In the midst of a brutal recession, companies think of little else than cutting costs. According to a new report by Archstone Consulting, however, they haven't been thinking enough. The firm's annual Cost Management Survey finds that 57 percent of respondents "have not yet identified sufficient savings opportunities to meet the cost-reduction targets necessitated by the dramatic economic decline in 2009." Last year's survey uncovered "a high rate of success" among organizations looking to cut costs, with an emphasis on achieving incremental savings, Archstone says. Now, with the economic crisis growing more dire, companies are deploying more complex initiatives, such as logistics redesign, shared services and asset rationalization. At the same time, they expect to make less use of such tactics as restructuring, overhead reduction, offshoring and changes in strategic sourcing.
"Our prior cost-management report concluded that 86 percent of companies surveyed said cost-reduction initiatives were an integral part of how they operate," says Archstone president and chief executive officer Todd Lavieri. "However, as companies face this new economic environment, they are relying less on traditional cost-reduction measures and are searching for more creative options." There is a need for more aggressive action in order to protect profits, he adds, with an emphasis on "savings opportunities that were left on the table in 2008."
In other words, executives might soon be cutting key processes to the bone. Other areas of potential savings include engineering, research and development and customer service, says David Wireman, principal and operations improvement practice leader with Archstone. Still, a number of obstacles stand in the way as companies seek to reach the next level of cost-reduction opportunities. According to survey respondents, they face implementation delays, a lack of resources to get the job done, the need for upfront investment to initiate cuts down the line, regulatory concerns, and the potential impact on quality and customer service. From an organizational standpoint, many companies continue to suffer from a lack of visibility across divisions and functions, inadequate analytical skills, competing priorities and the difficulty of tracking "soft" savings. From the latest survey, Archstone derives a number of lessons about how companies can meet cost-reduction targets. They include the need to increase accountability for implementing savings, improve program management capabilities, target near-term efforts, ensure financial planning and control, build structural improvements into a broader strategy, and improve talent management. The online survey incorporates responses from 50 executives in major industries.
