Auditel Cost Management Survey Results
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Strategic cost management will be important for organizations over the next 5-10 years as revenues will be difficult to earn and margins challenged. Organizations that excel at managing costs will be best positioned to improve performance and gain competitive advantages. Some organizations focus on short-term cost cutting without sustainable strategies, while others use downturns to identify efficiencies. However, many costs cut during recessions return quickly. Effective cost management requires proactive, strategic approaches rather than reactive tactics.
Auditel Cost Management Survey Results
- 1. managementtoday.com managementtoday.com W hether the spectre of austerity continues to cast a chill or UK plc shifts through the gears into speedy recovery, strategic cost management will be a game-changer in many industry sectors for the next five to 10 years. Chief executives and finance directors don’t need a crys- tal ball to tell them revenues will be tougher to earn and margins will be challenged by hungry competitors. Yet, organisations that excel at managing their cost base will be best placed to convert savings into accelerated per- formance. Rather than knee-jerk cost-cutting, smarter organisations are learning to embed sustainable cost effi- ciency as they accelerate into the economic recovery. The discipline of cost management has evolved a great deal since the dark days of short-term cost-cutting, which often left organisations in a worse state than they had been in before. Within organisations that have tighter cost con- trols, the recession-fuelled cost-cutting exercises of recent years have offered a valuable opportunity to identify and execute cost efficiencies that should prove resilient in the faceofgrowth,anddeliverthemhighermarginsandgreater competitive advantage. Yet in other organisations, chief executives and finance directors are finding that many of the costs taken out dur- ing the recession are already starting to flood back into their business at a frightening pace. In fact, according to a KPMG survey, more than 95% of cost reductions achieved during the recession are expected to return in the short term – that equates to more than £90bn of costs across UK firms. So what differentiates those organisations that manage costs proactively and strategically from those that seem always on the back foot? According to recent research from Deloitte, some organisations fall into the trap of focusing cost manage- ment on the same business areas every year, even if they don’t deliver the savings they once did. Many, for example, have been stripping away layers of staff to reduce costs – with the result that experienced people with years of knowledge have been lost. But to help us discover how well cost management is understood and implemented, we conducted our own research via a survey of MT readers in association with Auditel. Through an online poll at managementtoday.com, the leaders of more than 100 organisations, in both private and public sectors, answered a series of questions that have helped us paint the following picture of priorities in the realm of cost management. THERESULTS While chief executives and finance directors often talk about managing costs strategically, our research suggests thatbothorganisationalpoliticsandalackofunderstanding among employees can act as significant barriers to effective implementation. Costmanagementgoals Almost half of respondents consider efficiency improve- ments and effectiveness to be the point of cost management measures. Almost a quarter view them as a means to simply ensuring financial survival. However, a third consider cost management measures in more positive terms, stating that for them, the main purpose is to accelerate performance or gain a competitive advantage over their rivals. Travel, transport and logistics have been the most com- mon areas of focus for previous cost management efforts, followed by human resources – an area of concentration for half of our survey respondents. Telecoms – fixed and mobile – are the next most likely area to come under cost manage- ment scrutiny. However, it’s managing the cost of human resources that respondents say is the biggest challenge facing their organi- sations. Property and premises costs are not far behind, with travel, transport, logistics and IT infrastructure also considered significant cost management challenges. Conversationpoints Given the recession, it’s not surprising that talk of cost management has been common everywhere in the organisa- tional hierarchy. It’s on the boardroom agenda of 82% of SPONSORED FEATURE respondents, and discussed on the shopfloor of 53% of businesses. But how directed is that talk? Only 30% of survey respondents were able, in their opinion, to describe the cost managementmeasuresintheirorganisationsasverystrategic. When respondents were asked to name the main approach to cost management at their organisation, by far the most common answer was identifying wastage and efficiency improvements. Streamlining the organisation is the second most popular approach, followed by process