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Companieswereabletocutcostseffectivelythroughthecrisis,executivessay,butthey’relessconfidentoftheirabilitytocontainorcontinuetocutthem.Somecompaniesarepositioningthemselvesforlonger-termsuccessbyplanningthenextroundmorestrategically.ExecutivessaytheircompanieshavemadeeffectiveandsignificantcutbacksinoverallcostssincetheonsetoftheeconomicdownturninSeptember2008,accordingtoarecentMcKinseysurvey.1Eventhoughcostcontainmentremainsahighpriority,manyrespondentsworryaboutthesustainabilityofthecostreductionsandareonlysomewhatconfidentthattheircompaniesareadequatelypreparedforevenbiggercostchallenges,whichtheyexpectinthecomingyear.Theseareamongthefindingsofasurveyof300operationsandotherseniorexecutivesfromaroundtheworld.Weaskedrespondentsaboutthesizeandscopeofrecentactionstheirorganizationshavetakentoreducecosts,thestrategicmotivationsunderpinningthemoves,andexecutives’viewsonthesuccessandsustainabilityofcostcuts.Wealsoaskedrespondentstoidentifythemostsignificantrisksfacingtheircompanies’coststructuresinthecomingyearandassesstheirconfidenceinthelevelofpreparednessoftheirorganizationstomanagethoserisks.Whiletheresultsreflectalingeringenvironmentofuncertaintyandriskintheshortterm,theyalsoshowthatsomecompaniesaremakingimportantstrategicmovesincostreduction—amongthem,afocusonorganizationaleffectivenessandcapabilitybuilding—topositionthemselvesadvantageouslyforthelonghaul.1TheonlinesurveywasinthefieldinNovember2009andreceivedresponsesfrom301executivesfromafullrangeofindustriesandregions;72areoperationsexecutives,andtheremainderareseniorexecutiveswithotherfunctionalspecialties.Jean-FrançoisMartinWhatworkedincostcutting—andwhat’snextMcKinseyGlobalSurveyresults:2Whatworkedincostcutting—andwhat’snextMcKinseyGlobalSurveyresultsAhardlookatthebottomlineEvenasmoderateoptimismabouttheglobaleconomyreturns,2costcuttingremainsatoppriorityfornearlythree-quartersofallrespondentstothissurvey.Morethanhalfsaytheircompanieshavecutupto10percentofoverallcostssinceSeptember2008,nearlyone-thirdsaytheircompanieshavereducedcostsby11percentto20percent,and9percentofexecutivesreportcutbacksof20percentormore.Morethanhalfofallrespondentssaythecost-cuttingprogramsundertakenbytheircompaniessinceSeptember2008weretargetedatlabor,withoverheadlaboraccountingforthelion’sshareoflaborcostreductions.Fortypercentofexecutivessaytheycutcostsinallcategories:frontlineandoverheadlabor,nonlabor,andcapitalassets(Exhibit1).Exhibit1CutseverywhereActionstakentoreducecostssinceSept2008,%ofrespondents,1n=301Costreductionfocusedon...Survey2010ServiceopsExhibit1of6Glance:Exhibittitle:CutseverywhereCapitalassets(eg,facilities,transportassets)FrontlinelaborAlloftheaboveNoactionstoreducecostsNonlaborcosts(eg,purchasedgoodsandservices,travel)48Overheadlabor(eg,finance,HR,IT)3620204031Respondentswhoanswered“other”arenotshown.2See,forexample,“EconomicConditionsSnapshot,December2009:McKinseyGlobalSurveyresults,”mckinseyquarterly.com,December2009.3Whatworkedincostcutting—andwhat’snextMcKinseyGlobalSurveyresultsThepredominantmotivationforcostreductionofanykindwastolowervariablecostsinresponsetolowerdemand(Exhibit2).Nevertheless,alargeproportionofrespondentsnotethatcompany-wide-improvementprograms—suchasleanorSixSigma—werestrongmotivatorsaswell.Thisfindingsuggeststhatmanycompanieshaveaninterestinmakinglong-term,transformativechangestotheircoststructures.Onstrategy,justoverhalfofallrespondentssaytheircompaniestookatargetedapproach(focusingonaparticulargeographyorfunction),whereas44percentsaytheircompanies’approachwasanacross-the-boardcostreduction.Largecompanies—thosewithannualrevenuesofmorethan$1billion—andpubliccompanieswerefarmorelikelythantheirsmallerorprivatelyownedpeerstotakeanacross-the-boardapproach.Exhibit2Whycut?%ofrespondentswhosecompanieshavetakenactiontoreducecostssinceSept20081Survey2010ServiceopsExhibit2of6Glance:Exhibittitle:Whycut?ActionstakenWhatmotivatedyourcompanytotakeaparticularaction?Top3reasonsforactiontaken1Respondentswhoanswered“other”or“don’tknow”arenotshown.Costreductionfocusedonfrontlinelabor,n=165Costreductionfocusedonnonlaborcosts,n=259Costreductionfocusedonoverheadlabor,n=217Costreductionfocusedoncapitalassets,n=175Reducevariablecostsinlinewithlowerdemand/volumeforourproducts/services59505042Neworganizationalleadership(eg,newbusinessorfunctionalleader)24212918Newstrategy(eg,enteringnewmarkets)16151517Merger,acquisition,otherchangeofownership9101213Company-wideprogramtoincreaseperformance(eg,lean,SixSigma)42374531Newperformancegoals(eg,stockpricemargin)18212016Partofnormalbudgetcycle30403733Organizationrestructuring(eg,globalizationorproduct-basedorganization)24274635Externalshock(eg,commodityorraw-materialpriceimpact)12261314Freeupcash/reduceneedforshort-termexternalfinancing253329414Whatworkedincostcutting—andwhat’snextMcKinseyGlobalSurveyresultsWheredidcutbacksoccur?Amongrespondentswhosecompaniestookatargetedapproachtocutbacks,afull75percentsaytheirorganizationstrimmedcostsinoperations,andnearlyhalfciteHR—thenextmostfrequentlychosenoption(Exhibit3).Noare