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Strategic cost management offers a radical approach to disrupting enterprise costs from the inside, a structural transformation powered by digital technologies. This is not status-quo cost reduction focused on doing the same things for less. It makes deliberate and durable changes to the business or operating model to sustain 20 to 50 percent in cost reductions to reinvest for growth.
Cost reduction is central to the role of the CFO and has contributed significantly to earnings growth over the last few years. But as CFOs pivot to growth, many risk leaving the cost flank exposed. Just six percent of CFOs say that cost management will be their top strategic priority in 2016. This is the case even though they expect costs to increase year over year from 2015 to 2017. Yet a flexible cost structure is essential to fuel profitable and sustainable growth.
What can CFOs do to harness opportunities and strengthen competitiveness?
Go beyond blind cost cutting. The more costs that CFOs can take out of the business now, the bigger the investments companies can make toward profitable growth—in product and service innovation, adopting digital technologies, improved productivity, better customer experiences, new market entry or other areas. By attacking costs comprehensively and strategically, CFOs afford companies a longer runway of financial viability to buy time for growth measures to work. Businesses also benefit from optionality in pricing, lower pricing without sacrificing profitability thanks to lower margins.
Do more than dabble in digital. Strategic cost management identifies and removes activities and processes that do not drive business value, sizes the business for remaining tasks, assigns the right people in a purpose-built organization to complete them, and tracks outcomes. It also enables companies to reinvest savings to drive growth. This happens better, faster and cheaper with digital technologies. Digital interventions are inherently less expensive to implement and natively allow for agile and iterative changes.
For those CFOs who are actively pursuing strategic cost management, mobility (54 percent) and moving technology to the cloud (52 percent) are their most common investments. In three years’ time, CFOs expect to make additional investments in robotics (44 percent) and big data analytics (40 percent) to support strategic cost management.
Get in the driver’s seat. Over the past decade, the CFO has moved from corporate bean counter to enterprise value architect. Consider that 75 percent of respondents to Accenture Strategy’s latest High Performance Finance Study say that the CFO’s role in strategic decision-making increased in the past two years. What’s more, 70 percent believe that the CFO’s leadership in driving business transformation initiatives is on the rise. By positioning themselves as catalysts for digitally-driven strategic cost management, CFOs can extend their role. The good news is that 56 percent of CFOs already have performance objectives in place that make them responsible for strategic cost management on a daily basis. The challenge now is to act on these expectations without delay.
Disruption demands that senior leaders challenge and stretch their own roles. Just as every company has a leader who owns the agenda for innovation for the outside around markets, channels, products and customers, someone must own innovation for the inside with strategic cost management. This is a natural fit for CFOs. It is a position of strength for them, a place where they can guide the business to compete to win. Both despite disruption— and because of it.
Aneel Delawalla is theManaging director, Accenture Strategy, CFO & Enterprise Value. For more information on Accenture Strategy’s CFO & Enterprise Value, please visit: https://www.accenture.com/us-en/main-cfo-enterprise-value-index.