Cost improvement practices and trends in Europe
Thriving in uncertainty: Deloitte’s first pan European biennial cost survey
To learn what European companies are doing to improve and manage costs, Deloitte recently surveyed 349 CXOs, executives, and senior management from large and mid-size companies in nine European markets. This resulted in the first pan European biennial cost survey with trends in cost improvement and management.
Macroeconomic factors may be having a major impact on cost improvement and cost management priorities and actions within all European countries. The challenging economic environment has created a cost/growth paradox we call “thriving in uncertainty,” where companies are simultaneously pursuing the seemingly conflicting goals of aggressive cost improvement and aggressive growth. Deloitte’s first European biennial survey of cost management and cost improvement trends explores how companies are managing costs in this challenging environment. For details and practical insights on tackling the cost/growth paradox, download the full report - or read on for some highlights.
Our key findings
- Despite challenging economic conditions, most respondents (67%) reported positive revenue growth over the past 24 months, and even more (76%) expect growth to continue over the next 24 months. 40% of respondents in the Netherlands experienced an increase in revenue in the past 2 years with 27% stating no growth, whereas only 47% expect to see revenue growth in the coming 24 months.
- The top three strategic priorities are sales growth (30%), product profitability (28%), and cost reduction (28%), which add up to a cost management strategy that we call “save to grow”: using cost savings to fund growth activities.
- Despite Europe’s relatively low cost targets (52% of respondents cite targets of less than 10%), cost program failure rates are high, with 57% of respondents indicating their cost programs failed to meet targets. In the Netherlands failure rates were even as high as 73% despite more respondents citing to aim at less than 10% target cost reduction (60%).
Thriving in Uncertainty – Cost Management Insights
Companies across Europe face a number of challenges, including slow GDP growth, high unemployment, and uncertainty associated with Brexit. To tackle these complex challenges and improve their cost management performance, many companies may need to adopt a more strategic and transformational approach to cost reduction. Companies that stick to tactical cost actions and the status quo will likely continue to face implementation problems and high cost program failure rates.
Businesses in pursuit of strategic 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” and involves organisations simultaneously pursuing the seemingly conflicting goals of growth, cost improvement, and balance sheet management. Companies that are able and willing to make bold cost moves could find the current economic environment is a prime opportunity to position themselves for long-term success.
Thriving in uncertainty: Deloitte’s fourth biennial cost survey, April 2016
Deloitte’s first biennial cost survey: cost improvement practices and trends in Latin America, June 2016