improvements. However, it seems that organisations have experience of usingavarietyofcostmanagementmethods,fromresearch- ing suppliers and benchmarking current expenditure to competitive tendering and service level agreements. Costmanagementchampions More than two thirds of respondents (67%) say they are engaged in a cost management programme. In 60% of organisations, it’s the CEO who champions cost manage- ment – alongside the FD (41%) or financial controller (28%). Rather worryingly, 6% of respondents said no one was championing cost management in their organisations. In 73% of companies, cost management measures are undertaken in-house. However, 23% of organisations use external resources to implement measures. Lack of understanding is, say respondents, the biggest obstacle to cost management in their organisations. But an almost similar proportion admits that organisational poli- tics hampers efforts to bring costs under better control. Close to one in five respondents point the finger at unrealis- tic goals as the biggest barrier. A third of respondents say they would seek the advice of a specialist consultant when considering more strategic cost management. Just over 28% would ask a management con- sulting firm, while the same percentage would seek the services of an accounting firm. MANYOF THECOSTS TAKENOUT DURINGTHE RECESSION ARE ALREADY STARTING TOFLOOD BACK ACCELERATEYOURPERFORMANCE Companies that are positive about cost management and see it as more than simply making savings are the ones that will be in pole position to take advantage of economic recovery, says IAN WYLIE WHATDOYOUCONSIDERTOBETHEMAINPURPOSEOFCOSTMANAGEMENT? Ensurefinancial survival22.3% Accelerate performance 11.6% Gaincompetitive advantage18.8% Improveefficiency& effectiveness47.3% WHATISTHEMAINAPPROACHADOPTEDBYYOURORGANISATIONTOCOSTMANAGEMENT? WHATARETHEBIGGESTCOSTMANAGEMENTCHALLENGESFACEDBYYOURORGANISATION? INYOURORGANISATION,WHO,IFANYONE,CHAMPIONSCOSTMANAGEMENT? TotalScore OverallRank Humanresources 798 1 Propertyandpremisescosts 718 2 Travel,transportandlogistics 627 3 ITinfrastructure 616 4 Finance,banking,insurances,tax 613 5 Capital 597 6 Utilities 499 7 Telecommunications,fixedandwireless 494 8 Facilitiesmanagement 469 9 Officesuppliesandservices 352 10 Thechief executive Thefinancial director Thefinancial controller Nobody Researching suppliers8.9% Agreeingrequired servicelevels3.6% Competitivetendering5.4% 0% 25% 50% 75% 100% Benchmarking current expenditure8.9% Processimprovement15.2% Allothers4.5% Postauditingand invoicevalidationof newsuppliers1.8% Retrospectiveauditfor billingerrorsandrefunds1.8% WHATISTHEBIGGESTBARRIERTOCOSTMANAGEMENTINYOURORGANISATION? Lackofunderstanding33% Organisational politics30.4% Unrealisticgoals18.8% Other,pleasespecify17.9% 60.4% 41.4% 28.8% 6.3% FindouthowAuditelcanhelpyour businesstoaccelerateperformance. Tel:08005833355 Email:heather.hancock@auditel.co.uk Website:www.auditel.co.uk
- 2. managementtoday.com managementtoday.com W hether the spectre of austerity continues to cast a chill or UK plc shifts through the gears into speedy recovery, strategic cost management will be a game-changer in many industry sectors for the next five to 10 years. Chief executives and finance directors don’t need a crys- tal ball to tell them revenues will be tougher to earn and margins will be challenged by hungry competitors. Yet, organisations that excel at managing their cost base will be best placed to convert savings into accelerated per- formance. Rather than knee-jerk cost-cutting, smarter organisations are learning to embed sustainable cost effi- ciency as they accelerate into the economic recovery. The discipline of cost management has evolved a great deal since the dark days of short-term cost-cutting, which often left organisations in a worse state than they had been in before. Within organisations that have tighter cost con- trols, the recession-fuelled cost-cutting exercises of recent years have offered a valuable opportunity to identify and execute cost efficiencies that should prove resilient in the faceofgrowth,anddeliverthemhighermarginsandgreater competitive advantage. Yet in other organisations, chief executives and finance directors are finding that many of the costs taken out dur- ing the recession are already starting to flood back into their business at a frightening pace. In fact, according to a KPMG survey, more than 95% of cost reductions achieved during the recession are expected to return in the short term – that equates to more than £90bn of costs across UK firms. So what differentiates those organisations that manage costs proactively and strategically from those that seem always on the back foot? According to recent research from Deloitte, some organisations fall into the trap of focusing cost manage- ment on the same business areas every year, even if they don’t deliver the savings they once did. Many, for example, have been stripping away layers of staff to reduce costs – with the result that experienced people with years of knowledge have been lost. But to help us discover how well cost management is understood and implemented, we conducted our own research via a survey of MT readers in