Cost management in the age of digital disruption
First biennial global cost survey report
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.
Global insights from regional cost surveys
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 percent 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 percent yet almost two-thirds (63 percent) are failing to achieve their goals.
Cost reduction targets and success rates
- High expectations for growth. Despite concerns about the economy, 80 percent of respondents expect their revenues to increase over the next 24 months.
- A strategic paradox: Thriving in Uncertainty. The top two cost reduction drivers globally are directly related to growth. However, the next five cost reduction drivers are all defensive in nature, indicating 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.
- numerous aspects of their cost structure into fighting shape.
Drivers of cost reductions
- Developing cost management capabilities. The top three focus areas are: "forecasting, budgeting, and reporting" (55 percent); "new policies and procedures" (51 percent); and "IT infrastructure, IT systems, and business intelligence platforms" (49 percent).
- Little change in cost management approaches. Companies expect to use the same cost management approaches as in the past such as "targeted actions" and "intensified productivity programs," but zero-based budgeting is expected to fall from 15 percent to 11 percent globally.
- Implementation is the biggest challenge. This is the top barrier to effective cost management according to 53 percent of respondents.
- Tactical actions remain predominant. Many companies surveyed continue to focus on tactical cost actions (40 percent), such as streamlining business processes and reducing external spend, versus strategic cost actions (33 percent), such as outsourcing, centralization, and business reconfiguration. This tactical focus tends to limit the magnitude of cost savings that can be achieved.