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July 09, 2008

Awi Federgruen: Weighing the Costs of Strategic Goals

Marianna Macri
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Taking organizational service to the next level is not just about executing key strategic goals. According to Professor Awi Federgruen, companies need to focus more on considering the relationship between strategic options and operating cost.

“It is challenging but relatively easy to come up with planning approaches that will take out the organizational fat to reduce operational costs for given strategic goals,” Federgruen told the FT in a BearingPoint podcast. “But what is much more challenging and ultimately much more important for most organizations is to understand how the required operating costs interact with the strategic goals of the company.”

Within a corporate landscape that’s becoming more and more competitive in terms of the quality, accuracy and timeliness of services provided, organizations need to take a step back and weigh the implications of certain initiatives to the bottom line.

“Those tradeoffs between operating costs and strategic goals are not easy to figure out . . . and yet [they’re] something that organizations should indeed stay awake about, because without having a good understanding about what indeed the revenue implications are of strategic choices . . . one may be missing the big picture,” Federgruen said.

What challenges does your organization face in thinking about strategy choices in terms of operating cost — and do you agree that the task deserves greater attention?