Creating Value in a Downturn

If sales and winning new work and clients are tough, remember cost is one thing you can control. So constantly striving to optimise your cost base is crucial.

The need to control costs can range from businesses looking to maximise productivity and revenue per fee earner to organisations experiencing financial stress that need to take costs out rapidly to survive.

When KPMG commissioned the Economist Intelligence Unit (EIU) to investigate corporate attitudes to cost cutting, it found that almost two-thirds of companies set themselves cost-reduction targets as low as three percent. Yet, shockingly, only eight percent manage to achieve or exceed such dismally low expectations. In the last decade as profits and revenues have continuously risen, companies, and partnerships have increasingly lost control of costs.

The KPMG survival guide
We have developed a broad-ranging cost optimisation practice to help address these critical issues across an enterprise's entire cost base. Rather than bringing in a team of generalists, KPMG applies deep knowledge to help address the areas that impact costs. This can include experienced professionals in procurement, tax, debt financing, and process improvement.

So what are the lessons from KPMG's survival guide?

1. Get visibility, quickly: you cannot make the right decisions on cost unless you know what is going on in your business. Being able to make robust forecasting and scenario analysis is a key priority. Understand potential scenarios and your contingencies for responding to them.
2. Understand your key stakeholders: in today's environment, you have to understand the viability of your key clients and suppliers. How are you managing your counterparty risk? What happens if one of your key clients goes out of business? How is the relationship with your banks, your pension fund trustees, insurers, or your partners...?
3. Know what is possible with your costs: Get a clear fix on what drives cost in your business and understand what cost can be taken out of the business. Use comparator and other analysis to evaluate whether you are being as thorough as you can be.
4. Rapidly bank your 'quick wins' - but don't panic and 'slash and burn', panic destroys value. As you evaluate your cost base, move swiftly to remove waste but don't use cost avoidance as a substitute for achieving lasting, wholesale efficiencies. Be very careful about removing costs that are close to your client - losing sales and fee opportunities can more than cover any gains made from cost savings.
5. Be bold, think holistically and go for agility: if you want to achieve cost leadership think about how your organisation could do business in a more agile, efficient way. Think innovatively about delivery - can you outsource or joint venture part of your value chain? What about off-shoring, management de-layering or even joint venturing with your competition to save costs in certain areas? The appetite of your competitors to collaborate may be very different now compared to only a year ago.
6. Create a culture around 'caring about cost': management teams are beginning to realise that taking out £1 of cost can be equal to generating £9 of new fees and are prioritising their attention accordingly. The challenge of delivering a low cost business model demands a new focus on cost from the board down. Cost is the route to long term value creation and survival.
7. Worry about cash as well as cost: in the current market where cash is king, understanding the cash dynamics of spend can be as important as the impact on the bottom line. Make cash a key component of your cost optimisation approach.
8. Make it clear who is responsible for cost - lead from the top: truly optimising costs requires relentless, ongoing focus and determination. Given the size and scale of the challenge ahead, organisations can not afford to have any confusion about roles and responsibilities. Initiatives need to be led from the top and should not be delegated down.

So what next?
There is clearly a lot to do - but it doesn't all have to be done at once. Get visibility, understand your stakeholders and bank the quick wins, then take the time to plan and execute the longer term options brilliantly.