Analysis

2020 Enterprise transformation and cost reduction survey

Save-to-Thrive during the COVID-19 pandemic

The COVID-19 pandemic is reshaping the global business landscape and fundamentally changing how people live and work. We recently conducted a special mid-cycle version of our regular biennial survey of global cost management practices and enterprise transformation trends to better understand the impacts of the crisis—and how companies are responding with cost reduction and performance improvement measures.

Cost reduction strategies for COVID-19 recovery

Actions that companies are taking right now to address COVID-19 can have a major impact on their long-term competitiveness and performance. As such, it is crucial for decision-makers to understand how the crisis is unfolding from a business perspective, and what the future is likely to hold.

The results of our mid-cycle COVID-19 Cost Reduction Survey include responses from 1,089 executives with direct involvement in their companies’ cost management and enterprise transformation efforts and represent a broad range of industries and global geographies—with particularly strong representation from countries that have been highly impacted by COVID-19.

In this report, we discuss the key survey findings using a three-stage framework (Respond-Recover-Thrive) to analyze companies’ actions and expectations as they cope with the pandemic and position themselves for the post-crisis world (the “next normal”).

Our 2019 global survey, which was conducted prior to COVID-19, found the prevailing mindset for strategic cost management was “Save-to-Transform” (using the strategic levers of cost, growth, talent, technology and digital enablement to transform how companies do business). Now, in response to COVID-19, we are seeing that transformation mindset evolve into “Save-to-Thrive,” with the crisis shining extra light on the talent lever and accelerating key transformation actions such as automation and remote work that can help companies thrive once the virus is contained and the next normal emerges.

In contrast to the downturn that began in 2008, which was structural in nature, the current crisis was triggered by external factors and is demand driven. As such, although two-thirds of our respondents expect at least one more wave of COVID-19 relapses to occur, companies around the world are generally optimistic about the future and intend to bounce back as quickly as possible, adopting a Save-to-Thrive mindset that can help them make strategic shifts to their operating models, products and services, and customer engagement capabilities.

Stages of performance improvement

Required actions to address the COVID-19 crisis can be divided into three major stages: respond, recover and thrive. These three stages are interspersed with two additional interim stages (“respond to recover” and “recover to thrive”) and culminate in a long-term operating environment we call the “next normal.”

  • The global focus for the COVID-19 crisis is shifting from respond to recover. Most companies globally have effectively responded to the immediate crisis and are now starting to focus on recovery. The majority of companies surveyed (59%) now see themselves in the “respond to recover” or “recover” stages.
  • Revenue growth expectations are very positive in the thrive stage. Expectations for revenue growth, although down from pre-COVID-19 levels, remain somewhat positive in the respond stage (55%) and recover stage (58%). In the thrive stage, the vast majority of companies globally (74%) and in all regions have a positive revenue outlook.
  • Automation is the top transformation action arising from the COVID-19 crisis. Globally and across all regions, roughly two of three companies expect to pursue automation in all three stages of Respond-Recover-Thrive.
  • Working through all stages is expected to require about a year and a half. Although the expected durations for each stage vary widely by region, on average respondents globally expect the respond stage to last about three months, the recover stage about six months, and the thrive stage about 10 months.

Cost reduction strategies for the next normal

When mapping out strategies to respond, recover, and thrive, it helps to have informed insights about the future business environment. In the wake of the 2008 financial crisis, many people called the resulting business environment the “new normal.” However, every new normal eventually gets replaced by a new-new normal, so in our view it makes sense to call the post-COVID business environment the next normal.

Industry sector analysis

Opportunities and obstacles for performance improvement vary by industry and sector.

Expected growth impacts over the next 12 months vary by sector. Revenue expectations over the next 12 months vary widely by sector, with the COVID-19 crisis impacting sectors both negatively and positively. On the negative side of the spectrum, a relatively high percentage of sector respondents expect revenue to decline in Transportation (61%) and Hospitality (60%). On the positive side, revenue growth is expected in Medical Technology (63%), Telecom (58%), Pharmaceuticals (58%), and Software & IT Services (57%).

Different sectors are at different stages of progress. In addressing the challenges of COVID-19, the average rate of progress in all sectors falls somewhere between the respond and recover stages. The median progress in sectors such as Hospitality, Capital Markets, and Medical Technology is skewed towards the respond stage, while sectors such as Insurance (both General and Life/Annuity), Consumer Products, and Banking are generally further along, with progress skewed toward the recover stage.

Revenue outlooks vary significantly by industry. Although the future revenue outlook remains generally positive for all sectors—especially in the thrive stage—expectations vary significantly by sector. In the respond stage, Transportation and Consumer Products have the most negative revenue outlooks, while Medical Technology and Pharmaceuticals have the most positive outlooks. In the recover stage, Transportation and Hospitality have the most negative revenue outlooks, while Medical Technology and Pharmaceuticals have the most positive outlooks. In the thrive stage, Hospitality, Chemicals & Specialty Materials, and Hardware & Semiconductors have the most negative outlooks, while Medical Technology and Telecom have the most positive outlooks.

Save-to-Thrive for enterprise transformation

Save-to-Transform is becoming Save-to-Thrive. The strategic priorities associated with the COVID-19 thrive stage are very consistent with the Save-to-Transform trend we identified in 2019, which uses the strategic levers of cost, growth, talent, technology and digital enablement to transform how companies do business.

As companies bounce back from the COVID-19 crisis and position themselves to thrive in the next normal, many expect to continue focusing on those same levers—but with an increased and accelerated emphasis on technology and digital enablement, along with a renewed emphasis on growth and talent. We call this evolved mindset “Save-to-Thrive.”

Most companies expect a second wave of COVID-19. The majority of respondents (67%) expect a COVID-19 relapse, with an estimated timeframe of early 2021. Those that follow strategies consistent with Save-to-Thrive will likely be the ones best positioned to weather potential challenges resulting from a second wave.

The power of the Save-to-Thrive mindset

The COVID-19 pandemic is having a massive impact on the global business environment. Yet many companies continue to expect positive revenue growth—particularly in the thrive stage when they have successfully responded to and recovered from the early challenges of the crisis.

Decisions that companies make today to cope with the COVID-19 crisis can help or hinder their positioning for the future. By using cost reduction and performance improvement strategically to transform the enterprise and improve competitiveness—which includes investing in key capabilities such as automation and remote work that align with the new realities of a post-crisis business environment—companies can leverage their cost savings and improvement efforts to not only transform how they operate, but to position themselves to thrive in the next normal.

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