Johannesburg – More than 70 percent of companies are missing their cost-cutting targets, Monitor Deloitte research shows.

This comes despite its survey indicating that more than 9 out of 10 companies plan on reducing expenses in the next 2 years,

“While local companies tended towards higher cost reduction targets, their failure rates were also higher,” the results of Monitor Deloitte’s first biennial Europe, Middle East and Africa cost survey, titled Thriving in Uncertainty shows.

It is the first time this survey has included South African information. According to the survey, two thirds of local companies planned to cut costs by more than 10 percent annually, but programme failure rates were higher than for other regions.

“Our research shows that South African companies are more likely to engage in narrow, tactical approaches to cost-saving, such as cutting down on external spend and streamlining business processes, but these are the very tactics that often result in implementation problems and an inability to achieve desired cost reduction objectives,” says Daryl Elliott, leader for strategic cost transformation at Deloitte Africa.

“Companies need to be more strategic about reducing costs, and examine their business and operating models to implement fundamental change. Ultimately, this leads to changes in their cost structure which are more sustainable and longer lasting.”

Globally, more than 80 percent of companies say they plan to take cost-cutting measures, with 57 percent of European companies and 58 percent of US companies reporting they were not able to meet their cost-cutting targets. This highlights the importance of cost management to companies worldwide.

South African respondents were most likely to say their approach to cost management was to take targeted actions in specific areas, with 59 percent reporting this. In addition, 45 percent of local respondents said they intensified existing productivity improvement programmes, which may indicate proactive cost management.

However, only 18 percent said they had conducted an enterprise-wide analysis of cost structure, followed by the deployment of a broad programme to restructure and manage the cost base across all operating companies and business units. This was markedly below the rate for other regions, with 32 percent of European companies, 49 percent of US companies, and 51 percent of Latin American companies choosing this strategy.

The data also found that South African respondents are optimistic for the next 24 months, with 90 percent projecting increased growth, but they were still planning to cut costs. However, 36 percent of companies expect below-inflation growth, against a backdrop of a sluggish economy with significant political and macro-economic risks.

Advertisements