Notwithstanding the economic downturn, a survey shows that more than 60 per cent of global business houses have no active cost cutting programs and a majority still do not view cost reduction as a priority.
"Although cost-consciousness has become a top priority during the last year, the majority of company efforts so far have been on tactical and temporary measures," consultancy firm Ernst & Young Partner Raju Lal said.
Sustainable cost reduction and optimisation need to become standard practice and be at the heart of any company’s business recovery agenda, he added. The survey further said that because of their complacency about cost reduction, global businesses are not ready for the eventual economic recovery.
The survey revealed that the more fundamental, radical steps to cost reduction have yet to be fully addressed. Only a third of companies are looking to achieve 20 per cent or more cost savings over the next 12-18 months.
A total of 561 senior executives were interviewed for the survey, which covered 11 industry sectors in 11 of some of the largest economies. As many as 46 per cent of respondents in the insurance sector said cost reduction as a means to securing economic survival, followed by 45 per cent of telecommunications and oil and gas, real estate (44 per cent), power and utility and banking (42 per cent).
The opportunities offered by innovative business models such as virtual worlds and the scope for environmental measures such as renewable energy play a role in cost reduction. Both can improve a company's reputation and its relationship with stakeholders.
"Companies that neglect these two issues may be storing up trouble for the future and missing significant cost reduction possibilities" the survey said. Lal further said that "cost reduction has to be considered as a fundamental business commitment. Companies’ focus now needs to move to beneficial cost optimisation.
"If companies treat it as a temporary and inconvenient phase, they risk losing out to more agile rivals. By recognising the competitive nature of the new commercial landscape, management can ensure their businesses survive and prosper," he added.
