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Perspectives

Margin improvement in the age of digital disruption

Thriving in uncertainty

Unprecedented economic and political uncertainty—combined with the breathtaking impact and pace of digital disruption—are forcing companies around the world to rethink how they operate and compete.​

Changing the rules of the game

Profit margins and margin growth are both down sharply. And in many cases, traditional approaches to margin improvement aren’t delivering the results that today's companies need and expect. Meanwhile, digital disruption is changing the rules of the game, blurring the lines between industries and creating a need for dramatic improvements in efficiency, effectiveness, and competitiveness.

This complex and challenging environment requires a new approach to margin and business improvement. One that addresses multiple value levers and capitalizes on emerging digital breakthroughs, such as robotic process automation and cognitive technology, to enable new business models and new levels of business performance.

Thriving in uncertainty

Traditionally, companies pursuing margin improvement have fallen into one of three categories:

  • Distressed
  • Positioned for growth
  • Growing steadily

For each of these traditional categories, there’s a standard margin-improvement playbook that primarily focuses on one of three specific value levers: cost reduction, aggressive growth, or liquidity.

However, a 2012 study of ours revealed the emergence of a hybrid scenario that we called "save to grow," in which companies simultaneously focused on two distinct value levers—cost reduction and aggressive growth—that have traditionally been at odds.

Taking this trend even further, our most recent survey results show the cost-growth hybrid has now expanded to include a focus on two additional value levers: liquidity (which has historically been associated with companies in distress) and talent (which is strongly linked to growth and competitiveness). We call this new, multi-faceted scenario "thriving in uncertainty" (TIU).

How TIU fits within traditional margin improvement strategies

The impact of digital disruption

Digital technologies are rapidly reshaping the business environment globally, blurring the lines between industries, redefining how companies compete, and driving a need for dramatic improvements in efficiency and effectiveness. Yet our global survey results show the vast majority of companies are just starting to recognize the potentially disruptive impact of digital technologies—and the business breakthroughs those technologies enable.

When it comes to improving margins and competitiveness, two areas of digital innovation are front and center:

  • Automation—software "robots" that can automate tedious and labor-intensive information tasks such as data collection and data processing
  • Cognitive technologies and analytics—harnessing the power of analytics and big data, and cognitive technologies such as machine learning, computer vision, and natural language processing, to uncover hidden insights and boost effectiveness

Disruptive breakthroughs like these are changing the basis of competition and laying the groundwork for massive improvement in efficiency and effectiveness. To remain competitive in this new digital environment, companies in every industry and geography may soon find themselves needing cost improvements in excess of 50–60 percent, not just the 10–20 percent improvement that most are currently pursuing.

A new approach to margin and business improvement

Traditional margin improvement efforts—such as operating model transformation, outsourcing, and external spend reduction—while still important, are quickly becoming table stakes that alone are unlikely to deliver the required level of margin and performance improvement. Our surveys across the United States, LATAM, Europe, and APAC found that while 84 percent of companies were pursuing cost reduction in excess of 20 percent, 64 percent failed to meet their cost reduction goals.

According to our latest surveys, companies that continue to focus on the same traditional cost-reduction opportunities year after year are finding it increasingly difficult to achieve their cost objectives. In fact, the majority of companies surveyed say their existing cost-reduction programs failed to meet their targets.

To thrive in uncertainty, companies should consider a new approach to margin and business improvement that can help them identify, prioritize, and pursue new growth opportunities while generating cost savings, freeing up cash, and supporting the development of capabilities and talent required to achieve its strategic vision. This new approach has several key elements:

  • Seeing the environment clearly
  • Understanding the tradeoffs between value levers
  • Employing multiple strategies at once
  • Harnessing the power of digital technologies
  • Aligning the organization

Deloitte helps companies rise to the challenge of thriving in uncertainty through a comprehensive, integrated margin, and business improvement approach that leverages a full suite of value levers—cost reduction, aggressive growth, liquidity, and talent—fueled by our TIU Insights Platform and driven by our digital solutions.

Controlling your own destiny

Businesses today face economic, political, and technological uncertainty. And while there is nothing you can do to entirely avoid this uncertainty or halt the progress of digital disruption, that does not mean you are helpless against the whims of fate.

By adopting a new approach to margin improvement and competitiveness—and by actively looking for ways to strategically harness the power of rapidly emerging digital technologies to enable new business models—your company can dramatically improve efficiency and effectiveness and take control of its own destiny, becoming the disrupter rather than the disrupted.

 
Take control
of your destiny. Become the disrupter rather than the disrupted.

Know where to get started?

Let's get to work. Deloitte can help you execute on your margin improvement agenda and hit the ground running with an unparalleled breadth of digital tools and enablers, industry experience, and practical know-how to execute against multiple value drivers.

Need help getting started?

Let's chart a path at a Margin Improvement Executive Lab that can help you discover tangible and actionable margin improvement opportunities and arrive at a portfolio of prioritized initiatives that can lead to rapid impact on shareholder value.

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