We decide how we spend money in three areas:
1. Purchasing: which materials we buy.
2. Specification: what product or service we offer.
3. Efficiency: how well we convert raw materials into finished goods.
These activities are controlled by the Purchasing, Brand Development and Operations departments. They have the ability to make changes that will impact the cost budgets.
So it makes sense to allocate cost savings targets to these departments. This approach has benefits in that accountability is very clear and it is straightforward to track progress.
But this approach also enforces functional thinking; different managers will only worry about their area of activity and personal targets. This in turn results in friction between groups working on the same project or “this is mine that’s yours” cost saving.
Lots of cost is outside the control of the functional managers who control the budgets. There is invariably scope for “integrated” savings, e.g.:
1. R&D harmonising components to get buying efficiencies.
2. Operations investing in technology so that new materials can be used.
3. Marketing reducing range complexity to reduce write off costs.
These areas are not normally managed by standard departmental budgeting approaches so are untapped.
Perhaps it is worth working with your colleagues.
Photo by Waldemar Brandt on Unsplash
Yea I totally agree, good post. It goes further than that though, the whole thing for me is that the departmental budgets drive sylo thinking so make the situation much worse.