Perspectives

Rethinking business margin improvement strategies

6 bold insights from the 2024 MarginPLUS study

The economic uncertainty of 2023 was not vastly different from challenging periods of the past. The way many organizations responded to it, though, marked a bold shift. Insights from our study of more than 300 business leaders show a move in favor of a more strategic and focused approach.

A reimagined response to economic uncertainty

Business margin improvement and technology-enabled transformation efforts are taking place at nearly every large company around the world—not only in reaction to known pressures, but also as a way to address widespread uncertainty. Business leaders aren’t strangers to uncertainty, but our 2024 survey findings showed—amid inflation, global conflict, new regulations, and high interest rates—many of them changed their approach to it.

Before, the prevailing approach was to address cost and margin across a wide front. The urgency of the moment called for bigger, bolder, faster responses—but their outcomes didn’t always live up to the hope. In contrast, Deloitte’s 2024 MarginPLUS study of more than 300 business leaders shows a new focus on more specific moves that focus on fewer, but more targeted, parts of the business.

Nearly every executive in the survey confirmed taking on some initiative to drive growth or cost transformation. However, executives have reported that their programs are increasingly missing their targets. In response, we have found companies are shifting their approach to cost-reductions and corporate transformation strategy, with an added focus on generative artificial intelligence (GenAI)—mainly driven by an increased interest in overall AI capabilities—in an effort to drive growth and competitive advantage.

2024 MarginPLUS study: Refocusing amidst uncertainty
2024 MarginPLUS study: Infographic

6 bold business margin improvement insights

The survey aimed not only to learn where companies are focusing their efforts, but also to determine which strategies have worked—and which ones have fallen short. Here are some of the most prominent things they told us.

99% of surveyed executives are planning to implement some form of business margin improvement program.

Input costs are squeezing margins: The average respondent reported a 13% increase in input costs this year, and those costs have risen more quickly than their ability to pass through to consumers through increased prices.

82% of companies said they missed their cost-reduction targets, up from 72% a year ago. This is the highest failure rate Deloitte has ever recorded since starting this series in 2008.

Notably, half of these companies achieved less than 50% of their set targets, a 79% increase relative to our previous survey.

50% named “challenges with technology infrastructure” as the chief internal barrier to cost control. Consumer demands and talent challenges remained high on the list as well.

These fundamental commercial, product, and operational challenges frequently limited the effectiveness of business margin improvement initiatives and their impact to the bottom line. Unfortunately, this may only get worse, with uncertainty as a constant and the push for GenAI and data across enterprises.

On average, companies are now focusing on three business margin improvement areas, compared to an average of seven from our previous study.

There are several levers companies can pull as part of their business margin improvement strategies, and previously, it was more common to see companies try to use many of them at once. Now, companies are pulling fewer of them. Of nine levers we asked about, only three—data and AI (52%), organization structure design (49%), and process reengineering and automation —made the lists of more than 45% of respondents. Last year, all nine levers appeared on at least 72% of respondents’ lists.

79% of respondent companies are clearly embracing GenAI and machine learning (ML) to drive efficiency, innovation, and improve customer and employee experiences.

The fast embrace of GenAI we reported (only 21% haven’t used it yet) is the tip of a larger technology spear. To become more scalable, agile, and resilient, many are applying AI as a tool either to support corporate transformation strategy (61%) or to take the lead in driving it (23%).

83% of companies are looking to change how they run their business margin improvement efforts, with nearly half saying that a robust tracking and reporting process is a key driver of success.

What do these findings tell us about corporate transformation strategy?

The pressure is on across nearly every industry to preserve margins, and this will require new, more targeted approaches to transformation—a firmer reliance on technology, investment, and innovation, and (as margin efforts become more targeted) renewed leadership accountability.

As your management team finalizes its corporate transformation strategy, consider probing on the following questions:

  • Is there a clear business case for the margin improvement effort?
  • Is a solid tracking and reporting process in place for the business margin improvement effort?
  • Is the management team agile in assessing, validating, and adjusting targets reasonably, according to the reality throughout implementation?
  • Are you targeting the right commercial, product, and operational capabilities needed to help drive competitive advantage and differentiate your business from the rest of your industry?
  • Are you proactively investing in technology improvements to enable data availability, improve reliability, and facilitate decision-making with an eye on the future of your industry?
  • Are change management activities deployed to raise awareness, acceptance, and benefits of initiatives?
  • Are leadership roles and budgets distinct for the business margin improvement efforts? 

Ready to reimagine your business margin improvement efforts? Learn how Deloitte can help your business target the right capabilities to drive growth and effective business transformation.

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