Executives struggle to sustain cost-cut

The Accenture study, “Increasing Agility to Fuel Growth and Competitiveness”, which included direct reports across 13 industries worldwide, found that only 21 per cent of respondents were confident that their leadership had the right initiatives in place to reach-cost reduction targets. 

Just 23 per cent said their company consistently identified and terminated business activities and investments that did not add value to the organisation. As a result, fewer than one-third (30 per cent) of respondents said the reinvestment of cost savings was aligned with their company’s business strategy.

“A company should directly integrate its cost-reduction strategy with how savings are reinvested in order to achieve sustainable growth,” said Nontawat Poomchusri, Accenture’s Thailand country managing director. 

“As our study shows, many companies are falling short. To avoid cost-cutting becoming an end in itself, management needs to know from the outset what contributes to their company’s growth, what does not, and where to reinvest savings.”

Illustrating the challenges associated with strategic cost management, only 36 per cent strongly agree that their business sustains the benefits of cost reductions. Fewer than one-quarter (24 per cent) believe their company has the flexible operating model it needs to adapt and consistently deliver on the business strategy, or to focus on activities that result in growth and profitability. 

Compounding the situation is a lack of alignment between chief executive and chief financial officers. Nearly half (51 per cent) of CEOs strongly agreed that their business prioritised and allocated resources to activities that drive value for the organisation, compared with just 34 per cent of CFOs. 

Seventy percent of CEOs indicated that their organisation assessed the return on reinvested cost savings with formal reviews of their investment success, yet only 49 per cent of CFOs agreed. 

And while 20 per cent of CEOs admit that reinvestment priorities are driven by the fastest return on investment, a larger 30 per cent of CFOs hold that view.

The study also showed consensus among respondents around investment in digital, with more than 54 per cent investing in it and 61 per cent acknowledging that the increased use of technology would enable their operating model to operate at half its base cost. Eighty-five per cent said digital business was an enabler of strategic growth. Nearly as many (82 per cent) agreed that digital strategies enabled new operating models.

“The study demonstrates that digital business strategies play an important role in helping companies gain much-needed flexibility and market responsiveness, but that senior leaders need to be more aligned around their business strategy and cost-management efforts first if they are to achieve sustainable growth,” Nontawat said.

 “To succeed, companies need to use and monetise available data; build digital intelligence; organise for speed; accelerate innovation; and digitise traditional business functions and capabilities.”

Additionally, the study found that companies that intend to funnel cost savings into growth and have established enterprise-wide strategies were more likely to believe strongly that technology, digital strategies and digital business are enablers. 

Likewise, companies with flexible operating models believe more strongly in technology, digital strategies and digital business as enablers of cost reduction, advanced operating models and strategic growth. 

 

The following highlights some of the differences by industry: 

Leadership has the right initiatives in place to achieve cost reduction: Medical technology (33 percent) and industrial equipment (31 percent) most in agreement. 

Identifies and removes business activities and investments that do not drive value for the organization: Medical technology (35 percent), consumer goods (33 percent) and automotive (30 percent) executives most frequently said their company adopted this practice. 

Prioritizes budget allocation for expenditures that drive value for the organization: Energy (46 percent) and utilities executives (44 percent) most frequently apply this practice. 

Sustains strategic cost reduction benefits: While 53 percent of medical technology executives strongly agree that their company sustains the benefits, industrial equipment (27 percent) and banking (28 percent) executives were least likely to say the same. 

Top targets for reinvesting savings from strategic cost management: Chemicals (65 percent), automotive (64 percent), health (64 percent) and consumer goods (58 percent) companies most frequently direct those funds to digital. However, 63 percent of industrial equipment companies target them at the launch of new products and services; 60 percent of retailers use the funds for geographic expansion. 

Methodology

Accenture fielded an online survey of 682 senior executives across 13 industries, including automotive, banking, chemicals, communications, consumer goods, energy, health, hospitality, industrial equipment, medical technology, pharmaceutical, retail and utilities. Fifty-four percent of them are C-level (CEO, CFO or COO), 16 percent are the regional or business unit CEO, CFO or COO, and the remainder are their direct reports in companies with revenues of at least $1 billion. Respondents were located in nine geographies, including ASEAN (Indonesia, Malaysia, Singapore, Thailand and Vietnam), Brazil, China, France, Germany, Italy, Japan, North America and the UK.