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8 April 2009
RBS just announced plans of a worldwide reduction of 9,000 posts. This, unfortunately, highlights the myopic vision of cutting sources of costs immediately available, in the attempt of restoring shareholders confidence long past declined. While there is significant time pressure, it is important for senior executives to take a step back and properly review cost-management techniques to ensure sustainability. The problems with the typical cost cutting program lie in the fact that cuts implemented are generally short-term tactical fixes, rather than long-term structural changes. While the current market conditions are acute, building a sustainable cost-management program requires more than sporadic/deep cost cuts throughout the business. Major organizations consistently stumble in cost-management initiatives because they do not properly involve business line experts, who work with the technology, clients and operations staff on a daily basis. Cost cutting in isolation without in-depth knowledge of business line activities can create more problems and costs than it alleviates. An effective cost cutting program aligns the right people with the proper organization, and within the right team structure to develop a sustainable long-term cost-management program. As they embark on cost initiatives, executives have the opportunity to make fundamental changes to the cost base. Banks can create a culture of cost-efficiency that will refocus business lines on sustainable growth and client service and allow stronger institutions to emerge from the credit crisis well positioned for growth.