January 12, 2016
82 Percent of Executives Aim to Cut Costs to Fuel Growth, But Majority Struggle to Sustain the Cost Reduction Benefits, Finds Accenture Study
Lack of alignment in the C-suite may be contributing factor
New York; Jan. 12, 2016 – Although 82 percent of business leaders want to free up funds by reducing costs to invest in growth, most of the nearly 700 senior executives participating in an Accenture (NYSE:ACN) study believe their companies are failing to align growth and cost reduction strategies.
The Accenture study, Increasing Agility to Fuel Growth and Competitiveness, which included C-levels and direct reports across 13 industries worldwide, found that only 21 percent of respondents are confident that their leadership has the right initiatives in place to reach cost reduction targets. Just 23 percent said their company consistently identifies and terminates business activities and investments that do not add value to the organization. As a result, less than one-third (30 percent) of respondents said the reinvestment of cost savings is aligned with their company’s business strategy.
“A company should directly integrate its cost reduction strategy with how savings are reinvested in order to achieve sustainable growth,” said Kris Timmermans, senior managing director, Accenture Strategy, Operations. “As our study shows, many companies are falling short. To avoid cost cutting becoming an end in itself, management needs to know from the outset what contributes to their company’s growth, what does not, and where to reinvest savings.”
Illustrating the challenges associated with strategic cost management, only 36 percent strongly agree that their business sustains the benefits of cost reductions. Less than one quarter (24 percent) believe their company has the flexible operating model its needs to adapt and consistently deliver on their business strategy, or to focus on activities that result in growth and profitability.
Compounding the situation is a lack of alignment between CEOs and CFOs. Nearly half (51 percent) of CEOs strongly agreed that their business prioritizes and allocates resources to activities that drive value for the organization, compared to just 34 percent of CFOs. Seventy percent of CEOs indicated that their organization assesses the return on reinvested cost savings with formal reviews of their investment success, yet only 49 percent of CFOs agree. And while 20 percent of CEOs admit that reinvestment priorities are driven by the fastest return on investment, a larger 30 percent of CFOs hold that view.
The study also showed consensus among respondents around investment in digital, with more than 54 percent investing in it and 61 percent acknowledging that the increased use of technology would enable their operating model to operate at half its base cost. Eighty-five percent said digital business is an enabler of strategic growth. Nearly as many (82 percent) agreed that digital strategies enable new operating models.
“The study demonstrates that digital business strategies play an important role in helping companies gain much needed flexibility and market responsiveness, but that senior leaders need to be more aligned around their business strategy and cost management efforts first if they are to achieve sustainable growth,” said Donniel Schulman, senior managing director, Accenture Products. “To succeed, companies need to use and monetize available data; build digital intelligence; organize for speed; accelerate innovation; and digitize traditional business functions and capabilities.”
Additionally, the study found that companies that intend to funnel cost savings into growth and have established enterprise-wide strategies are more likely to strongly believe that technology, digital strategies and digital business are enablers. Likewise, companies with flexible operating models believe more strongly in technology, digital strategies and digital business as enablers of cost reduction, advanced operating models and strategic growth.
The following highlights some of the differences by industry:
- Leadership has the right initiatives in place to achieve cost reduction: Medical technology (33 percent) and industrial equipment (31 percent) most in agreement.
- Identifies and removes business activities and investments that do not drive value for the organization: Medical technology (35 percent), consumer goods (33 percent) and automotive (30 percent) executives most frequently said their company adopted this practice.
- Prioritizes budget allocation for expenditures that drive value for the organization: Energy (46 percent) and utilities executives (44 percent) most frequently apply this practice.
- Sustains strategic cost reduction benefits: While 53 percent of medical technology executives strongly agree that their company sustains the benefits, industrial equipment (27 percent) and banking (28 percent) executives were least likely to say the same.
- Top targets for reinvesting savings from strategic cost management: Chemicals (65 percent), automotive (64 percent), health (64 percent) and consumer goods (58 percent) companies most frequently direct those funds to digital. However, 63 percent of industrial equipment companies target them at the launch of new products and services; 60 percent of retailers use the funds for geographic expansion.
Accenture fielded an online survey of 682 senior executives across 13 industries, including automotive, banking, chemicals, communications, consumer goods, energy, health, hospitality, industrial equipment, medical technology, pharmaceutical, retail and utilities. Fifty-four percent of them are C-level (CEO, CFO or COO), 16 percent are the regional or business unit CEO, CFO or COO, and the remainder are their direct reports in companies with revenues of at least $1 billion. Respondents were located in nine geographies, including ASEAN (Indonesia, Malaysia, Singapore, Thailand and Vietnam), Brazil, China, France, Germany, Italy, Japan, North America and the UK.
Accenture is a leading global professional services company, providing a broad range of services and solutions in strategy, consulting, digital, technology and operations. Combining unmatched experience and specialized skills across more than 40 industries and all business functions – underpinned by the world’s largest delivery network – Accenture works at the intersection of business and technology to help clients improve their performance and create sustainable value for their stakeholders. With more than 373,000 people serving clients in more than 120 countries, Accenture drives innovation to improve the way the world works and lives. Visit us at www.accenture.com.
Accenture Strategy operates at the intersection of business and technology. We bring together our capabilities in business, technology, operations and function strategy to help our clients envision and execute industry-specific strategies that support enterprise wide transformation. Our focus on issues related to digital disruption, competitiveness, global operating models, talent and leadership help drive both efficiencies and growth. For more information, follow @AccentureStrat or visit www.accenture.com/strategy
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