The never-ending cost squeeze: Benchmarking vs. gut reactions
By Richard Roth - August 09, 2010
Yes, the economy is showing signs of life, but we’re seeing executives worldwide still searching for ways to close cost gaps. “It seems like I’ve cut costs as much as I possibly can, but am I missing something?” “What are my competitors doing that I’m not?” “Is there any more excess I can squeeze out that won’t hurt our ability to rebound fast?”
These concerns are especially understandable in the high-tech industry. The global downturn hit high-tech executives hard, and on top of that, we’re seeing a fundamental shift from businesses to consumers as drivers of new growth and competition. More users, more client devices and an expanded cloud infrastructure to serve them are leading to an increased focus on communications and mobile products.
This shift is changing the global high-tech landscape and creating operational challenges—market expansion, higher volumes, faster product introductions, etc.—that directly affect finance organizations. As the high-tech industry comes out of the downturn, we believe cost containment remains the most important factor for improving margins.
Using our latest benchmarking data on finance function performance – specific to global high-tech companies – Deloitte’s Global Benchmarking Center identified performance gaps and areas that show the most promise for cost improvement.
According to our study, we identified $8.8 million per billion in revenue in potential cost-improvement opportunities, with much of the savings possibilities in process costs—labor and outsourcing. Examining those process costs further, the study shows a cost gap of $7.9 million per billion in revenue, with 33 percent of this opportunity in labor and outsourcing costs in the transaction processing function. Download our executive summary for additional insights.
OK, so now what? Gaps like these point to significant potential for cost reductions, not only for short-term relief during this economic downturn, but also for the long-term process efficiencies needed to jump start growth upon recovery. By comparing their organization’s performance against industry-specific measures like these, executives worldwide can get the help they need to make fast, effective decisions based on relevant, objective information—not anecdotal experience or gut reactions. The answer isn’t always to be best in class; rather, the goal should be to find the position that makes the most sense for the organization’s overall business strategy.
A good first step? Download our 2010 Finance Book of Metrics for Technology. Then think about where your opportunities could be hiding.
Feel free to share your insights on benchmarking. Have you ever participated in a study? If so, did you get the insights you expected?
Rick Roth is a principal in the Strategy and Operations (S&O) Practice in Atlanta, and the U.S. Leader for the firm’s Global Benchmarking Center (GBC).
As used in this post, “Deloitte” means Deloitte Consulting LLP, a subsidiary of Deloitte LLP. Please see about Deloitte for a detailed description of the legal structure of Deloitte LLP and its subsidiaries.