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Do you have a cost reduction target next year?
This is the time of the year when many companies finalize their ambitions and goals for the coming year, which are captured in the annual budget. One of the goals seen very often is a cost reduction target. This single item often decides how various functions and teams would behave next year.
I have seen several cases where cost reduction targets lead to not only a suboptimal but often a damaging behaviour. Functions start focusing on their own element of cost and ignoring business imperatives like customer service. If a customer order can be fulfilled in time by expediting a consignment, such actions are turned down as it would result in exceeding the logistics cost target.
Besides affecting customer service, it also makes functional silos stronger, leading to poor teamwork.
In my opinion, teams should focus on profit improvement goals rather than cost reduction. Initiatives which bring in additional throughput (additional revenue even at a marginally higher cost) flourish in such an environment.