Tightening the belt: rethinking cost-saving strategies

2008-07-30 00:00

With a global recession looming, the constant pressures on businesses to reduce costs have driven them to take drastic restructuring measures.

KPMG recently conducted a survey of 427 senior executives that covered a cross-section of companies in various industries.

The survey’s aim was to investigate the cost challenges in the dynamic business environment and how businesses are addressing these challenges. It revealed that even though businesses are trying to reduce costs, their efforts have been largely unsuccessful and unsustainable.

According to the results of the survey, factors attributed to this are:

•Current business processes are inadequate to sustain cost-cutting measures

•The focus on boosting revenues often comes at the expense of the insufficient monitoring of costs

•The responsibility of cost management in organisations is unclear

•Cost drivers are not clear or transparent

•Cost discipline is not embedded in the organisation’s culture .

Managing costs is inherently difficult, especially during expansion and diversification efforts.

In addition, 74% of executives concur that the key areas where costs are expected to grow will be employee remuneration to attract and retain scarce talent, followed by increases in normal input costs and gaining a competitive advantage by increasing marketing spend.

Information technology costs are also expected to increase significantly. These costs are often seen as luxury expenditure, but the right technology together with the correct skills can save companies money in the long run.

It was found that companies that are in the forefront of cost leadership have gained an understanding of their overall business model and how it impacts their spending patterns.

By making changes at a strategic level, they have managed to sustain cost- reduction initiatives.

It is important to hold someone accountable for cost- cutting initiatives and the tracking of progress against predetermined cost targets.

The key is to start by creating an environment that is cost-aware throughout the business and not just confined to one department. This requires continued focus and commitment from the CEO to the line managers and is definitely not “business as usual”.

Costs and their effective control are an integral part of the business model. However, an over emphasis on cost should not effect the day-to-day operations but should result in a more efficient business.

It will take time and constant attention to produce a new way of conducting business.

“A diet helps you lose weight for a while, but a lifestyle change makes you healthier.”

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