Cost cutting can be very ugly if proper attention is not paid to how it is done. For instance, cost-cutting can lead to job losses. It can also lead to suppliers not being paid on time and so on.
Competency Based Approach
Costs should not be blindly cut. Instead, cost cutting should follow a strategy. That means that every single cost reduction must be a step towards achieving a larger goal.
Nike is in the business of marketing sportswear. However, the company does not manufacture any of the products it sells.
A competency is a difficult thing to define. The difficulty is due to the wide nature of qualities that can be included in the competency. It could be related to people, technology, know-how or processes!
Strategic cost cutting means that the companies can differentiate btwn the costs that they need to incur to survive i.e. identify mundane expenses like electricity, fuel, accounting costs, regulatory costs, etc. & contrast it with costs related to competencies.
Higher Management Buy In
Strategic cost cutting is a decision that needs to be made by the entire organization. The top management has tobe involved in this approach.
Strategic cost cutting does not work overnight. It takes years to build competencies that outmaneuver the competition. The problem is that most companies run with the short term in mind. They are only focused on their quarterly or annual results.