association with Auditel. Through an online poll at managementtoday.com, the leaders of more than 100 organisations, in both private and public sectors, answered a series of questions that have helped us paint the following picture of priorities in the realm of cost management. THERESULTS While chief executives and finance directors often talk about managing costs strategically, our research suggests thatbothorganisationalpoliticsandalackofunderstanding among employees can act as significant barriers to effective implementation. Costmanagementgoals Almost half of respondents consider efficiency improve- ments and effectiveness to be the point of cost management measures. Almost a quarter view them as a means to simply ensuring financial survival. However, a third consider cost management measures in more positive terms, stating that for them, the main purpose is to accelerate performance or gain a competitive advantage over their rivals. Travel, transport and logistics have been the most com- mon areas of focus for previous cost management efforts, followed by human resources – an area of concentration for half of our survey respondents. Telecoms – fixed and mobile – are the next most likely area to come under cost manage- ment scrutiny. However, it’s managing the cost of human resources that respondents say is the biggest challenge facing their organi- sations. Property and premises costs are not far behind, with travel, transport, logistics and IT infrastructure also considered significant cost management challenges. Conversationpoints Given the recession, it’s not surprising that talk of cost management has been common everywhere in the organisa- tional hierarchy. It’s on the boardroom agenda of 82% of SPONSORED FEATURE respondents, and discussed on the shopfloor of 53% of businesses. But how directed is that talk? Only 30% of survey respondents were able, in their opinion, to describe the cost managementmeasuresintheirorganisationsasverystrategic. When respondents were asked to name the main approach to cost management at their organisation, by far the most common answer was identifying wastage and efficiency improvements. Streamlining the organisation is the second most popular approach, followed by process improvements. However, it seems that organisations have experience of usingavarietyofcostmanagementmethods,fromresearch- ing suppliers and benchmarking current expenditure to competitive tendering and service level agreements. Costmanagementchampions More than two thirds of respondents (67%) say they are engaged in a cost management programme. In 60% of organisations, it’s the CEO who champions cost manage- ment – alongside the FD (41%) or financial controller (28%). Rather worryingly, 6% of respondents said no one was championing cost management in their organisations. In 73% of companies, cost management measures are undertaken in-house. However, 23% of organisations use external resources to implement measures. Lack of understanding is, say respondents, the biggest obstacle to cost management in their organisations. But an almost similar proportion admits that organisational poli- tics hampers efforts to bring costs under better control. Close to one in five respondents point the finger at unrealis- tic goals as the biggest barrier. A third of respondents say they would seek the advice of a specialist consultant when considering more strategic cost management. Just over 28% would ask a management con- sulting firm, while the same percentage would seek the services of an accounting firm. MANYOF THECOSTS TAKENOUT DURINGTHE RECESSION ARE ALREADY STARTING TOFLOOD BACK ACCELERATEYOURPERFORMANCE Companies that are positive about cost management and see it as more than simply making savings are the ones that will be in pole position to take advantage of economic recovery, says IAN WYLIE WHATDOYOUCONSIDERTOBETHEMAINPURPOSEOFCOSTMANAGEMENT? Ensurefinancial survival22.3% Accelerate performance 11.6% Gaincompetitive advantage18.8% Improveefficiency& effectiveness47.3% WHATISTHEMAINAPPROACHADOPTEDBYYOURORGANISATIONTOCOSTMANAGEMENT? WHATARETHEBIGGESTCOSTMANAGEMENTCHALLENGESFACEDBYYOURORGANISATION? INYOURORGANISATION,WHO,IFANYONE,CHAMPIONSCOSTMANAGEMENT? TotalScore OverallRank Humanresources 798 1 Propertyandpremisescosts 718 2 Travel,transportandlogistics 627 3 ITinfrastructure 616 4 Finance,banking,insurances,tax 613 5 Capital 597 6 Utilities 499 7 Telecommunications,fixedandwireless 494 8 Facilitiesmanagement 469 9 Officesuppliesandservices 352 10 Thechief executive Thefinancial director Thefinancial controller Nobody Researching suppliers8.9% Agreeingrequired servicelevels3.6% Competitivetendering5.4% 0% 25% 50% 75% 100% Benchmarking current expenditure8.9% Processimprovement15.2% Allothers4.5% Postauditingand invoicevalidationof newsuppliers1.8% Retrospectiveauditfor billingerrorsandrefunds1.8% WHATISTHEBIGGESTBARRIERTOCOSTMANAGEMENTINYOURORGANISATION? Lackofunderstanding33% Organisational politics30.4% Unrealisticgoals18.8% Other,pleasespecify17.9% 60.4% 41.4% 28.8% 6.3% FindouthowAuditelcanhelpyour businesstoaccelerateperformance. Tel:08005833355 Email:heather.hancock@auditel.co.uk Website:www.auditel.co.uk LockData