We’ve seen why leaders with a clear vision connect innovation and strategic cost-cutting. In our economic environment, this becomes relevant for all companies, both incumbent and challengers.
At the top of the CEO’s agenda, we find over-regulation concerns (79%), geopolitical uncertainty (74%) and exchange rate volatility (73%), according to PWC’s 19th Annual Global CEO Survey. CEOs are not putting faith in global growth during these times of uncertainty.
In 2016, only 35% of CEOs believed that their own companies could grow during the year, as the figure below shows.
CEOs’ confidence in global economy and business growth prospects
This was the lowest percentage since 2010 and, as the political agenda unfolds, optimism has likely fallen again in 2017. Prospects for 2018 are just as cheerful.
Blind cost-cutting is never the answer
Political instability, North Korea-US tensions, terrorist acts across continents, the refugee crisis in Europe, the BRIC’s slowing economies, stock market volatility, the Brexit process… Frantic news is putting CEOs on guard.
In such an edgy environment, management is naturally driven to use cost-cutting to align costs with business strategy. Strategic cost-cutting becomes a path companies take to resist hardships, become resilient and prepare for more solid growth opportunities. It focuses efforts on business areas that can be controllable, freeing up resources for transformation and future growth.
All companies have encountered this reality in the last decade. However, blind cost-cutting, not aligned with strategy and sustainability concerns, may be dangerous. An arbitrary, opaque and misunderstood corporate cost-reduction policy will alarm employees and disengage them from business strategy and leadership’s main goals.
Cost-reduction programmes have time and again failed in the past. In its 2012 report, ‘Stop cutting and start optimizing IT spend’, KPMG says these initiatives flop due to unclear cost drivers, overly cautious cost strategies and the fact that cost discipline is not embedded in a company’s culture. Success depends on cost discipline as well as on changing behaviours.
So what should you change?
Where exactly should you cut? And how can you do it to make sure you move forward, finding new and better products and services and building a company fit for any future scenario?
To help you establish a strategic cost-cutting strategy within your innovation management initiative, we will share five major steps you can take to ensure that your business remains competitive, relevant and able to maximise its potential in the face of less favourable circumstances.