CGN Edge Blog

SECT 'Sustainable Enterprise Cost Transformation'

August 28, 2019 Posted by: Nandika Gogineni

A CGN Solution for Volatility Patterns in Current Economies

Volatility – It’s Trends and Changes in Business Environment

"In today's environment, nothing is constant or predictable - not market growth, customer demand, product life cycles, the rate of technological change, or the nature of competition" (Hammer and Champy 1993:17).

Volatility has been higher in recent years, due to macroeconomic factors. Increasing volatility makes it nearly impossible to confidently deploy short-term growth initiatives, let alone long-term projects, since it created a new mode of “thriving in uncertainty”.

In order to remain sustainable in these uncertain periods, OEM’s are under pressure to:

  •  Increase manufacturing productivity
    and throughput
  •  Reduce time to market or increase the number of iterations
  •  Improve quality and compliance, 
    while mitigating risk
  •  Reduce costs
  •  Enable decision making and robust
    change management
  • Create intelligent products in a
    connected world
  •  Provide engineering capability and
  •  Increase portfolio, revenue, and market share

Traditionally, companies position their cost management approaches either defense-oriented or growth-oriented, which has become obsolete in these times.

Why Cost Transformation vs Traditional Cost Reduction

Traditional cost reduction was developed in a moderate business environment, in which production was the crucial competition factor and cost structures were more flexible and therefore easy to influence. Traditionally, cost reduction tends to focus on costs, and fail to report on issues, such as quality, reliability, lead time, flexibility and customer satisfaction, elements necessary to compete successfully in today's competitive environment. 70% of companies have failed to improve their cost/revenue ratio year-on-year for 3 years, after announcing a significant cost reduction program (FTSE 350).

Most cost reduction efforts lose steam before transformation is achieved. To counter and conquer these uncertain business environments, sustainable cost transformation is now the best avenue for success, combining traditional levers with next generation operating models and emerging digital technologies.

Sustainable Enterprise Cost Transformation (SECT)

SECT is a CGN Global cost transformation solution, which enables OEM’s to be responsive, nimble and flexible in complex and rapidly changing business environments. The application of SECT simultaneously improves the strategic position of a firm and reduces cost, by being inherent at each stage of a product’s life cycle, i.e. during design development, manufacturing, distribution, and service lifetime of a product. In short, SECT considers strategies for the complete value chain.

SECT is a philosophy, an attitude, and a set of techniques to contribute in shaping the future of a company. It is a key element to attain and sustain continuum of cost transformation strategies amid disruption.

SECT - Framework and its key capabilities

The framework encompasses CGN's proactive strategic cost transformation solution, which helps OEM’s become more comfortable with ambiguity of business cycles. At CGN, we provide cost transformation by viewing the value chain of an OEM as a system, made up of subsystems, containing inputs, transformation processes, and outputs. This framework involves segmenting OEM operations into strategically relevant activities and identify what cost drivers of the value chain are potential opportunities for improving cost position and customer value. CGN's SECT framework is shown below.