New BCG Survey of 770 CEOs, CFOs, and COOs from
Europe, the Middle East, and South Africa Highlights Need
for More Companies to Adopt a Strategic Approach to Cost
Optimization
BOSTON, Nov. 18,
2024 /PRNewswire/ -- Inflation, increased
barriers to trade, and relatively low global growth are among the
factors currently placing tremendous pressure on business leaders
and forcing firms to review and re-evaluate their costs to stay
competitive and innovate. Despite these high stakes, only 48% of
companies on average achieve their cost savings targets. Further,
only 35% of executives report that their organizations' approach to
cost is strategic and planned, while the remaining 65% admit that
their most recent cost-optimization program was an ad-hoc response
to changing market conditions.
These are among the findings of a new report being published
today by Boston Consulting Group (BCG). Titled Leading
Edge: How Pioneering Companies Achieve Cost Excellence, it is
informed by a survey of 770 CEOs, CFOs, and COOs from 21 countries
across Europe, the Middle East, and including South Africa that BCG conducted with FT
Longitude. The respondents represent companies from various
industries, with annual revenues ranging from $100 million to more than $100 billion.
About 20% of the organizations in the survey are identified as
"cost optimization pioneers" that outperform other organizations on
operational and cost improvement goals. These are companies that
meet most, or all, of their process and productivity improvement
targets and at least 60% of their cost savings targets. A critical
factor in their success is their early adoption of AI. In this
group, 56% already consider AI to be an integral or significant
contributor to cost competitiveness in the short term, and 70% of
cost leaders say AI will become integral to operational efficiency
within five years.
Overall, 93% of the surveyed companies are currently using AI to
reach their cost optimization goals—or intend to do so within the
next 18 months. In the short term, it is used tactically to create
immediate cost savings and productivity improvements. As AI
advances, executives expect it to play an even greater role: 50%
expect it to become integral to their cost strategy within three to
five years, and a further 44% expect the technology to contribute
significantly to their achievement of cost goals.
One of the ways that cost optimization pioneers manage the cost
optimization process differently from other organizations is by
embracing an "always-on" approach that enables them to create an
overarching cost-focused company culture. The survey highlights
that organizations that treat cost optimization as an ongoing,
"always-on" process achieve, on average, 62% of their savings
targets, compared with just 43% for companies with time-limited
one-off programs. Further, 85% of always-on programs hit most, or
all, of their process improvement targets, while for periodic
programs it's only 74%. When it comes to productivity the
difference is even more stark: 89% compared with just 69%.
"Our client work suggests that a more holistic approach enables
companies to tackle deep-rooted, structural cost factors that can
only be solved with long-term commitment," said Paul Goydan, a managing director and senior
partner at BCG, and global lead for the firm's cost and efficiency
offer. "These always-on businesses, which position themselves to
optimize cost structures in boom times as well as in times of
crisis, also outperform the rest on criteria including investor
value, competitive position, and financial risk exposure. Other
organizations have a lot to learn from them."
The report stresses the importance of the roles that effective
change management and strong, committed leadership play in
determining the success or failure of a company's cost optimization
program. For 62% of the companies surveyed, cost transformation
translates into new skills requirements. And increased adoption of
AI makes skills shortcomings even more likely: 70% of CEOs, COOs,
and CFOs said that automation of processes and workflows has
created skills gaps in the workforce.
Among the cost optimization pioneers, 82% said that leadership
communicates from the top down—with the CEO taking center stage--in
order to embed cost awareness into everyday operations, compared
with just 37% of underperforming businesses. The pioneers use
executive-led town halls effectively, and they make sure that
managers model cost-conscious behavior.
"Don't underestimate the people aspect of any cost optimization
journey. We see leaders naturally facing a lot of resistance
because change is hard. To unlock progress, co-create a 'North
Star' with the leadership team and embed change management from the
start," said Mai-Britt Poulsen, a
managing director and senior partner at BCG. "How do you know when
a transformation is understood? It's when the North Star is not
just agreed upon in the boardroom, but also lives on the front
line—from the shop floor all the way through to customer-facing
teams."
Download the publication here:
https://www.bcg.com/publications/2024/achieving-cost-excellence
Media Contact:
Eric
Gregoire
gregoire.eric@bcg.com
About Boston Consulting Group
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SOURCE Boston Consulting Group (BCG)