For any Chief Financial Officer (CFO) or senior leader, the challenge isn’t merely cutting costs – it’s ensuring those cuts are structural and sustainable, ultimately bringing the long-term cost base below projected revenue. This process, known as Cost Transformation, requires moving beyond simple, temporary budget slashing toward strategic efficiency that protects and even funds core growth initiatives.
Here, we break down the three fundamental pillars of strategic cost transformation and illustrate how major institutions, like ANZ Bank, are currently implementing them to fundamentally reshape their financial models.
The Three Pillars of Sustainable Cost Transformation
The ideal strategy for reducing costs involves challenging the fundamental way a business operates, focusing on permanent efficiency gains rather than short-term austerity.
1. Structural Cost Management (Challenging the Base)
This pillar focuses on eliminating fixed costs by permanently changing the organisational or asset footprint. It requires asking tough questions about portfolio rationalisation – identifying and divesting low-return assets, consolidating duplicated entities, and applying Zero-Based Budgeting (ZBB) principles to dismantle spending that has accumulated over time without adding corresponding value. The goal is to reduce the size and complexity of the cost base itself.
2. Operational Efficiency (Optimising Inputs)
This approach targets variable and process-related costs by increasing the ratio of output (revenue, service) to input (time, materials, people). The core drivers here are Standardisation and Automation. This involves streamlining operations, centralising functions like procurement to gain scale advantages, and strategically deploying technology to reduce human effort in high-volume, repeatable tasks.
3. Personnel and Productivity (Focusing Human Capital)
As personnel represents the largest single expense for most service-based businesses, this pillar focuses on ensuring every resource is aligned with value creation. This means using Activity-Based Costing (ABC) principles to eliminate non-value-added activities and removing unnecessary management layers (organisational flattening) that create delays and communication drag. Cuts in this area must be precise to avoid damaging core business functions.
Case Study: ANZ’s Structural Shift for Efficiency
ANZ Bank’s multi-year “ANZ 2030 Strategy,” led by CEO Nuno Matos, is a textbook example of a large, capital-constrained financial services enterprise using these three pillars to drive fundamental change, aiming for a Cost-to-Income ratio in the mid-40s by FY28.
The lesson from ANZ is clear: sustainable cost reduction is not about across-the-board cuts. It is a strategic effort to reconfigure the business’s structure and operating model to be simpler, more digital, and inherently more efficient. The savings generated from these structural changes are then strategically redeployed to fund the bank’s core priorities, like improving customer experience and winning back market share.
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