Demystifying the science of Strategic Cost Evolution
Ask the pro: Omar Aguilar and Federico Chavarria
Global macroeconomic factors are having a significant impact on cost management efforts at global companies. This has created a cost/growth paradox we call “thriving in uncertainty,” where companies are simultaneously pursuing the seemingly conflicting goals of aggressive cost improvement and aggressive growth. Deloitte’s fourth biennial survey of cost management and cost improvement trends explores how companies are navigating this challenging environment.
The majority of clients’ cost programs fail
Omar serves as the Global Leader for the Strategic Cost Transformation (SCT) Market Offering.
Successful Shared Services strategies should achieve more than just cost savings.
Federico is Consulting Leader for Central America, Global GBS practice Leader and is based in Costa Rica.
What key considerations are paramount to ensuring cost programs are positioned for success?
Omar: “Most cost programs that failed focused on tactical cost reduction measures like reducing external spend, but to achieve aggressive targets they need to focus on more strategic actions like increasing centralization or changing the business configuration. Regardless of cost reduction measure, clients’ most frequently cited challenges relate to implementation. Finally, the convergence of the four cost reduction levers (growth, cost, liquidity, talent) requires a fuller playbook of margin improvement tools.”
How can companies realize tangible cost reduction and transformation while also achieving growth?
Federico: Five executable strategies that drive cost reduction and transformation while also improving the bottom line are:
- Elimination of redundancies through centralization under a shared services model.
- Simplification of back office processes allowing leaders to focus on core business rather than support activities.
- Identification of economies of scale in specialization to enable employees to transition efforts from the back office to core business activities.
- Standardization under a common platform with enhanced controls in order to sustain business growth.
- Automation of repeatable processes to make them simpler and easier to control under a common platform.
How can companies balance a dual focus on growth
Omar: Understanding the business model, strategic capabilities and growth priorities required to win in the marketplace prior to embarking on a margin improvement program is critical. Companies must execute broader / more balanced margin improvement programs to generate funds for reinvestment in growth areas.
Thriving in uncertainty: An examination of Strategic Cost Transformation in 2016
Our 2016 survey finds Senior Executives faced with an evolving paradox of “thriving in uncertainty”. Global macroeconomic factors are having a significant impact on cost management efforts at US companies, while those companies are simultaneously pursuing the seemingly conflicting goals of aggressive growth and aggressive cost improvement. Deloitte’s fourth biennial survey of cost management and cost improvement trends explores how companies are navigating this challenging environment.
We surveyed 210 senior executives of US-based Fortune 1000 companies and the complete report of our findings can be found here:
Thriving in uncertainty—Deloitte’s fourth biennial cost survey: Cost improvement practices and trends in the Fortune 1000