Companies Now Using Digital Disruption to Transform, not Merely Cut Costs: Deloitte Survey

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As digital technologies continue to affect how businesses evolve, the related risks and opportunities are pushing companies to expand their cost management strategies, according to Deloitte’s recently released second global cost survey.

The study, “Save-to-Transform as a Catalyst for Embracing Digital Disruption,” explains that although traditional cost-reduction methods remain important, many organizations are also investing aggressively in digital technologies that they believe can enhance operating efficiency and cost savings while improving overall performance and competitiveness.

Deloitte’s 2017 study said many businesses relied on the “save-to-grow” philosophy when digitally transforming, but the 2019 study sees businesses adopting the latest technology to fundamentally transform their operations.

“Companies in all regions continue to have very positive expectations for revenue growth, and many are using cost reduction as a tool to help fund their required growth investments,” executives Omar Aguilar and Jason Girzadas state in the study. “However, in today’s increasingly digital world, more and more businesses also recognize the need to transform their operations and capabilities with infrastructure investments in key digital innovations such as robotic process automation (RPA), cognitive technologies, business intelligence and cloud-based ERP systems.”

According to the 2019 survey, which gathered insights from more than 1,200 global executives and business leaders, 71% of business leaders plan to implement cost-reduction initiatives during the next two years.

And 68% of business leaders and executives reported total reductions of 10% or higher, and about 31% are targeting cost improvement above 20%.

At the same time, 81% of executives report being unable to meet their cost reduction goals during the past year, a number that is about 18 percentage points higher than in 2017 that leaders cite as a result of implementation challenges, lack of effective systems and infeasible targets, said Deloitte, which provides audit, consulting, tax and advisory services to brands worldwide.

Currently, digital disruption and cybersecurity rank as leading external risks, the survey revealed. Demonstrating the significant role technology is playing in shaping cost management strategies, digital disruption has risen to the top of the list as the biggest external risk, according to 61% of survey respondents, up from just 6% in 2017.

Cybersecurity was the only technology-related risk to surpass the perceived threat of digital disruption, Deloitte explains. Internally, reliability and functionality of information systems was also suggested as a top risk.

“In today’s highly dynamic and competitive landscape, digital disruption is changing how companies view every aspect of their business, including cost management practices,” said Aguilar, principal and global strategic cost transformation leader, Deloitte Consulting LLP. “Deloitte’s study shows that businesses are now recognizing they must save to transform, using investments in digital infrastructure to drive dramatic improvements in future performance, efficiency and market position.”

Sales growth, product profitability and technology implementation remain in a three-way tie as the primary strategic priorities during the next two years, Deloitte said, adding that the emphasis on technology implementation is indicative of a new transformation mindset for cost management.

Throughout the next 24 months, the top three drivers for cost management globally are expected to be required investment in growth areas, intensified competition among peer group and increased international growth opportunities, Deloitte found.

Deloitte notes that digital risks are causing organizations to use cost-reduction methods to fund technological transformations. Globally, the survey found that the use of artificial intelligence (AI) and machine learning is expected to more than double from 25% to 63%.

Survey respondents also indicated that growth is expected to jump for automation — from 25% to 62% — and for business intelligence — from 35% to 59%. Cloud technology remains the most widely implemented digital technology covered by the survey at 49%. Cloud software is expected to remain popular due to its ability to tighten data security, as well as to reduce costs and enhance productivity, Deloitte found.

Although executives report that revenue growth is on the rise, companies are remaining cautious. The survey also found that companies are well-positioned to undergo digital transformation, with 86% of respondents reporting increased revenue throughout the past two years.

“This optimistic outlook continues into the future, with the same number of respondents expecting revenue growth over the next 24 months as businesses around the world enjoy one of the longest periods of economic expansion in history,” Deloitte said in the study.

However, forward-thinking organizations are still taking a cautionary stance.

“Economic patterns are cyclical, and potential warning signs are starting to emerge,” Deloitte said.

The survey reveals a 97% increase in global respondents who are concerned about macroeconomic risk throughout the next two years, with a 20% increase in U.S. respondents who are expecting a significant decrease in consumer demand during the same time period.

Cost reduction has evolved throughout the years to serve as a key tool to help businesses fund necessary growth investments. However, many companies are now using digital cost solutions and infrastructure improvements to bolster their efficiency.

“The 2019 study shows that companies have an enormous opportunity to capitalize on current economic strengths and leverage cost management practices to transform and innovate their businesses,” said Girzadas, managing principal, Consulting, Deloitte Global. “Our mission at Deloitte is to help organizations around the world implement these transformations and make their businesses more efficient and more successful, now and in the future.”

Aguilar added that most management practices and approaches have grown increasingly sophisticated over time, and digital solutions currently represent the most advanced level of cost management.

“By harnessing the power of digital technology to streamline their cost structures and generate cost savings, companies can take full advantage of the latest digital innovations — becoming the disrupters, rather than the disrupted,” Aguilar said.

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