Cost management: only a 'piece' of productivity gains.

• Author: Heffes, Ellen M.

"Many see cost management as 'bad,'" says Mike Baxter, a principal partner in the London office of Marakon Associates, an international strategy-consulting firm. Cost management is, indeed, seen by many as an excuse for slashing headcount and other sweeping short-term reductions. To Baxter, however, cost management is only one piece of an ongoing productivity program.

"It's about ultimately making a business more efficient over time, and achieving a level of productivity that allows the business to compete more effectively than its competitors," he says. Additionally, he comments, it's important to ensure that cost management and growth management are joined, since "getting costs out of existing businesses allows a company to reinvest that cost into new growth, while continuing to deliver profit growth."

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Effective cost management can make a good company better. London-based Cadbury Schweppes plc, one of the world's largest international beverage and confectionery companies, was performing pretty well when Todd Stitzer took over as CEO in May 2003. But it was clear to him that it needed to step up its organic growth to maintain its position and aspirations of being in the top quartile of its peers in terms of total shareholder returns. The question Stitzer raised: "How can we fund the investments that we need to make in growth in order to drive the business forward?" led to a twin focus, says Baxter--better growth and on identifying fuel for growth--which drove Cadbury to look for cost efficiencies.

When launching what was to become Cadbury's "Fuel for Growth" program, management began by setting an internal challenge. Following a reorganization that streamlined the group's structure, they set out to systematically look across the business for opportunities to take costs out of indirect overhead; several opportunities came through the group effort. Thus, a combination of that reorganization and a concerted look across the organization for costs resulted in Cadbury identifying a series of initiatives that added up to savings of approximately 15 percent of indirect...