Thriving in uncertainty

Transcription

1 Thriving in uncertainty Global cost management insights and advanced cost reduction tools in the age of digital disruption 2 July 207

2 Presenters Omar Aguilar Principal, Deloitte Consulting LLP Global Leader, Strategic Cost Transformation Wendy Lai Partner, Deloitte Consulting SEA SEA Strategy & Operations Leader Omar is the Global Leader of the Strategic Cost Transformation service offering for Deloitte Consulting LLP, focused on supporting and serving multinationals and local clients across the globe. His areas of expertise include strategic cost transformation, margin improvement, restructuring, turnarounds, and business model transformations. Prior to his current role, he was the Americas Strategy & Operations Regional Leader. Omar has published widely on the topic of sustainable and scalable cost management, and has been quoted by or has written for Business Finance, The Journal of Cost Management, and The Wall Street Journal, among others. He is a frequent speaker and has been a guest lecturer at the University of Pennsylvania s Wharton School of Business, Stanford University s Graduate School of Business, and Carnegie Mellon s Tepper School of Business. He holds bachelor and master of science degrees in nuclear engineering from the University of Missouri-Rolla, and a master of business administration (MBA) from the University of Notre Dame. Wendy has built a career around improving an organisation s performance. These improvements have been the result of developing and implementing competitive strategies to increase market share, reduce costs and improve productivity. In today s world, this typically involves innovation, design and digital practices wrapped around data insights and a new operating culture. The ability to bring these threads that is reshaping the business world in practical bite-sized chunks is what Wendy is focused on. Her industry focus is in healthcare and financial services. Wendy also has held previous and current board appointments, including Deloitte (NZ), Counties Manukau Health (Deputy Chair and Chair of Audit and Finance), Te Papa The Museum of NZ (Chair of Audit and Finance), Avanti Finance and Ziera (Chair). These appointments have helped ensure she stays relevant to her clients pragmatic world and to bring cross industry experiences to solve complex problems. Wendy has worked in New Zealand, Australia, Asia and the United States. Copyright 207 Deloitte Development LLC. All rights reserved. Thriving in Uncertainty Deloitte s First Biennial Asia-Pacific Cost Survey 2

3 Agenda. Global Cost Surveys & APAC results 2. Singapore overview and cost survey insights 3. Choosing the right approach and advanced cost solutions 3

4 Deloitte has launched regional cost surveys over the past two years to understand executives perspectives on current and future cost management practices and trends Objectives Understand factors, approach, actions and targets of cost initiatives Assess the effectiveness of these cost actions including lessons learned from previous deployment Understand the drivers and the scope of future cost initiatives Criteria C-suite/CXO, Executive or Senior Management Annual revenue of US$ 50 million or more for companies in LATAM, EMEA & APAC, or US$.5 billion or more for US companies Positions involved in managing cost reduction initiatives Cost Survey Reports LATAM APAC April 206 June 206 October 206 July 207 September 207 USA EMEA Global 2 US survey is conducted on bi-annual basis since Planned date to release the Global cost survey report 4

5 % of Total Respondents Cost reduction programs have become a normal expectation globally Likelihood of Cost Reduction in Next 24 Months Globally, 86% of respondents plan to undertake cost reduction initiatives 86% 88% 96% 83% 2 76% 3% % 2 22% 5% 3% 2% % % 2% 2% Likely Neutral Unlikely Global Average USA LATAM EU APAC Survey Findings LATAM is the most likely region (96%) to undertake cost reductions actions APAC shows the lowest likelihood (76%) and at the same time the highest neutral position (22%) Deloitte Southeast Asia Ltd Southeast Asia CFO Vision 5

