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Cost Optimization Targets

Cost Optimization Targets by ERA

Regardless of a business’ long-term ambition, the vast majority of companies will need to turn towards cost optimization. A substantial cost reduction strategy can provide stable foundations on which offensive and defensive strategies can be effectively actioned. Therefore, it’s no surprise that cost reduction is not only becoming more popular but also more ambitious which is a big reason people join ERA.

According to Deloitte’s latest Global Cost Survey, two thirds of major European companies plan to undertake cost reduction initiatives over the next 24 months. Only 10% said that cost-saving strategies were unlikely to take place over the coming years. These figures are despite 83% of European businesses surveyed expecting their revenues to increase during the same period. Regardless of a business’ outlook, cost reduction remains a popular choice when it comes to ensuring the long-term profit potential of a company.

What perhaps is more interesting, however, is the recent shifts in targets being set for CFOs. According to the survey, two-thirds of European businesses have cost reduction targets of over 10%, while one-third have ambitions for a reduction of 20% or more. Deloitte notes that, since 2017, a 21% nominal increase has occurred in the number of surveyed European businesses with cost-saving ambitions over 20%.

Such an aggressive increase in demand for cost savings is likely to be fueled by growing concerns across a number of areas. The most significant external risks being digital, which has grown in importance and will continue to do so throughout this uncertain period.

Cyber security (58%) and digital disruption (62%) were two of the most commonly cited external risks by European businesses. Over a quarter of European companies also stated that the reliability of their systems was an internal risk, more than any other response. This need to prepare for the future is perhaps why 70% of European businesses stated technological implementation as their primary strategic priority going forward.

Beyond digital, the other main concern for the average European business is the unpredictable macro-economic outlook. Nearly two thirds of European companies surveyed cited commodity price fluctuations as a key external risk for their company going forward. Furthermore, 57% also cited the political climate and potential currency fluctuations as external risks.

The Deloitte survey shows that there is a wide range of external risks that are forcing more businesses to consider cost optimization as a priority. Over half of European respondents, for example, cited new market entrants as a risk that is guiding their current business strategies. While there are many clear reasons why cost reduction strategies should be considered during these times, for some companies, the issue may be more self-centered, focused on industry trends or current company procedures.

Despite the wide range of potential reasons, it is clear that the vast majority of businesses are swayed by the continuing political and economic uncertainty into considering cost-saving initiatives. More than that, recent events have increased the scope for these activities, with CFOs becoming more ambitious than ever.

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