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How do you use strategic management to reduce costs?

Reducing costs is an essential topic in terms of positioning your company in the market. This step comes with a series of challenges, because it’s not enough to cut costs or the number of employees. You need to invest in planning.

Strategic management is a tool that helps managers increase profitability, avoid waste and keep their company in front of the competition by setting it apart from others in the market.

In this post we offer 5 tips to optimize your evaluation of costs and gain a competitive advantage. Check it out!

Include cost reduction as one of your company targets

It may seem like an obvious idea, but many companies don’t include cost reduction in their targets. Strategic management is not only oriented towards increasing sales, but also towards making a forecast of costs that don’t affect essential aspects of your company or quality of service. Intelligent planning is the road to making the investments that will lead to your company’s growth, not its failure.

Always prioritize the customer

Reducing costs in a way that compromises your company’s quality is not an intelligent management strategy. The customer is the main source of a company’s income, and this is why cutting costs for products, services and customer service will have a negative effect on your company’s image and cause a steep decline in sales in the medium and long term.

Engage your team

Monopolizing the strategic management of a company is a great mistake when we’re dealing with cost reduction. Internal communication should be focused on getting all of your employees on the same page.

You should do this not just in terms of seeking solutions, but also in terms of increasing productivity and in everyday activities such as the use of cleaning products, electricity and the telephone, and any other activity that can minimize costs.

Use the value chain as support

The value chain concept developed by Michael Porter is an efficient way to identify activities that add value to a company and also those that can be eliminated, and examines the entire process starting with the acquisition of raw materials through the delivery of your product and concluding with customer service.

This chain is divided into the main activities that are related to sales, maintenance and support, such as:

  • Inbound Logistics
  • Operations/Production
  • Outbound Logistics
  • Marketing and Sales
  • Service

And the support activities:

  • Infrastructure
  • Human Resource Management
  • Technology
  • Procurement

By structuring your company using this model, you as a manager can evaluate costs more easily and identify what affects profits, the activities that add value and don’t add value, and how you can optimize your customer service.

Adapt ready-made models to your company’s reality

In addition to the value chain, many specialists focus on Michael Porter’s models to detect errors, avoid reworking and increase competitiveness. The generic strategies proposed by this Harvard Business School professor focus on:

  • Cost Leadership: offering lower prices than your competitors;
  • Differentiation: when a company creates something that their customers consider unique;
  • Focus: strategy in which the manager just focuses on the strategic target, not the market as a whole.

These models are very helpful in guiding your strategic management, but like all theory, they include aspects that may not fit with your targets or your business model. The ideal is that you define the best strategy for you in terms of scope and integrate it with your other business tools.

Did you like these tips? If you’re looking for advanced strategic management solutions, be sure to contact us!

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