6 % of Total Respondents Although most programs seek targets less than 0%, failure rates are about two-thirds Annual Cost Reduction Targets Success in Meeting Cost Targets 48% 45% 58% 33% 42% Almost half of the organizations surveyed indicated relatively low cost reduction targets of less than 0%... 35% 35% 3% 29% 26% 24% 7% 3% 2 32% 33% 37% yet 63% of them are unable to meet their goals 42% 34% 43% 27% 63% 58% 67% 57% 3 72% % of Total Respondents Less than 0% 0% to 20% More than 20% Met or exceeded goals Did not meet goals USA LATAM EU APAC Global Average Survey Findings European programs focus mostly on targets less than 0% - could imply prevalence of no-structured cost programs Most aggressive programs are in USA and LATAM with a third of programs reporting targets higher than 20% 2 3 APAC failure rates are higher (72%) compared to the global average 63% 207 Deloitte Southeast Asia Ltd Southeast Asia CFO Vision 6

7 % of Total Respondents Organizations are optimistic about revenue growth and this may impact why and how cost management programs are approached Annual Revenue Over Past 24 Months Annual Revenue Growth Projections Over Next 24 Months 8% 74% 73% 75% 67% 8 % average growth rate expected over next 2 years 2 80% 85% 87% 76% 78% 7% 25% 7% 3% 9% 20% 2% 6% 2% 8% 0% 8% 6% 4% 3% 5% 9% 9% 9% 6% Increase Remained the Same Decreased Increase Remained the Same Decreased 2 Global Average USA LATAM EU APAC Survey Findings Global respondents reported more frequently (80%) an increase on revenue growth in the future vs 74% in the past APAC (78%) and EU (76%) indicate the least positive projections compared to the global average (80%) Notes: A negligible number of respondents answered I Don t Know and are excluded from the results 207 Deloitte Southeast Asia Ltd Southeast Asia CFO Vision 7

8 Strategic priorities are focused on cost and growth, reflecting a save-to-grow mentality Strategic Priority in Next 24 Months Top 3 strategic priorities: Save to Grow Mentality 65% 48% 5% 46% 49% 38% 42% 43% 40% 36% 35% 34% 36% 30% 28% 28% 3% 39% 9% 29% 24% 25% 34% 5% 20% 2 3 Sales Growth Product Profitability Cost Reduction Organization and Talent Balance Sheet Management Global Average USA LATAM 3 EU 2 APAC Survey Findings Top three priorities cited by respondents were sales growth (48%), product profitability (38%) and cost reduction (36%) European companies surveyed consistently responded less frequently to all priorities compared to other regions LATAM companies surveyed consistently responded more frequently to all priorities compared to other regions 207 Deloitte Southeast Asia Ltd Southeast Asia CFO Vision 8

9 Aligned to priorities, top drivers are offensive in nature and growth-oriented but five of seven drivers are defensive in nature reflecting market uncertainty Drivers of Cost Reduction Offensive Drivers - Related to growth - Defensive drivers 2 - Underlying the complex environment of uncertainty - 53% 57% 58% 53% 54% 5% 46% 46% 43% 36% 37% 39% 33% 34% 22% 34% 30% 32% 35% 34% 26% 26% 27% 29% 28% 30% 26% 23% 26% 20% 22% 2% 7% 2% 7% To gain competitive advantage over peer group Required investment in growth areas Performance of your international portfolio outside your region Changed regulatory structure Significant reduction in consumer demand Unfavorable cost position relative to peer group Global Average USA LATAM EU APAC Decrease in liquidity and tighter credit 3 Survey Findings Top two drivers relate to gaining competitive advantage (53%) and required investment in growth areas (46%). Five out of seven drivers of cost reduction are defensive in nature and reflect uncertainty 2 All drivers of cost reduction rated higher for APAC companies relatively to the global average Deloitte Southeast Asia Ltd Southeast Asia CFO Vision 9

