Embracing cost optimisation as a strategic imperative

11 July 2024 Consultancy.uk 4 min. read
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Companies across various industries face the challenge of managing multiple priorities such as reducing costs, increasing margins, adhering to new regulations, and improving operational efficiency. Experts from Project One explore the necessity of cost optimisation, and how to effectively implement it to unlock sustainable growth.

In the current business environment, cost optimisation has become a crucial strategy for sustainable growth. According to specialists from consultancy Project One, however, the concept goes much further than simply cutting expenses.

“It’s about strategically reducing costs while maximising the value these expenditures bring to the business,” they explain. “Deliberate decisions in this area can enhance both efficiency and effectiveness. For example, one-in-two CEOs consider optimising operating costs as a key strategy for growth.” Amid the rapidly evolving economic climate, mastering cost optimisation is therefore “essential for sustainable success across all industries”.

Embracing cost optimisation as a strategic imperative

But first, firms must understand the key drivers of cost. According to the consultants, there are four leading sources. These are economic volatility, underscored by recent global events which have shown that supply chains and consumer behaviour can suddenly change; regulatory pressures, where governments adapt and strengthen rules in response to such changes; technological advancements, for example AI or IoT, which can suddenly offer the chance to reduce operational costs; and customer expectations, which have evolved to favour efficient services. 

Key strategies

Project One’s experts then spelled out four ways in which firms could best introduce cost optimisation into their operations in response to those pressures.

First they point to mature operating models. They explain that “organisations with advanced operating models experience up to 38% higher customer engagement. Streamlining operations can significantly boost efficiency and effectiveness by integrating advanced technologies and best practices.”

Second, there is data and digital transformation. This means that optimising data management and embracing digital transformation “can reduce costs by up to 30%”.  So, modernising infrastructure through cloud computing, big data analytics, and digital platforms “enables more efficient data management, leading to substantial cost savings.”

Execution and spend management can meanwhile help reduce project overruns by as much as 35%, and third-party spend by 20%. To that end, “implementing stringent project management practices and leveraging procurement strategies can help control costs and improve financial performance.”

Finally, cost-conscious culture being cultivated across an organisation can pay real dividends. It typically results in a 15% increase in cost savings year-on-year, so encouraging this mindset within an organisation can “lead to employees identifying and implementing cost-saving initiatives, enhancing overall organisational efficiency.”

“To effectively integrate cost optimisation into your business strategy, there are a few best practices to consider,” the experts suggest. “Start with a thorough cost assessment, exploring all the aspects of your operating model. Then define clear objectives for your transformation to hit. Develop a strategic plan to meet those goals, before engaging stakeholders at all levels. Consistent communication is key to ensure buy-in.”

At the same time, there are some common pitfalls which firms will need to avoid. These include misalignment with those stakeholders, which can lead to change-resistance, or lead to teams chasing the wrong goals. At the same time, leaders must avoid underestimating complexity, with the experts warning many  digital transformations fail due to “a lack of comprehensive strategy and cultural adaptation”. 

Conclusion

“Cost optimisation should be seen as a strategic lever for growth and sustainability,” the experts conclude. “By adopting advanced digital models, optimising data infrastructure, and fostering a cost-conscious culture, companies can navigate economic volatility, meet regulatory requirements, and exceed customer expectations.”

Project One was recently named in Consultancy.uk’s 2024 Top Consulting Firms in the UK ranking. The firm scored a gold rating in change management, and diamond in the project management category.