Australian businesses have enjoyed a solid trajectory of earnings growth over the last decade, so there wasn’t acute pressure to optimize the cost structure. However, given the economic climate, the managerial agenda has now pivoted to focus on cost reduction and productivity to be able to fuel growth, which is why Australia’s top 20 companies from the ASX 200 have referenced cost reduction initiatives as an area of focus over the last two years.
Accenture Strategy research across 700 executives found that most businesses have made cost reduction and growth a priority, but the critical link between cost reduction and growth strategy is broken.
To position for long-term growth, focused cost reduction strategies will need to be put in place to fuel the necessary earnings growth.
Accenture Strategy’s research identifies several issues on the journey to creating fuel for growth and competitiveness.
Weak execution dilutes fuel for growth. Only 23 percent say they have optimized their process for identifying and removing business activities and investments that do not add value.
Leadership is missing the mark on sources of growth and misaligned on where to invest. Only 36 percent of the C-suite believes their reinvestment priorities are aligned to the business strategy—and only 25 percent of VPs do.
Operating models don‘t flex for cost reduction—or for growth. Only one-fourth of companies surveyed have a flexible operating model that can adapt to consistently deliver on strategy and execute activities that drive value for the organization.
Digital is the direction. Accenture found that 54 percent of executives cite digital technologies as the most common direction for reinvesting cost savings.
Executing cost reduction strategies to fuel growth is challenging, but it has to happen for a business to be competitive. Here are three actions companies need to take:
1. Organize for growth
Know where growth is coming from and define your long-term growth strategy. Cost reduction activities and decisions on where to reinvest savings need to be aligned.
2. Manage the growth journey
Align leaders on the path forward to achieving cost management and delivering on growth objectives.
3. Digitize to fuel sustainable growth
Commit to building digital capabilities and digitizing traditional processes to achieve unprecedented speed, scale and savings.
Managing Director – Accenture Strategy, Australia, New Zealand and South Korea