A McKinsey Quarterly article asks whether the cost cutting that continues at many companies will be sustainable for the long-term. In fact the firm says that many executives expect some portion of the costs cut during the recession to return within 12-18 months. McKinsey cited research that says that only 10 percent of cost reduction programs show sustained results three years later.
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This article (you have to register to view the full article) offers tips to increase the probability that those cost shifts will stick, including that strategy must be behind the cost-cutting initiatives, executives must walk the talk, and accountability must be assigned at the right level.
It's no secret that distributors and manufacturers made dramatic strides to build efficiencies over the past year or more. Some cuts were meant to be lasting, and others just a temporary reprieve to match lower sales levels. But this McKinsey article does bring into focus the need to continually reevaluate these initiatives and cuts as the economy rebounds. Many distributors that we have spoken to for our upcoming Distribution Landscape Report say that they believe the positive and much-needed changes they've made will be sustainable. But could the impacts of these initiatives "erode with time" as sales improve, as McKinsey writes?
