The Daily Drucker by Drucker Peter F

Author:Drucker, Peter F. [Drucker, Peter F.]
Language: eng
Format: azw3
Publisher: HarperCollins
Published: 2009-10-12T16:00:00+00:00

Managing in a Time of Great Change

The Five Deadly Business Sins (Corpedia Online Program)

28 July

Cost Control in a Stable Business

In cost control an ounce of prevention is worth a pound of cure.

All of us have learned that it is much harder to get rid of five extra pounds than it is not to put them on in the first place. In no other area is it as true as it is in cost control that an ounce of prevention is worth a pound of cure. An absolute necessity is to watch like a hawk to make sure that costs do not go up as fast as revenues; and, conversely, that they fall at least as fast as revenues if there is a recession and revenues go down.

One example of a follower of this rule is one of the world’s largest pharmaceutical companies, a company that grew almost eightfold, adjusted for inflation, between 1965 and 1995. During those thirty years, it held cost increases to a fixed percentage of its increase in revenues; a maximum 6 percent rise in costs for every 10 percent rise in revenues. After five or six years of trying, it also learned how to make sure that costs go down in the same proportion as revenues go down in a down period. It took quite a few years to make this work; now it’s almost second nature in that company.

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