Moving through 2023, the global volatility is still making it hard for many companies to achieve their growth and earnings targets. We therefore asked 300 executives what actions they are taking, what are their transformation and margin improvement priorities, and what barriers are they facing. Here is what we learned.
Even in today’s disruptive environment, companies are still expected to expand and grow. However, achieving the simultaneous goals of sales growth and margin improvement requires a two-sided approach: applying proven cost management methods while at the same time investing in new technologies and capabilities. Achieving a sustainable operating model where costs do not creep back in is especially important, but to do so requires a concerted effort across many departments. Unfortunately, without the necessary sponsorship, coordination, discipline and investment, some companies miss the mark in establishing the required governance. Some also neglect to define success in a consistent manner, and fall short when managing change.
Facing these challenges, what can companies do to achieve a competitive and sustainable cost structure and establish the right capabilities to run and grow effectively?
To find out, Deloitte recently conducted a global survey of nearly 300 senior business executives with direct involvement in their organisations’ margin improvement and transformation efforts. The survey aims to understand the global impact of disruption and prolonged market uncertainty on organisations’ strategic agendas. What actions are companies taking to survive and thrive? What do they see as the barriers to success? And are they able to maintain their margin improvement efforts through a rigorous, end-to-end focus on creating sustainable value?
Let us dig right in. Here are some of the most interesting findings from the survey:
- First, global disruption seems to have significantly increased companies’ determination to improve and sustain margins. 90% of transformation and margin improvement efforts today are triggered by inflation, talent shortages and/or supply chain constraints.
- Talent and agility are the biggest barriers to success. The no. 1 success barrier was cited by respondents as talent acquisition and retention. Lack of flexibility and agility in their infrastructure and cost structures are also factors that block success.
- Most companies are falling short of their targets. More than 70% of the surveyed executives have failed to achieve their margin improvement goals, with nearly a third achieving less than half of their targeted improvements.
- To fight these obstacles, companies are investing in permanent transformation capabilities. More than 90% of the companies in our survey are investing in permanent transformation capabilities to support their expanded transformation agendas and improve their chances of success. Many companies are also increasing their transformation budgets (58%), adding executive-level transformation leadership roles (54%), and redefining their transformation visions/ambitions (52%) to achieve their growth and transformation goals by providing resources, leadership and strategic clarity.
- Margin improvement efforts are increasing in speed and scope. 80% of companies are increasing the speed and/or scope of their efforts, with most now looking beyond standard cost reduction and prioritising broader transformation initiatives focused on driving growth, building new capabilities and retaining talent.
- Technology-enabled transformation is critical for success. Three of the top four transformation focus areas were related to digital/technology enablement: AI and data strategies, cloud adoption and process automation were among the top focus areas where initiatives are being implemented or planned.
So, what can we take away from these numbers?
First, what I find interesting is that more and more companies describe their transformation efforts as “all-encompassing” and say they are pursuing (or plan to pursue) all available options – not only standard cost levers, such as procurement and organisational restructuring, but also technology-driven cost levers, such as AI, automation and cloud. This is definitely a trend we also see with Deloitte’s Danish and Nordic clients where the constant disruption and prolonged uncertainty have created an ongoing need for margin improvement and technology-enabled transformation.
Second, what stands out is that many executives have realised that you cannot cost-cut your way to profitable growth without making significant changes to how you operate – and that using technology-enabled transformation to reimagine the business and how work gets done is crucial for achieving the simultaneous goals of growth and margin improvement.
And finally, more and more companies engage in strategic cost transformation that allows for a long-term horizon with focus on the broader business options in line with market developments. Here, it is necessary to take the time to design and plan for structural impact, while also creating strong and visible leadership for a marathon, not a sprint. Focusing on making the change and making it stick is pivotal as results will only show when initiatives are well-implemented through the entire value chain. This is where you really configure the company to thrive and outperform the competition.
It is great that so many companies take the opportunity to reduce costs more intelligently, more strategically and with the help of new technology. And as I have said before: Do not forget the human angle. With agile ways of working and an adaptable networks of teams, organisations now have the opportunity to increase flexibility in costs and operating model while still keeping their talents motivated and ready to make a difference. That is also part of the winning formula.
Forfatter spotlight
Tore Christian Jensen
As a part of the Strategy & Operations practice Tore has worked with analysis, development and implementation of operational strategies. Tore has deep experience with aligning business models to changing market demands through optimisation of business processes and aligning systems, organisation and governance accordingly. He has industry experience from manufacturing, transportation, consumer products and energy. His main focus is on on the operational core processes but he also covers administrative support processes. As a program manager Tore has been leading transformation projects for international clients heading multiple parallel projects and reporting directly to executive committee members. His responsibilities cover everything from initiating assessments, identifying opportunities for improvement to building business cases and following up by designing solutions and driving teams through implementation.