I have been revisiting the idea of strategic cost reduction. In a podcast last year, I discussed the need to align cost reduction with business goals to allow for short- and long-term growth. While we are on our way to recovery from last year’s economic decline, it is prudent to remember the role that strategic cost reduction plays.

If you have not already, you may want to read previous posts in this series:

Key capabilities for success

It can be challenging to execute a strategic cost transformation program and to do it in a timely manner. Four key capabilities can contribute to success:

  • Use the right type of operating model. The model must define the who, what, when, where and how of the insurance company. This model must be flexible.
  • Make the highest and best use of the resources available. With so many resource and labor pools, often located globally, insurers must assess what their core processes are, and apply sourcing models that make sense.
  • Optimize sales and service to sustain top line growth.This means having the right kind of product offering and match the channel and offering with the target customer.
  • Execute with excellence. Once the first three capabilities are established, it is critical that strategies are executed properly and efficiently. Each transaction, whether a new customer or a renewal, must be executed appropriately.

Challenges to success

It can be challenging to develop an effective strategic cost reduction program, and even more challenging to implement. In particular, insurers must consider some key points:

  • Traditional organizational silos include inefficiency and inertia. These silos—and the culture within them—may need to be revamped or broken down to unlock the value potential.
  • Institutional memory of past initiatives may haunt you. There may be political or cultural resistance to new initiatives because of memories of past projects that were difficult to implement or sustain.
  • Balance today’s business while implementing a new model. Regardless of a business’s size or resources, it is challenging to manage the day-to-day business while simultaneously launching new initiatives aimed at long-term success.


Perhaps most important is that any cost reduction strategy will only be successful if an insurer has the buy-in and support of everyone at the organization. Confining the strategy and vision to the upper levels of management will not work. Every single employee must understand the strategy and how they contribute to or support that strategy.

What do you see as the key capabilities and challenges facing strategic cost reduction?

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