Sustainably reducing costs continues to dominate executives’ agendas. It is reasonable, however, to say that cost reduction is often a reaction to a specific market or managerial need, rather than a planned intervention. This is borne out by the relatively low maturity in optimising cost and investment in many sectors, despite years of cost cutting.
Our research into how effectively companies are managing costs reveals there is a significant variation across sectors – with great potential for some at the bottom end of the scale to improve. Our global ‘Cost-out maturity’ report analyses 70 organisations through surveying senior executives and our internal experts to build up a clear picture of what it takes to achieve cost-out maturity.
Looking at organisations that are best at implementing cost-out it becomes clear that they orchestrate and apply key interventions. We call these the ‘six dimensions of cost-out maturity’; strategy, organisation and governance, process, tools, competencies and skills, cost-out approaches. An organisation’s maturity depends on how well they perform in these dimensions.
|A||Strategy||Company-wide cost-out vision integrating target setting and reward|
|B||Organisation & Governance||Cross-functional cost-out unit and fully empowered programme leaders|
|C||Processes||Total cost optimisation and end-to-end cost models for integrated processes|
|D||Tools||Portfolio management based on cost-benefit analysis, and tracking|
|E||Competencies & Skills||Defined training roadmap for growing operational excellence|
|F||Approaches||Defined baseline and cost-out methods for cross-sector benchmarking|
From our experience developing and delivering business cases with clients, we have identified indicative potential savings for nine sectors – automotive, consumer products, defence, energy and utilities, government, industrial engineering, IT/telecommunications, life sciences, transport. These savings are based on organisations’ ability to achieve cost-out maturity and the resulting benefits.
Some sectors are more mature than others, partly in response to sustained margin erosion. Strikingly, the top 25% – referred to as ‘Cost-out maturity’ leaders in our report – hugely outperform the rest. When looking at this group in more detail, it becomes clear they address cost reduction through a joined up, programmatic series of interventions.
There is no single sector that scores the best across all six dimensions. Rather, there are ‘sweet spots’ for different sectors and therefore opportunities for organisations to learn from within and outside their sector. When we delve deeper into the data, the strongest scores across all industries are in competencies and tools. This suggests that the core cost-out knowledge and methods are there. However, the biggest gaps between the cost-out maturity leaders and the worst performing organisations are in strategy and governance. This suggests executive ownership of the cost-out agenda plays a significant role in driving maturity.
To see how various sectors are performing across the dimensions, click on specific sector within the interactive dashboard below.
We know that the cost-out maturity leaders identified have not achieved their success through inspiration or divine intervention, but rather strong attention to detail and a clear-eyed assessment of their own cost performance compared to their peers and the rest of the market.
Building this knowledge base and benchmarking performance systematically is a great place to start, and we work with organisations cross-industry to do this. For many organisations, we run a diagnostic process looking at each of the six dimensions and help them assess where they are today and where they need to be to outperform their rivals. The identification of these cost-out maturity gaps is the foundation for the delivery of a tailored performance improvement programme.