Thriving in Uncertainty
Deloitte’s first biennial cost survey: Cost Improvement Practices and Trends in Asia Pacific
Political and macroeconomic factors are having a major impact on cost improvement priorities and actions throughout the Asia Pacific (APAC) region. To learn what APAC companies are doing to manage costs and improve margins, Deloitte recently surveyed 299 business leaders (CXOs, executives, and senior management) from large and mid-size companies in China, India, Japan, Australia, Hong Kong, and Singapore – which together comprise 89% of the Asia Pacific economy based on gross domestic product (GDP). We also analyzed key macroeconomic factors in order to establish a broader context for the survey results.
This study is part of a global survey effort that includes our fourth biennial cost survey in the US (first edition published in 2008 and most recent edition published in April 2016), as well as our first biennial cost surveys in Latin America (published in June 2016) and Europe (published in October 2016).
Key Findings in APAC
- Political and economic factors are the top external risks. Especially in Mainland China and Singapore macroeconomic concerns are viewed as the biggest risk.
- The top three strategic priorities are sales growth, product profitability, and cost reduction.
- Expectations for positive revenue growth over the next 24 months are slightly higher than historical growth performance over the past 24 months.
- The top two drivers for cost reduction are 'to gain competitive advantage,' followed by 'required investment in growth areas.'
- Companies throughout the APAC region expect to focus on cost reduction over the next 24 months, with cost reduction particularly likely in China, India, and Singapore.
- The majority of companies are not meeting their cost reduction goals. This is true despite the fact that more than 4-in-10 companies have cost improvement targets of less than 10%.
- Implementation challenges are the biggest barrier to effective cost management: This is particularly true in India and China.
- Top lessons learned revolve around change management, implementation strategy, and goals and objectives, all of which are critical to successful implementations.
- Over the past 24 months, the most popular focus area for developing cost management capabilities was 'forecasting, budgeting, and reporting.
- In the APAC region, the two most likely cost actions are 'streamline business processes' and 'reduce external spend,' both of which are highly tactical in nature.
Key Findings in Mainland China and Hong Kong
- China: Aggressive focus on cost reduction and growth, driven by macroeconomic and competitive concerns; however, specifics vary based on company ownership structure. Multinationals and joint ventures have the highest propensity to take cost actions; state-owned enterprises the least. Private companies have the most aggressive targets, but also the highest failure rates.
- Hong Kong: Respondents from Hong Kong stand out for having rising expectations for future growth, and an unusually strategic view of cost reduction. However, this strategic mindset toward the future has not fully translated into demonstrated results, with Hong Kong cost programs experiencing higher than average failure rates – perhaps due to the country’s higher than average cost targets.
Choosing the Right Cost Management Approach
- Businesses in pursuit of cost improvements have traditionally fallen into one of three categories: (1) distressed, (2) positioned for growth, or (3) growing steadily. However, today’s volatile and complex global business environment seems to be giving rise to a fourth category that we call 'thriving in uncertainty'. A scenario that straddles the line between 'distressed' and 'positioned for growth'.
- It remains to be seen whether this fourth category is a new and permanent feature of the business landscape, or simply a stepping-stone to one of the traditional categories. In China, and India, conditions seem to be moving in a more positive direction and may require a play-book with value creation levers that emphasize growth. At the other end of the spectrum, conditions in Japan seem to be pushing companies toward greater uncertainty, which may require a more defensive play-book.
- Moving forward, many APAC companies will likely need to adopt a more strategic and transformational approach to cost reduction, which is likely to include capitalizing on digital breakthroughs such as robotic process automation (RPA) and cognitive technologies. Companies that stick to tactical cost actions and the status quo will likely continue to face implementation problems and high cost program failure rates.