Want to grow the top line? Manage costs better

Abstract

Slimmed down and operating more efficiently after the recession, many companies are looking for ways to boost sales and grow their way to higher profits. While news of this renewed focus on growth is encouraging, a diminished role for cost management on the corporate agenda is alarming. The only thing certain about planning for growth is that it will cost money. Continuing to manage costs aggressively during periods of economic expansion is the most efficient way to fund that growth. Companies that want to grow and grow profitably must be relentless in finding ways to free up costs and capital and must reinvest those funds in their most promising growth opportunities. In this article, we argue that cost management should be closely aligned with, and made an explicit part of, corporate growth strategies, for the challenge is not only to lower costs, but also to ensure competitors are “out‐invested” on growth. We then suggest four principles for achieving this alignment. Our approach involves the use of ambitious sales and earnings growth targets, tailored cost‐reduction targets, selective cost cutting and improved organizational capabilities.