Spotlight on cost reduction

In the next instalment of our “Insights into Consulting & Strategy” campaign, Mike Bennett discusses cost reduction consulting, and why it is a good time for management consultants to specialise in this niche area.

cost reductionThe drive for cost reduction in the financial services industry traditionally matches the ebb and flow of the economy and market health.

In boom times it is not compulsory to keep costs down; in fact, it may hinder an FS institution from making the most of the situation and keeping pace with their rivals. After all, cost-cutting activities are hugely disruptive and demand significant resources, as well as undermining morale.  But when the market slumps, cost reduction inevitably becomes a massive focus again. It’s a fairly simple relationship that exists in most other markets too, such as Pharmaceuticals, TMT and Energy.

Cost reduction programmes on the rise

A recent report shows that over three quarters of FTSE 100 companies have started cost reduction programmes in the past 12 months, and over half of these have conducted 3 or more such programmes. Considering that a single cost reduction programme for a large client can involve hundreds of consultants across a number of countries, it is no wonder that there is big money to be made in this area.

The volatility of the financial market in general is keeping cost reduction high on the boardroom agenda, and this is reflected in these statistics.

The changing landscape of cost reduction

Historically, cost reduction was a niche area within a consultant’s toolkit; and even then, focus was on so-called ‘quick wins’ with little thought given to long-term strategy and sustainability.

But more recently, clients have been requiring (and demanding) a broader transformational approach, attacking unnecessary costs at their root rather than shaving 5% off a budget here and there. Modern cost reduction programmes review and challenge every element of the organisation and, as such, require consultants who understand the client’s business model.

How does this impact recruitment?

Because of this, we are seeing an increasing demand for experienced cost reduction specialists who can lead programmes, manage large teams and develop business for the future.

The most active industries are financial services and oil & gas, with a particular preference for those who can service both. Of course, there is no guarantee that cost reduction consulting will be this buoyant forever, but for generalist consultants looking to specialise, it is certainly a promising market.

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