CFOs Still See Room to Cut Costs

Nearly 60 percent are focused on overhead services; 45 percent are also working with business units to manage and reduce demand.
Stephen TaubMay 11, 2004

Despite three years of downsizing and belt-tightening throughout Corporate America, 85 percent of CFOs reported that cutting costs is still their highest priority, according to a new Booz Allen Hamilton report.

In fact, just 3 percent of the 156 finance executives surveyed by the consultancy believe they have tapped every outlet for cost reduction.

So where are they finding opportunities to rein in spending?

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Nearly 60 percent of the CFOs said they are focused on overhead services, by reducing non-essential spending, restructuring costs, and standardizing the levels of service they provide. In addition, 45 percent said they are also working with business units to find ways to manage and reduce the demand for these services.

“Despite the fiscal discipline most companies imposed during the recession, overhead costs are still a target for even greater savings,” said Booz Allen vice president Vinay Couto. “The quick fixes have been used up, and companies need to find innovative ways to control costs.”

The most common method CFOs are using to lower overhead costs is reducing non-essential spending (71 percent).

Other popular strategies include standardizing service offerings (55 percent), reducing headcount (48 percent), streamlining the delivery process (45 percent), reprioritizing and deferring requests (37 percent), and physically consolidating the facilities used to provide overhead services (33 percent).

Booz Allen also found that mastering IT complexity has become a critical success factor in managing overhead costs.

For example, when it comes to providing overhead services, “managing a patchwork of different systems” is the main IT challenge for 90 percent of companies that describe themselves as trailing the competition in delivering general and administrative services. Among self-proclaimed leaders in providing general and administrative services, that “patchwork” is a problem for only 43 percent.

The study also found that overhead service providers and the business units that use them are frequently in conflict, leading to frustration and inefficiency. Four main reasons that cost reduction measures meet with resistance from business units were “lack of communication” (38 percent), “services not tailored to business needs” (36 percent), “didn’t involve the business unit in decision” (33 percent), and “overhead work offloaded to business units” (31 percent).