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One big four firm is urging Australian companies to review their cost management strategies after finding that the majority fail to meet their cost reduction goals despite having the least aggressive targets in Asia Pacific.
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Big 4 firm finds companies failing to reduce costs
03 August 2017
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9 minute read
Today, Deloitte released its biennial cost survey, Thriving in uncertainty: Cost improvement practices and trends in Asia Pacific, revealing what measures Asia Pacific companies are undertaking to manage costs and improve margins.
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The survey revealed that Australian companies have the least aggressive cost reduction targets in the region, with 74 per cent of Australian respondents citing a cost reduction target of less than 10 per cent and a further 18 per cent citing no target.
Despite this, 75 per cent of Australian companies are not meeting their cost reduction goals.
“Australian companies take a more balanced approach to cost reduction and growth than our Asian counterparts, perhaps a reflection of our mature economy, political stability and a focus on strategic flexibility,” said Vanessa Matthijssen, Deloitte strategy and transformation partner.
“Yet high failure rates suggest that cost reduction programs are not as effective as they could be, creating an opportunity for companies to significantly improve how they manage costs.”
Ms Matthijssen said that companies need to adopt a more strategic approach to their cost management, as opposed to making tactical improvements.
“The right approach for cost reduction varies from one company to the next, depending on its unique situation and challenges,” she said.
“However, achieving cost targets greater than 10 per cent will generally require a cost management approach that is more strategic and transformational in nature, as tactical improvements alone are unlikely to produce more than single-digit cost savings.”
Despite this advice from Ms Matthijssen, Australian respondents indicated that cost reduction initiatives in the next 24 months are likely to continue to be tactical rather than strategic in nature.
“To continue to retain competitive advantage, companies will need to adopt a more strategic and transformational approach to cost reduction, which is likely to include capitalising on digital breakthroughs such as robotic process automation and cognitive technologies,” Ms Matthijssen said.
“They are changing the basis of competition and laying the groundwork for massive improvement in efficiency and effectiveness. Companies may soon find themselves needing cost improvements in excess of 50 per cent, not just the 10 per cent improvement that most are currently pursuing.”
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