Cost management in the age of digital disruption
1000+ global senior executives provide insights
Cost management used to be something businesses only thought about when they were struggling. In recent years, however, it has become a standard operating practice that receives constant attention—in good times and in bad. But cost reduction failure rates are high, even while cost reduction targets remain low.
With the emergence of disruptive innovations such as robotic process automation, analytics, and cognitive technology, cost management is morphing into a strategic enabler with the power to disrupt entire industries and fundamentally change how business is done. However, cost management remains challenging.
Based on surveys of more than 1,000 senior executives in four major regions - US, Latin America, Europe, and Asia Pacific - we found:
• Cost reduction is a global imperative. Cost reduction has become a standard business practice in every region, with 86% of global respondents saying their companies are likely to undertake cost reduction initiatives over the next 24 months.
• Low targets. High failure rates. Nearly half of all organizations surveyed are pursuing cost reduction targets of less than 10% yet almost two-thirds (63%) are failing to achieve their goals.
• Economic concerns dominate today, but digital disruption looms large. Worldwide, the top external risk for organizations surveyed is “macroeconomic concerns/recession” (30%), followed by “commodity price fluctuation” (19%).
• High expectations for growth. Despite widespread concerns about the economy, the number of respondents that expect their revenues to increase over the next 24 months is even higher than the number that reported increased revenue over the past 24 months.
• Save to grow. The simultaneous focus on cost and growth reflects a “save to grow” mindset where companies use cost savings as a strategic lever to help fund their growth efforts and initiatives.
• A strategic paradox: Thriving in uncertainty. The top two cost reduction drivers globally are both directly related to growth, but the next five cost reduction drivers are all defensive in nature. This suggests that while growth is the top strategic priority, companies in every region are also protecting themselves against uncertainty by getting numerous aspects of their cost structure into fighting shape.
• Developing cost management capabilities. Over the past 24 months, companies in all regions have been actively developing and improving their cost management capabilities. The top three focus areas are: “forecasting, budgeting, and reporting” (55%); “new policies and procedures” (51%); and “IT infrastructure, IT systems, and business intelligence platforms” (49%).
The simultaneous focus on cost and growth reflects a "save to grow" mindset where companies use cost savings as a strategic lever to help fund their growth efforts and initiatives—without sacrificing profitability. This mindset is now prevalent in all parts of the world.