In a challenging economic environment, where inflation and rising costs put pressure on profit margins, companies need to optimize their resources and improve their efficiency more than ever.
However, traditional cost-cutting approaches – such as across-the-board cuts or isolated measures – are often insufficient and can even harm long-term competitiveness. On the contrary, efficiency strategies based on cost drivers offer a rigorous, analytical approach that allows the root causes of costs to be identified and addressed, thereby maximizing the value of each resource and improving the company's profitability.
Studies show that these efforts have a 60% higher success rate in identifying savings opportunities than traditional approaches, and once the strategies are implemented, in our experience, an average of 75% of the identified efficiencies are captured.
The first step in this approach is the identification of cost drivers. These are unitary indicators that allow understanding of the company's operation at a deeper level, such as costs per square meter, cost per transaction, or cost per unit produced. By taking the analysis to a unitary value, we can isolate the factors that end up hiding inefficiencies and get a clearer view of how costs relate to the company's activities and processes. With the right drivers, a detailed and rigorous analysis is carried out, including analyzing historical data, comparison between production units with internal benchmarking, and comparison with other companies with similar operations (external benchmarking). This allows us to identify pockets of opportunity and have a preliminary quantification to understand the gaps.
Once the key drivers have been analyzed, the next step is to develop efficiency capture strategies specific to each of the identified expense pockets. There is no one-size-fits-all solution, so it is important to adapt the strategies to the particularities of each company and each type of efficiency opportunity. Some common strategies include renegotiating contracts with suppliers, searching for cheaper supply sources, implementing more efficient technologies, optimizing processes, and redefining job profiles, among others. Choosing the right strategy and the number of opportunities to address will depend on the business situation and the organization's ability to push for these changes. It is important to remember that the successful implementation of these strategies depends not only on identifying opportunities but also on the organization's ability to execute them effectively.
Finally, it is essential to implement efficiency strategies effectively and monitor results continuously. This involves establishing key performance indicators (KPIs) to measure the impact of the strategies, identify possible deviations, and make adjustments as necessary. Rigorous monitoring and continuous improvement are essential to ensure the sustainability of results in the long term.
In our experience, it is also key to understand how the organization works to precisely determine what is causing the loss of efficiency and productivity. Organizations look for ways to do things under the conditions they have, so it is also relevant to understand the processes that exist in the company and the technology available to support the operation. It is important to include all these adjustments in the plan, or inefficiencies are likely to reappear after a while.
At Summa, we have helped numerous companies implement efficiency strategies based on cost drivers with significant results. For example, we worked with a company in the industrial sector that was facing declining profit margins. Through a detailed and rigorous analysis of its cost drivers, we identified significant savings opportunities in areas such as inventory management, logistics, and energy consumption. By implementing specific optimization strategies for each driver, we achieved a 25% reduction in the company's total costs, which translated into a significant increase in its profitability.
Efficiency strategies based on cost drivers are a powerful tool to improve the profitability and competitiveness of companies, especially in times of economic uncertainty. By adopting a strategic, analytical, and rigorous approach, companies can identify and optimize the key factors that drive their costs, thus maximizing the value of each resource and ensuring their long-term sustainability.
At Summa, we are committed to helping our clients achieve operational excellence and overcome economic challenges through innovative and effective efficiency strategies. Contact us.
About the author
Ricardo Sonneborn is a Partner at SummaPartners and has more than 20 years of experience in strategic consulting and corporate finance.
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