Save-to-transform as a catalyst for embracing digital disruption

Analysis

Save-to-transform as a catalyst for embracing digital disruption

Deloitte's 2019 Cost Survey

Cost management remains a strong imperative for APAC businesses. In today’s increasingly digital world, businesses recognise the need to transform their operations and capabilities with infrastructure investments in key digital innovations—shifting from a save-to-grow to a save-to-transform mindset.

Cost cutting, growth, transformation and digital technologies converge in cost survey results

More and more, businesses 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. These digital technologies and innovations can deliver dramatic improvements in competitiveness, performance, operating efficiency and increasingly, cost savings.

Deloitte's 2019 Cost Survey

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Based on our survey of 332 senior executives across the Asia Pacific region, we found that cost-reduction remains a major imperative as it continues to be a standard business practice in all regions, with 70% of survey APAC respondents and 68% of Australian respondents planning to undertake cost-reduction initiatives over the next 24 months.

However, the story gets more interesting as the prevailing mindset among executives has shifted. Whereas we previously saw a "save-to-grow" mentality with cost- management, we are now seeing the emergence of "save-to-transform." Read on and download our full report to learn more.

 

Asia Pacific: Save-to-transform

Save-to-transform as a catalyst for embracing digital disruption

  • Digital risks zoom to the top. Cybersecurity risk is the top external risk in APAC, cited by 66 percent of survey participants, closely followed by digital disruption. Digital disruption is cited by 64 percent of this year’s APAC respondents—up from just two percent in 2017.
  • Digital disruption and innovation are driving technology implementation. Implementation of numerous digital technologies are expected to skyrocket over the next 24 months.
  • Digital solutions are the most advanced level of cost management. Cost management practices and approaches have grown increasingly sophisticated over time, with digital cost solutions—although still maturing—now representing the most advanced level of cost management.
  • Transformation is an emerging focus. Our 2017 survey found many companies around the world were managing costs with a save-to-grow mindset, pursuing cost savings to fund their growth strategies in an improving economy. This year’s survey results show the save-to-grow mindset expanding into a save-to-transform mindset.
  • Automation and other digital technologies take a lead role in cost reduction. RPA and cognitive technologies such as AI and ML have emerged over the past 24 months as the most common digital capabilities developed to reduce costs.
Australia: Save-to-transform

Save-to-transform provides both growth and defence

  • Digital disruption and innovation are reshaping the business landscape globally—and their impact is only increasing.
  • Companies today need to harness the transformational power of digital technologies to streamline their cost structures and generate strategic cost savings that are both significant and sustainable.
  • These improvements can help a company achieve its immediate growth objectives while preparing for the inevitable ups and downs of the economic cycle. They can also position the company to capitalise on digital disruption—becoming the disrupter, rather than the disrupted.

Key insights for Australia

Cost management targets and results

Cost targets are up. 73 percent of this year’s Australian respondents have cost targets above 10 percent or more, up from eight percent of respondents in 2017. This is in contrast to the broader APAC region, where on average, 65 percent of respondents are targeting total cost reductions of 10 percent or higher — up from 52 percent of respondents in 2017.

Failure rates are also up. Across Australia, 85 percent of respondents were unable to fully meet their cost-reduction targets (10 percentage points worse than in 2017), marking a similar trend across broader APAC, where 80 percent of respondents failed to meet their cost reduction goals. Only five percent of global respondents exceeded their cost targets.

Top external and internal risks

New market entrants represents the top risk. 73 percent of Australian respondents felt that this was the top risk. The surge in sentiment is a marked change from the previous 2017 survey, where responses from Australian respondents were less concerned about nearly all types of external risks surveyed compared to other APAC countries.

It is worth noting, that digital disruption has been recognised as a key external risk by 64 percent of APAC respondents (63 percent by Australian respondents), but in 2017, it was barely recognised - two percent by APAC respondents and nil by Australian respondents.

Internal systems development is the top internal risk. Aligned to global trends, Australian respondents rated reliability and functionality of internal systems development, lack of controls, processes, and systems as the key internal risk. More broadly, the top internal risks for APAC were recruitment, development, and retention of talent and lack of regulatory, legal, and/or management controls. The ratings for all internal risks covered by the survey were very close and were generally similar to the global averages

Expectations, Drivers and focus areas

Muted revenue growth outlook. 63 percent of Australian respondents reported positive revenue performance over the last 24 months, and 73 percent of respondents expect an increase in revenue outlook. This is somewhat subdued in comparison to the broader APAC region, where 87 percent of respondents reported an increase in revenue performance over the last 24 months and expect this to continue over the next 24 months.

Save-to-grow is evolving into save-to-transform. Product profitability, organisation and talent as well as technology implementation are the three key strategic priorities for Australian respondents over the next 24 months. The increasing emphasis on technology implementation reflects a new transformation mindset for cost management.
Growth and regulatory are the primary drivers. Aligned with global trends, Australian respondents expect that the top three drivers for cost management to be: required investment in growth areas, regulatory structure changes, and increased international growth opportunities.

Technology capabilities are the primary development focus. In developing their capabilities, surveyed companies have primarily been focusing on cognitive and AI, BI, cloud and especially automation. This focus on technology is consistent with a save-to-transform mindset, with companies investing more time, money, and effort in capabilities that contribute to digital enablement and digital transformation.

Top cost reduction actions have been mostly tactical, but strategic actions are expected to gain ground. The most common cost reduction action over the past 24 months by both APAC and Australian respondents was improved policy compliance, followed by streamlined organisation structure and streamlined business processes. However, strategic cost actions such as increased centralisation of business units and functions, as well as change business configuration are expected to gain ground over the next 24 months, to a point that the mix of tactical and strategic actions will be more closely balanced.

Barriers and lessons learned. Implementation challenges remain the top barrier to successful cost reduction initiatives, followed by poor design and tracking. The top lessons learned were; invest in technology improvements to enable data availability, reliability, and decision making; assess, validate, and adjust targets to fit the realities of implementation; and design a solid tracking and reporting process.

Other catalysts of cost reduction

Cost management maturity levels have room to grow. 65 percent of Australian companies surveyed do not have highly mature cost management practices. India leads the way, with 59 percent of respondents reporting a high level of maturity where cost policies and procedures are continually reviewed and examined to ensure best practices around efficiency and cost management.

Cost management moving forward: A save-to-transform playbook

The save-to-transform playbook includes investment in digital technologies and innovations that can improve every aspect of a business, from business and operating models to market reach, service quality, operating efficiency, use of talent, and the overall customer experience. In addition to fuelling both cost savings and revenue growth, these improvements can make a business more resistant to digital disruption and economic downturns by providing a stronger foundation for defence-oriented cost management activities — activities that are sure to be required at some point in the future.

Companies today should continue capitalising on current economic strength while being vigilant and prepared for future economic weakness through a save-to-transform mindset, which can provide more agility and a more flexible business model.

See here for further information on Deloitte’s Global SCT thought leadership.

Published: October 2019

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