5 insights for executives

Conserving costs, powering growth

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Utilities companies should focus on cost reduction across the service company.

Tone from the top is essential — leadership should set appropriate goals and follow through to ensure execution.

Service organizations need to develop sustainable responses to their long-term cost challenges, implementing change at a structural level to fundamentally lower their cost basis. This calls for a systematic understanding of their costs to serve at a new level of granularity, as well as a disciplined approach to attacking costs.

The service company is an excellent place to start because customer-facing activities can be protected. Here are five ways to move toward a next-generation support services model:

  • Segmenting the service company. Leading service organizations are aligning service company costs to business segments and profits. As part of this seminal shift, businesses are taking a hard look at their cost allocation pools and scaling back those corporate services they cannot afford.
  • Enhancing the line of sight between product and G&A costs. Service companies have a fundamental opportunity to normalize their contribution and understand their fully loaded costs by unit of output. Companies should be able to see service company costs all the way through to the end-use market. This transparent view can be extremely revealing in terms of size of service company allocations and recent growth trends.
  • Embracing the idea of outsourcing. Service organizations should look critically at each function: many in-house functions can be performed more efficiently and less expensively by third-party providers. The market for many functions is mature, and the solutions proven. This issue calls for a fundamental rethink on the mission and role of the corporate center.
  • Revitalizing the organizational structure. As the promotions pile up, talented, experienced senior management can end up in holding tanks for managers who don’t manage — becoming essentially high-paid subject matter experts. One way to address this is to redesign the management structure so that talent moves consistently toward the top — an “up or out” structure coupled with fewer levels and broader spans of control to ensure that management jobs are truly value for money.
  • Turning uncontrollable costs into controllable costs. One example is the health and welfare expenses tied to an aging workforce. Leading companies are putting significant emphasis on keeping their workforces healthy and productive by implementing wellness measures such as regular health checks and easy access to workout facilities.

 


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