Focusing on cost management during economic downturns.

• Author: Schiff, Jonathan
• Position: VIEWPOINT - Viewpoint essay

Economic recessions usually spark a renewed interest in rigorous, detailed and effective cost-management practices. Given the lack of orientation, preparation or temperament for a recessionary period, the first response and reaction of most managers typically involves a "siege mentality" that includes: protecting one's turf; battening down the hatches; slashing all general ledger expense categories; and viewing the finance's department's role as a headcount "executioner."

These negative and dysfunctional reactions will proliferate, influence and dominate an organization that is not proactive in promoting and effectuating a cost-leadership culture that includes strategy and practice backed up with coherent planning, initiatives and actions.

In past recessions, companies such as Chrysler Corp., Johnson & Johnson and several units of General Electric Co. have improved their profitability, productivity and performance with the rigorous, systematic and efficient use of business-process analysis, activity based costing and cycle-time compression metrics, among other things.

What made these and other forward-thinking companies survive and prosper through economic downturns was focus. Every business challenge presents winners and losers. Companies that succeed are those that are able to alter their focus and help improve opportunities. The contribution of the finance and accounting function is to flex and change and meet their firm's needs.

Accounting and finance executives in winning companies have built career-lasting reputations for excellence by leading cost-leadership initiatives with the cooperation and support of their business partners.

Indeed, a senior finance executive from a large global consumer goods company recently remarked: "We have an entire generation that doesn't know of real economic contraction or recession, and they don't have rigorous cost-leadership skills or sensibilities in their DNA."

It is also interesting to note that the reformulated certified public accountant exam has reduced the content related to managerial and cost accounting. As a result, many academic accounting programs have decreased the emphasis on this subject.

In contrast, one leading global pharmaceutical company requires a cost-accounting job rotation of all its program participants during their first two years in the firm's early finance-leadership development program. This reflects the high value placed on the skills derived from this rotation.

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