The vast majority of businesses are in the process of initiating cost reduction measures, a Deloitte study found.
Globally, 71% of businesses are planning to undertake cost reduction initiatives over the next two years.
- The cost reduction trend traces back to the Great Recession 12 years ago. Since then, reducing costs has become a hallmark of company business initiatives, Omar Aguilar, a Deloitte partner, told FM Magazine.
This strategy of prioritizing savings over expansion will gain traction over the next two-year period, although not all businesses have been able to pull it off. Deloitte found that, globally, 81% of respondents were unable to fully meet their cost reduction targets, and only 4% of respondents exceeded their cost targets.
The most common cost reduction action, Deloitte said, was the streamlining of standard business procedures, followed by streamlined organization structure and improved policy compliance. Technology was key increasing productivity and has been the primary method of saving capital.
Aguilar said he expects everyone's in "save-to-grow mode," meaning they're using cost transformation activities and cost management to grow and achieve profitability despite potentially narrow margins.
The impetus for these widespread cost-saving initiatives, Aguilar said, is the "pronounced concern about digital disruption." In addition to cost and growth, Deloitte found technology to be a "lever of transformation" for businesses looking to expand or maintain a steady growth.
Much of the savings that companies are able to achieve through their cost reduction measures come through "technology and digital enablement," Aguilar said.
Aguilar says that, primarily, business transformation hinges on four priority parameters: cost, growth, liquidity, and talent. "This is not only about cost," he said. "Cost is a proxy for transformations."
CFOs and finance executives should ensure their companies approach the cost reduction programs with "realistic targets," Aguilar said. "The problems [companies] have in these transformations [are] barriers to cost implementation." Finance executives, Aguilar suggests, are well-positioned to form plans that would allow their company to circumvent them.