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Eliminating Cost Centers

Would the roof cave in if we stopped doing this work altogether?

No matter how well a business prevents cost inflation, it will still have to cut costs. This is because businesses are like people, and people often get sick no matter how carefully they exercise, control their diet, and avoid substance abuse. There is thus always the need for cost cutting. To start cost cutting, management usually asks: “How can we make this operation more efficient?” It is the wrong question. The question should be: “Would the roof cave in if we stopped doing this work altogether?” And if the answer is “probably not,” one eliminates the operation. It is always amazing how many of the things we do will never be missed. But businesses that actually succeed in cutting costs don’t wait until they have to cut costs. They build cost-cutting into normal operations. They build into their routine operations organized abandonment. Otherwise, eliminating activities and operations runs into extreme political resistance.

ACTION POINT: Set up a systematic process of reviewing all products, processes, and services. Abandon those that no longer contribute to customer value.

Permanent Cost Control (Corpedia Online Program)

* Source: The Daily Drucker by Peter F. Drucker

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