Whether it is to protect their business to help it survive, or to set it up to thrive in the future, the COVID-19 pandemic is forcing organisations of all shapes and sizes to find new ways to adapt – whilst minimising the impact on employees.
The European results from the 2020 Deloitte Global Cost Survey found that positive revenue growth outlook is down around 45 percent across industries. In turn, this is driving more companies to pursue cost transformation programmes. Relative to pre-pandemic levels, the likelihood of businesses pursuing cost reduction has increased to between 88 percent and 95 percent across industries. The percentage of respondents pursuing cost reduction targets greater than 10 percent has increased to 63 percent from 38 percent.
New ways of operating
The unexpected arrival of the pandemic has presented new challenges and opportunities for organisations. Those that have already completed a multi-year cost reduction programme will now need to make even bigger strategic choices.
The pandemic has also provided a unique opportunity for companies to test new technologies and operations quickly and build capabilities for the future. We have already seen some brilliant survival strategies, including traditional competitors teaming up, new relationships being formed between organisations in adjacent sectors, and B2B service organisations teaming up with retailers to directly access consumers.
But each sector has been impacted differently. Take the banking sector for example, where the prolonged low interest rates are depleting margins across the industry. Or the retail sector, where many high-street bricks and mortar stores have had to close, whilst the most resilient retailers have had to capitalise on their online capability. It’s clear that there is no one-size-fits-all approach.
Many organisations will soon reach a place where taking traditional cost reduction measures are no longer enough to solve the issues facing their businesses. But if they take the right steps to reshape their operating models, they will be able to not only respond to the short-term material cost pressures, but also position their businesses for long-term success.
Distribution models are one area that many organisations are now redesigning at speed, as a result of the change in consumer behaviour brought on by the pandemic. The pandemic has forced sectors to reimagine many parts of the distribution model and it has driven a pace of innovation that would have otherwise taken years to enact. Organisations are using cloud based technology to develop more efficient distribution models and create a more diverse workforce across wider geographies. As a result, the role of branches, stores and contact centres are all being reimagined.
Organisations are also investing in end-to-end digitisation by using modern technologies to reduce cost and increase flexibility. Although this requires significant investment, from our experience it results in a large contribution to the long-term cost reduction target, whilst providing an enhanced service to customers by enabling them to access all the services they need on one digital platform.
Alongside this, organisations – particularly those in retail and telecommunications, media and entertainment – are also focusing on digital channels. At a time when revenues through traditional channels have collapsed and the focus has been on offsetting costs – there has been a significant uptick of investment in digital channels and services to preserve trading volumes and exploit new opportunities.
Redesigning the workplace is another key area being explored by many organisations. In our research last year, 33 percent of the European respondents outsourced business processes to low cost service providers. However, many of these providers experienced issues as a result of the pandemic – such as not being able to adapt to remote working – meaning many organisations are re-assessing how they use them.
In parallel, with the majority of office-based employees working remotely full-time right now, organisations are looking to reinvent their use of office space to support hybrid ways of working. However, this doesn’t signal the end of the workplace, rather the evolution of it – providing choice and flexibility to employees.
Similarly, a number of organisations are focused on restructuring internally to align their teams to key customer journeys, adopting agile ways of working. This has been a multi-year initiative for many organisations, although few are yet to fully realise the value. Take the banking sector for example, where teams would work together on the customer journey of buying home. Together they could make rapid decisions and deliver a more efficient customer experience whilst also realising cost benefits.
Setting the right foundations for success
Regardless of the choices taken, without establishing the right conditions for success, a cost exercise will not meet its target. The cost programme needs to be a top priority with executives aligned and able to make quick decisions.
This is evident in the European results of our research last year which indicated that up to 83 percent of cost programmes fail. Strong leadership and governance and working together are required to deliver on a shared cost objective.
The pandemic has forced customers and organisations alike to embrace new ways of engaging, which has opened the door to new opportunities. You could say it has simply accelerated an inevitable process of digitisation and transition to flexible working that has been underway for quite some time.
Decisions that companies make today to address the cost challenge will have a major impact on their long-term competitiveness and performance. Winners are likely to be those organisations that have or are already investing in digitisation, make the strategic choices across key focus areas, and ensure the right conditions for success are in place to transform their cost bases. Organisations that invest and re-shape their businesses now will position themselves to thrive in the marketplace of the future.