U.S. Companies Struggle to Balance Cost Management with Growth Plans

Just when America’s largest businesses thought they had solved the cost reduction-growth conundrum brought on by the Great Recession, many organisations continue to face a challenging paradox – grow more, spend less -- according to findings in Deloitte’s enterprise cost reduction survey.

 

The survey, which gauges the cost reduction and management practices of 139 executives in the United States from Fortune 1000 companies, reveals that 90 percent of respondents expect their company’s revenues to grow in the next two years – but 80 percent are likely to undertake cost improvement initiatives during the same timeframe.

 

“While we are emerging from the Great Recession, companies are struggling to adapt to this new economic paradox to constantly spend less, but grow more,” says Omar I. Aguilar, leader of Deloitte’s enterprise cost management practice. “At this point, much of the ‘low hanging fruit’ has been picked and companies need to move beyond the approaches they’ve already leveraged to improve efficiency that will bolster growth efforts.”

 

The survey shows that over the next 24 months, 61 percent of respondents said their companies will look to cut costs in a few divisions, business units, functions or geographies through methods such as asset sales, IT cost reduction or divestiture. One-half of all surveyed respondents plan to intensify existing productivity improvement programs, such as six sigma and lean operations, to further reduce costs, while 35 percent plan to drive all divisions, business units and corporate functions to reduce a fixed percent of their costs. In addition, 54 percent of respondents expect to reduce costs by establishing targets in excess of 10 percent during the next two years.

 

Looking back at how organisations increased their cost-management capabilities during the past 24 months, respondents reported implementing new policies and procedures to strengthen compliance mechanisms (73 percent), improving forecasting, budgeting and reporting processes for effective cost management (67 percent), setting-up IT infrastructure, systems and business intelligence platforms to refine the collection and reporting of cost data (26 percent) and creating a new internal position to drive cost management (17 percent). However, some of these cost reduction efforts fell short, as 36 percent of the respondents reported that they were unable to meet their annual cost reduction targets.

 

“Our research shows that cost-management strategies over the next couple years are still fairly targeted and tactical, which may explain why so many companies are struggling to meet their cost reduction targets,” said Aguilar. “Business executives need to look to cross-organisational, structural improvements that deliver more sustainable benefits and allow for corporate growth. Though these initiatives may be more extensive to implement, the long-term payoff is well worth it.”

 

 

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