Reducing costs remains at the top of South West businesses’ agendas for 2012, according to KPMG’s Succeeding in a Changing World Business Leaders Survey.
The survey asked 617 business leaders in the UK to identify the most important issues facing their business in 2012. 45 per cent said the need to change business operations to realise cost efficiencies was a key challenge for them in the year ahead, a sentiment which is reflected in the South West says KPMG.
David Clarke, Restructuring Director at KPMG Bristol, said: “After the shock of the credit crunch, most businesses made a concerted effort to reduce costs. Many have made good inroads and secured initial savings. However, most of the management teams we talk to in the South West are disappointed with the results of their cost saving programmes and are struggling to secure and maintain savings in more challenging areas.”
“Key reasons for the under delivery of cost saving programmes include the reversal of temporary initiatives (such as reductions in staff hours or shifts), and failing to achieve the behavioural or operational change needed to embed cost saving initiatives.
“Often, cost reductions have been made in response to sudden and significant financial stress. However, against the backdrop of sustained and continued economic uncertainty, many businesses have needed to fundamentally change their strategy. We have seen many cases where cost bases have not been realigned to the current strategy – rather, the cost base relates to strategies in place at the onset of the recession. Management teams risk stunting recovery and growth prospects by having excessive costs in inappropriate areas, whilst under investing in areas vital for delivery of the current strategy.”
Clarke recommends businesses take the following steps:
1) Have a robust business strategy appropriate for today’s market place, and clearly articulate it within the business.
2) Assess your cost base in the context of your current strategy, accepting that you may need to spend more in some areas to create and support growth.
3) Develop a plan for managing, transforming and optimising your cost base with clear milestones and allocation of responsibilities. This must be sustainable – don’t be tempted by “slash and burn” initiatives.
4) Concentrate on the controllable. Spend time and effort on a small number of initiatives that deal with costs that you can actually control and that will deliver a material benefit.
Clarke continued: “We all need to accept that we are facing a completely different economic landscape and that the markets most businesses operate in have fundamentally changed. Business strategies need to be updated to recognise this, and cost bases need to be aligned to the new strategies. Making cost bases ‘fit for today’ is challenging, often requiring fundamental change within an organisation. However, if done correctly, it will deliver sustainable benefits and provide a stable platform for growth.”
