As the business environment becomes more complex due to competition, digital technologies and changes in consumer behaviour, companies are increasingly using cost cutting measures to fund new growth initiatives. Barriers remain however, with many organisations failing to successfully execute growth strategies, and in addition, provide the right direction for their funded initiatives. According to new research, digital stands at the heart of an easier journey to growth, both as an enabler and accelerator.
Digitalisation is transforming a range of industries, as nimble startups develop new and attractive ways of reaching clients while cross-industry incumbents seek ways of capturing new markets. Finding funding to create new growth opportunities to meet changes in the business environment have become key, with many firms initiating cost cutting to free up capital for new growth initiatives.
In a recent Accenture report, titled ‘Increasing agility to fuel growth and competitiveness’, the firm looks at the relationship between cost saving and re-investments into business growth, finding that while costs are being saved, those saving not always result in pre-defined growth trajectories. The survey involved 682 senior executives across 13 major industries. 54% of respondents are C-level (CEO, CFO or COO), 16% are the regional or business unit CEO, CFO or COO, and the remainder are their direct reports.
Cost cut investment
The study asked business what the strategic purpose is behind their cost cutting initiatives. Of the respondents, 57% said that simplifying and increasing flexibility to respond to market changes was one of their drivers, with 20% citing it as their top driver. This was followed by improving competitive advantage, at 54% of total and 20% citing it as their top driver. Improving financial performance came in at number three with 53% of respondents, while reinvesting cost savings into growth initiatives came in at number four with 49% support.
In practice, cost reduction programmes often fail to bring about the results desired by the businesses. According to the research a number of factors influence their failure to achieve results, including inflexible operating models and lack of leadership alignment keeping companies from realising their pre-defined programme KPIs. Technology and change management are other barriers regularly cited by the executives.
When cost cutting programmes do free up funds, executives find themselves facing the next challenge: funnelling the freed up savings to the right means. The research however finds that this too often can be a bumpy road. The biggest issue ranked by respondents, as cited by 54%, is identifying the right area into which to invest money won from cost saving measures – for 21% this is their main concern. Many organisations also have too many initiatives on the go at the same time (cited by 40%), with less than a third aligning their initiatives with wider business strategy.
Further major concerns are related to having the analytic insights available to make the right decision, cited by 48%, and the ability to attract the right talent to initiate their growth initiative with their hard won cost reduction. “A company should directly integrate its cost reduction strategy with how savings are reinvested in order to achieve sustainable growth,” comments Kris Timmermans, senior managing director at Accenture Strategy. “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.”
Against the backdrop of a below par execution and reinvestment approach, executives earmark digital as a key enabler that might improve the track record of both aspects. 44% of the respondents say that technology itself is an enabler of sustainable cost reductions, while 42% say that digital is a key pillar of strategic growth. At the same time, digital is described as “an accelerator for other priorities”, which include among others the advancement of operating models, end to end cost management, complexity reduction and partner management.
“Executing cost reduction strategies to fuel growth is challenging, but it is critical for a business to be competitive. Companies should take bold steps to get their growth strategy right, overcome misalignment and make digital a top priority,” concludes Timmermans.