How do companies cut costs effectively?

In order to cut costs effectively, companies must connect costs to their strategy. To do this, management teams must figure out which costs fuel their distinct advantage, and which don’t. For example, former CEO of Frito-Lay, Roger Enrico, had to make a major investment in product quality to stay competitive.

What is cost reduction?

Cost reduction is the process of decreasing a company's expenses to maximize profits. It involves identifying and removing expenditures that do not provide added value to customers while also optimizing processes to improve efficiency. Cost reduction typically focuses on generating short-term savings.

Do companies cut costs to grow stronger?

This important distinction is a way of life at leading companies we have studied, like Amazon, CEMEX, Frito-Lay, Ikea, Lego, and Starbucks. They cut costs to grow stronger. You can see this different approach to cost allocation at work in the way winning companies behave in times of adversity.