Posted: 12 Dec. 2019 10 min. read

Strategic cost transformation

Digital technology and digital disruption have burst on to the scene as key levers for cost management and business transformation around the world and throughout the banking industry writes Tony O’Donnell, Deloitte’s Cost Transformation Lead Partner in Australia. 

In Deloitte’s biennial global cost survey, cost management is a global and Asia Pacific (APAC) imperative, but failure rates are up.  Australia (85%), Hong Kong (83%) and Singapore (87%) have higher failure rates than the rest of APAC countries - higher than the US (82%), APAC (80%), and globally (81%).  

The three clear reasons for these high-cost management failure rates are:

  • Implementation challenges - they are among the top three barriers across all APAC countries, especially in India (86%) and Australia (78%)
  • Weak/unclear business cases - this is the third highest-ranked barrier in APAC, especially in China (76%) and India (86%) 
  • Erosion of savings due to unfeasible target setting - this is the lowest-ranked barrier in China (58%), Japan (40%) and Hong Kong (30%); however, it is the top barrier in India (86%) and New Zealand (70%) 

These compelling statistics on strategic cost transformation were gathered in a recent Deloitte survey of 332 APAC companies representing 83% of the APAC economies.  It shows that in the next 24 months 70% of companies in all Asia Pacific countries plan to undertake cost improvement initiatives.

On average, around two-thirds of those APAC respondents have overall cost out targets above 10%, while a quarter are targeting cost reductions above 20%. This includes companies in Australia, where 35% of companies have targets above 20% - which is a significantly higher rate than the rest of the APAC countries and an increase on Deloitte’s previous 2017 survey. 

What are organisations hoping to achieve?

The top three drivers of cost out initiatives, both in the future in APAC and over the past 24 months were:

  1. Competition (70%)
  2. International growth opportunities (69%) and 
  3. Investment in growth areas (67%).

‘Save to Transform…’

In the banking industry, saving costs to transform is key. Despite most banks continuing to have very positive expectations for revenue growth, (87% overall), many are using cost reduction as a tool to help fund their required growth investments. 

In today’s increasingly digital world, more and more banks are recognising the need to transform their operations and capabilities with infrastructure investments in key digital innovations, such as robotic process automation, cognitive technologies, business intelligence, and cloud-based ERP systems.

The rise of these digital technologies and innovations are also contributing to a shift in how the APAC companies that Deloitte surveyed approach cost management. 

The ‘save-to-grow’ mindset from 2017 is steadily evolving into a ‘save-to-transform’ mindset, where the aforesaid investments in digital enablement and transformational technologies play a prominent role.

Investment in these growth areas and increased international growth opportunities are both expected to increase over the next 24 months in APAC (+4%).

COOs, CIOs, CFOs and BSUs should be asking:

  1.  Are we harnessing digital technologies to streamline our cost structures?
  2. Can we increase X-BU and X-enterprise collaboration?
  3. Can we increase business agility and flexibility?
  4. Do we have the right skills and capability to deliver our strategy?
  5. Can we improve our training processes to emphasise customer experience & culture?
  6. Can we rationalise our IT app portfolio? 
  7. Can we improve our processes for managing systems operation, maintenance & change? 
  8. Can we consolidate/re-architect data stores?
  9. Can we improve IT performance management methods and tools?
  10. Are there options to buy or rent capabilities as well as build?

See here for further information on Deloitte’s Global Strategic Cost Transformation thought leadership including cost management practices and trends in banking. 

For more details on Startegic Cost Surveys

Meet our author

Tony O’Donnell

Tony O’Donnell

Lead Partner, Consulting

Tony has over 20 years’ experience specialising in enabling and delivering large, complex operational, technology and strategic change within organisations. He has successfully led large-scale transformation programs in multinational companies across a number of sectors including financial services and utilities, in Australia and globally. Tony leads the Strategic Cost Transformation in Australia as part of the broader Deloitte global capability. Tony is recognised as a strong leader of people, and is very passionate about bringing innovation to the projects he, and his team deliver based on operational and business excellence principles.