Ethan Strassfield, Big4.com Staff Reporter

A recent survey by Ernst & Young stated how in spite of the recent recession, more than 60% of global companies do not have an active cost reduction strategy in place. The more alarming part is that over 25% of these companies do not intend to have such a plan in the near future while only 17% see continuous cost reduction plans as a priority. The Ernst & Young survey is titled ‘Save to Prosper: from cost reduction to cost optimization’.

“Our survey highlights that many businesses are dangerously complacent about cost reduction and are as a result not ready for the eventual economic recovery. Although cost-consciousness has become a top priority during the last year, the majority of company efforts so far have been on tactical and temporary measures, delivering no more than 10% cost reduction for most businesses. Sustainable cost reduction and optimization need to become standard practice and be at the heart of any company’s business recovery agenda”, said, Raju Lal, Partner at Ernst & Young.

The study revealed how only a third of the companies have planned ahead so that they can save 20% or more in the period of 12-18 months. The fundamental and important steps to cost reduction are yet to take place in full swing. The survey was conducted on a total of 561 senior executives, and covered 11 important business sectors of 11 major economies. Most have these businesses have stated the reason for cost reduction plan implementation as “to ensure survival”. This also means that once the goal of survival has been achieved, cost reduction will no longer be a priority.

The survey has highlighted other important factors like how companies give higher priority to expanding their base and market share over profitability. This is in contrast to smart cost optimization which would mean that companies cut down on customer base in order to have healthy margins and more beneficial business partnerships. The telecommunications and consumer goods industry achieved higher scores in the field of cost savings as compared to goods sold. 31% of consumer products companies achieved 11-20% savings target while 32% of telecommunications companies achieved 11-20% cost reduction target.

Lal added, “Cost reduction has to be considered as a fundamental business commitment. Companies’ focus now needs to move to beneficial cost optimization. If companies treat it as a temporary and inconvenient phase, they risk losing out to more agile rivals. By recognizing the competitive nature of the new commercial landscape, management can ensure their businesses survive and prosper.”