While the respondents reported a high rate of success in cost reductions last year, companies are drastically shifting cost reduction tactics as they search for incremental savings. The survey found that in 2009, companies are turning increasingly to the use of more complex initiatives, such as logistics redesign (+11%), shared services (+9%) and asset rationalization (+9%), in order to realize their cost savings goals this year. Furthermore, respondents of the survey expect a decreased use of discreet tactics including restructuring (-11%), overhead cost reduction (-6%), off-shoring (-5%), and strategic sourcing (-4%).
"Our prior cost management report concluded that 86 percent of companies surveyed said cost reduction initiatives were an integral part of how they operate. However, as companies face this new economic environment, they are relying less on traditional cost reduction measures and are searching for more creative options," said Todd Lavieri, President and CEO of Archstone Consulting. "Companies today have to act very aggressively to protect their profits - they need to review their previous cost reduction plans and reexamine the savings opportunities that were left on the table in 2008."
David Wireman, Principal and Operations Improvement Practice Leader at Archstone Consulting added, "Respondents reported they will also be looking to reduce Engineering, Research and Development and Customer Service costs, areas that have traditionally been left untouched by cost reduction efforts, indicating the pressure companies feel to find every possible cost reduction opportunity this year."
Further Opportunities for 2009
- As companies strive to step up their cost reduction efforts and tap into hidden pools of cost in 2009, many companies are seeking to find the next level of cost reduction opportunities. Survey respondents identified the following challenges that prohibited companies from realizing their 2008 goals. These challenges, when addressed, represent unrealized, untouched and unrecognized opportunities for 2009:
- Implementation delays and a lack of resources.
- Upfront investment requirements, regulatory implications, risk to quality or customer service, and potential revenue impact.
- A lack of cross-divisional and cross-functional visibility, divided focus, and the lack of bandwidth and analytical capability, as well as difficulty in tracking “soft” savings.
What Does It All Mean?
As a result of the study, Archstone Consulting concluded that successful companies are rapidly responding to cost and cash pressures with aggressive internal "SWAT" teams. "Companies are quickly mobilizing internal teams to initiate fast, sustainable cost reduction and working capital improvement programs to help maintain or improve profitability for this year and beyond," said Mr. Wireman. "They are consciously searching for hidden cost reduction opportunities by tackling areas typically considered out-of-bounds in the past and they are trying to capture planned but unrealized savings from past efforts."
Archstone also identified the top lessons companies can learn from this study about successfully achieving cost reduction targets:
- Increase accountability for successfully completing initiatives and achieving the anticipated results
- Improve program management capabilities
- Target near term efforts
- Ensure financial planning and control
- Incorporate structural improvements into broader strategy
- Improve talent management and review
