06Jul

Cost Reduction Programs Fall to the Antecedent Effect

Cost Reduction Programs Fall to the Antecedent Effect

According to global management consulting firm McKinsey and Co only 10% of cost-reduction programs sustain their results three years on. In particular areas such as sales, general, and administrative costs are particularly hard to shift  while manufacturing efficiencies are easier to shift.

So why is this the case? Manufacturing efficiencies can be gained by manipulating variables such as the material prices paid to suppliers, how equipment is used, stock turnover and warehousing costs. Sales, general and administrative costs are related to spend on two major variable – people and marketing. You can cut marketing and sales budgets and you can cut the number of people you have but when times improve they both rise again. What’s missing is that cutting costs or making everyone cost conscious without changing behaviour is simply relying on the antecedent effect. The antecedent effect is the short term change that happens when you are motivated to take action, but it is short term in nature because there are no consequences maintaining the change or reinforcing the change. Executives are hooked on this because it’s simple, results are seen quickly, and you (the executive) get reinforcement for taking action. Of course as most executive tenure is about 2.5 years is it any surprise that after 3 years there are no cost gains?  To make change last you need positive consequences for the desired behaviours and you also need to understand the systems and processes that define and produce results. You can make the changes stick but relying on antecedents alone is not the answer.

Posted in Lean, Change Management, Performance Improvement

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