Report Suggests a Shift in Cost-Reduction Mentality

Instead of saving on costs to support strategic growth initiatives, companies are now more likely to be saving to support transformation efforts.
David McCannApril 29, 2019

Companies are no less eager than ever to take out costs. However, the strategic mindset behind cost-reduction efforts has shifted over the past two years, a new report asserts.

In Deloitte’s first biennial global cost survey, in 2017, respondents were in “save-to-grow” mode, with companies around the world typically using cost reduction to help fund growth initiatives in an improving economy.

The new survey of 1,219 executives worldwide reveals evidence of companies evolving into what Deloitte calls a “save-to-transform” mindset.

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Savings are being invested in transformative technologies and infrastructure that can both (1) drive operational efficiencies that bring additional cost savings and (2) allow companies to compete more effectively in an increasingly digital business environment, according to the report.

About three-quarters (73%) of survey participants identified technology implementation as a strategic priority for their organizations over the next 24 months. That put technology implementation on par with sales growth and product profitability, with the same 73% proportion citing those as strategic near-term priorities.

That’s not a surprising trend, given that the proportion of respondents identifying digital disruption as an external risk grew by 10 times since the prior survey, from 6% in 2017 to 61% this year.

Yet reducing costs seems to still be the top reason for implementing new technologies.

That’s as one might expect for robotic process automation, with 80% of respondents citing the impact on cost as a reason for implementing it.

But cost is the top rationale even for using artificial intelligence and cognitive technologies: 76% cited it as a reason for implementing, compared with 59% for enhancing product/service capabilities and 56% for increasing revenue.

“Companies that relied on more traditional cost management methods in the past are now finding that digital solutions can open the door to a whole new level of savings — as well as enable new and more innovative business models,” Deloitte’s report says.

The research showed that significantly more companies have attacked costs over the past two years by developing or implementing automation (48%), AI/cognitive technologies (42%), or improved ERP infrastructure (41%) than have launched traditional cost management practices.

The traditional practices include creating one or more new positions to drive cost management (34%); improving processes for forecasting, budgeting, and reporting (34%); or implementing a zero-based budgeting process (12%).

One traditional practice was more prevalent: implementing new policies and procedures or strengthening compliance mechanisms (41%).