Cost Reduction

Cost reduction remains top-of-mind for your fellow CFOs: 84% of U.S. companies plan to undertake new initiatives in the next 24 months.

Too bad few of them will succeed. More than three-quarters (81%) of them won’t meet those goals. And we’re not talking about a near-miss either. A
full 27% of your peers miss their cost-reduction targets by more than 20%.

That eye-opener comes courtesy of Deloitte’s 2019 Global Cost Survey.

With most of us in the throes of budgeting season, there’s no better time to look at why so many companies are missing the mark on this mission-critical front so you can avoid a similar fate.

What went wrong for them

One of the best ways to keep your own business from coming up short on its cost-reduction targets: Take a look at what tripped up your peers.

The Deloitte study ID’d six places where other companies have struggled to realize the savings they’d set their sites on:

1. Management has difficulty implementing initiatives (64%).

2. They lack an effective ERP system (60%).

3. Savings get eroded because unfeasible targets had been set (58%).

4. Reporting and tracking processes are poorly designed (56%).

5. Others don’t understand or accept the solution (55%).

6. There’s a weak or unclear case for business improvement (51%).

Take a look at the list above – which do you consider vulnerabilities within your own organization? Have any of these keep you from realizing your own cost-containment goals in the past?

Granted some of the hurdles are technological. But a large portion of them is people-based.

Some additional education from Finance and some help in setting realistic cost-containment goals can go a long way to a more successful outcome.

A shift to more strategic cost-reduction

As you look at what your own cost-control goals will be in 2020 and beyond, benchmark yourself against what your peers have planned.

They told Deloitte they will:

  • change their business configuration by divesting underperforming assets and adjusting the number of products/services, geographies, customers, etc.
  • streamline business processes
  • improve policy compliance
  • reduce external spend by leveraging scale-to-source purchased materials/ services and reduce demand for materials/services, and
  • centralize to integrate business units and functions.

While the middle of the list is full of fairly tactical actions (and traditionally the ones companies take to keep costs in check), look at the first and last entries.

They’re much more strategic and the key to hitting those targets asserts Deloitte.

As you look at budgets and set goals for 2020, be sure your company is taking a strategic approach to achieve them, rather than a reactive one.

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