Using a cost-control tower to drive affordability in defense

Cost-control towers help companies in many industries stay within budget and reduce costs. It’s time for defense companies to learn about their benefits.

Although defense companies have long attempted to make their products and services affordable, gains have proven elusive. In today’s cost-conscious environment, in which customers are constantly tightening budgets, the pressure to deliver cost-reduction initiatives (CRIs) is now intense.

As defense companies strive to improve affordability, they may find that their function-based organizational structure poses an obstacle. Typically, each function has its own cost-reduction targets, with employees primarily rewarded for meeting those goals. What’s more, each function often manages its own cost baseline rather than leveraging a program-wide “single source of truth,” making it difficult to reconcile information and track progress. Overall accountability for CRIs is often low, since companies may not assign a central owner or simply delegate responsibility to the finance group without giving it authority to cut functional spending.

To overcome these issues, defense companies could consider establishing a cost-control tower (CCT) to serve as the focal point for cost reduction at the program level. CCTs, which are common in other industries, help companies set standard processes for cost-reduction efforts, increase cross-functional collaboration, and help resolve many program-management challenges (exhibit).

Cost-control towers can reduce or eliminate many typical program challenges.
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Among other benefits, CCTs boost accountability by connecting functional cost-reduction targets to the equivalent annual cost of each unit. They also improve communication by establishing weekly meetings at which CRI owners can engage in cross-functional problem solving and escalate problems to leadership. Cost transparency will increase, since the CCT consolidates all program data in a single location that all stakeholders can consult. And with better, more consistent information, leaders will have an easier time deciding which affordability initiatives deserve the greatest priority.

Since finance members will attend CCT meetings, it will likely be easier to get funding approved for new CRIs, such as sourcing parts from new suppliers and redesigning manufacturing lines. Junior employees who are charged with leading efforts to reduce costs will benefit from the cross-functional feedback and generally have an improved employee experience owing to the closed-loop process that the CCT puts in place.

Although the initial implementation of a CCT may be challenging, since it involves consolidating data and bringing functions together, companies can scale operations across an entire organization with relative ease once they gain experience. The long-term gains from CCTs will more than justify the early effort required.

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