. Mark Young, that deals with the Cost Reduction Programs that were employed in the late 1970s, and throughout 1980s. The study further sets forth a more viable basis for effective long-term cost reduction. The study concludes with the findings that the long-term controllable costs are caused by employees, individually and in groupings that matter to the entire organization.
The study suggests that the key to a successful long-term cost reduction is to make cost reduction a part of the organizational culture.
Analysis:
The study firstly deals with the traditional cost reduction programs which primarily suggest that a cost reduction program is a distress tactic study targeted at all employees, which starts with an immediate threat such as poor performance, loss of contracts, or price reductions etc.
There are five historical approaches which deal with different aspects of cost reduction in an organization:
APPROACH STRENGTHS WEAKNESSES
1. Technology Approach:
To replace employees with new technology for increased output. 1. Decrease in the influence of Unions,
2. Instant cost cut. 1. Increase in the requirement of highly skilled labor;
2. Increased autonomy to these highly skilled employees;
3. Increase in variable cost, as these employees are paid more;
4. Innovation never stops.
2. Lean and Mean:
Tougher policies, including lay-offs, and reduced benefits. 1. Most popular since 1980s;
2. Highest autonomy with the management. 1. Not applied in good economic times, hence increases inefficiency;
2. Rise of discontentment amongst the employees;
3. Loyalty remains on hold.
3. Offshore Retreat:
Escaping to new places for low cost labor 1. Reduced labor cost;
2. Reduced cost of production;
3. Sustains competitive prices 1. New cost of initial set up;
2. Cultural issues;
3. Regulations of the new Govt.;
4. Fluctuations in