www.pwc.co.uk/consulting Reducing cost Create savings that last Looking at cost differently The recession shows no sign of ending soon. Growth is still stagnant, and traditional methods of cost cutting like reducing headcount and support functions are failing to improve profit margins. Companies must take a fresh look to tackle the cost agenda. Challenging management to change We believe organisations must move beyond tactically cutting costs. To stop costs creeping back in, you have to start by changing ingrained management beliefs. Once management is on board you can focus on what to do to bring the most savings. Then through the right structural changes across your organisational and operating model, you will be on course to deliver longer-lasting savings, ready for when the market picks up. So how do you do it? We start by working with your executive team to create the right leadership model, and management beliefs to guide your organisation. Once management is clear of what can be achieved and how everyone will be rewarded, you’ll have a much easier task ahead to really tackle reducing cost in your organisation. Are you seeing the high cost of bad behaviours? • How difficult is it to unpick organisational complexity built up during periods of growth? • To what degree does a lack of transparency prevent you from seeing the true costs in your business? • Are you focusing on the most significant and difficult opportunities, beyond the obvious? • How much are politics, vested interests and behaviours impeding objectivity and decision-making? • Does your organisation have the right skills and experience to make a step change in its cost structure? 83% of UK CEOs plan to implement a cost reduction initiative in the next 12 months PwC CEO Survey 2013 Figure 1: Make significant and sustainable savings Strategic Restructure costs g ty in ili as ab s e n cr i g In sta vin su f sa o Create efficiencies Do different 20%+ Do with less savings Type of savings 15-20% Cut costs savings Do better 10-15% Do without savings 5-10% Tactical savings Embed cost control capabilities and behaviours 3-6 months 6-12 months Time to realise savings 12-18 months+ Right approach: Many organisations limit their focus to ‘doing without’ and ‘doing better’ by only addressing the most visible costs and efficiencies. The next step is to make more significant and sustainable savings by focusing on ‘doing with less’ and ‘doing things differently’. That means a more strategic approach to reducing infrastructure and restructuring the cost base (see figure 1). Right ideas: Look at the largest components of business costs – with the greatest potential for savings – typically property, third party spend, IT, staff costs and tax charges. These form part of our playbook (a catalogue of over 50 ways) to reduce costs – each with tried and tested savings ideas. Right behaviours: To deliver these changes, set up an office of cost control. From our experience, this can make all the difference to the success of your programme. It creates and embeds new capabilities that will deliver a lasting change in your organisation’s behaviour to make sure you get the costs out and keep them out. The benefits to you Significant benefits are to be gained by taking a strategic approach to cost reduction: • Up to 25 – 40% reduction in the cost base maintained for the long term. • A new and flexible operating model and organisation structure better able to respond to new market realities. • A restructured cost base, aligned to the new operating model and sized to support the future shape of the business. • A cost conscious mindset, amongst all your people, driven by new skills and behaviours, resulting in ongoing improvements. • Recognition from external stakeholders for savings achieved which can be independently verified and realised at a P&L level. • Self-funded programme by making savings early on. “The PwC team have been outstanding – we could not have realised the scale of benefits we had without their support.” Executive sponsor, COO, FTSE100 client Client success stories £175m savings for global manufacturer Our client faced growing market pressure to reduce costs. With Board sponsorship, we helped identify over £175m savings across the whole enterprise including engineering, manufacturing, maintenance and support functions. We developed the case for change and options for the board to release sustainable savings as improvements to the operating model. 30% drop in cost base for global investment bank Under significant pressure from regulators, this failing bank had to strategically realign their cost base. To deliver the scale of savings required, we worked with the bank to review the operational, commercial and technical dependencies globally. We helped to redesign IT infrastructure and datacentre hosting 126 critical applications. As a result, we delivered a 80% drop in application and infrastructure support costs and sustained savings of 60% in restructured market data feeds. Contacts Chris Samson +44 (0) 7718 865185 chris.samson@uk.pwc.com www.pwc.co.uk/consulting This publication has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication, and, to the extent permitted by law, PricewaterhouseCoopers LLP, its members, employees and agents do not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it. © 2013 PricewaterhouseCoopers LLP. All rights reserved. In this document, “PwC” refers to the UK member firm, and may sometimes refer to the PwC network. 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