10 Companies are using diverse approaches but implementation is the top barrier Approaches to Manage Costs Over the Past 24 Months Diverse approaches are reported on similar rates with the exception of ZBB which rates much lower than any other approach with only 5% global average 56% 62% 6% 62% 50% 52% 53% 52% 5% 48% 49% 5% 59% 47% 43% 45% 52% 43% 32% 3% Targeted actions taken to reduce costs in a few divisions, business units, functions, or geographies Intensify existing productivity improvement programs Conduct an enterprise-wide analysis of cost structure followed by the deployment of a broad program to restructure Barriers to Effective Cost Management Drive all divisions, business units and corporate functions to reduce a fixed percent of their costs 5% 6% 5% 20% 7% Conduct zero-based budgeting efforts Challenges in implementing initiatives is significantly higher than all other barriers with 53% average globally, reflecting a transition towards technical vs. non-technical barriers 53% 55% 60% 49% 48% 38% 36% 4% 42% 32% 27% 26% 26% 33% 23% 24% 26% 26% 29% 20% 24% 23% 27% 28% 7% Challenges in implementing initiatives Copyright 207 Deloitte Development LLC. All rights reserved. Lack of understanding Weak business case Poor design and tracking Erosion of savings Global Average USA LATAM EU APAC Thriving in Uncertainty Deloitte s First Biennial Asia-Pacific Cost Survey 0

11 As expected, most lessons learned reported globally are also related to implementation Lessons Learned - Past 24 Months 5 out of 7 lessons learned are related to implementation challenges 55% 56% 47% 46% 48% 46% 45% 46% 39% 37% 32% 23% 25% 7% 20% 27% 27% 6% 8% 9% 5% 2% 3% 5% % % 9% % 0% 6% 2% 5% 8% 3% 7% Implementation strategy Change management Goals and objectives Budget management Continuous improvement Poor design and tracking Communication Global Average USA LATAM EU APAC Survey Findings 2 Top lessons learned reported more frequently are (47%) Implementation Strategy and (46%) Change Management APAC ranked much higher in Goal and Objectives as a lesson learned (32%) relative to the global average (23%) Copyright 207 Deloitte Development LLC. All rights reserved. Thriving in Uncertainty Deloitte s First Biennial Asia-Pacific Cost Survey

12 Likely actions are focused on tactical rather than strategic cost management efforts Cost Actions Viewed as Most Likely in Next 24 Months Strategic: Less likely Tactical: More likely Streamlining business processes is viewed as the most likely cost action (cited by 45% globally) 2 Avg: 33% 43% 45% 45% 37% 32% 36% 37% 38% 38% 40% 35% 29% 30% 30% 3% 34% 33% 36% 32% 36% 25% 27% 30% 26% 28% 55% 46% 46% 42% 42% 45% 45% 42% 36% 32% Avg: 40% Change business configuration Outsource/Off-shore business processes Increase centralization Streamline organization structure Improve policy compliance Reduce external spend Global Average USA LATAM EU APAC Streamline business processes 2 Indicates average response rates within either the strategic or tactical categories Survey Findings 33% of respondents plan to undertake a strategic cost action vs. 40% that plan to undertake a tactical cost action The least frequently mentioned cost action is strategic: Outsourcing / off-shoring business processes (30%) Copyright 207 Deloitte Development LLC. All rights reserved. Thriving in Uncertainty Deloitte s First Biennial Asia-Pacific Cost Survey 2

13 Agenda. Global Cost Surveys & APAC results 2. Singapore overview and cost survey insights 3. Choosing the right approach and advanced cost solutions 207 Deloitte Southeast Asia Ltd Southeast Asia CFO Vision 3

14 Singapore was more closely aligned with the APAC average than any other APAC country surveyed Copyright 207 Deloitte Development LLC. All rights reserved. Thriving in Uncertainty Deloitte s First Biennial Asia-Pacific Cost Survey 4

15 % of Total Respondents Singapore companies are significantly more likely than their APAC peers to undertake cost reduction (90% vs 76%) Likelihood of Cost Reduction in Next 24 Months Singapore companies are some of the most likely organizations to undertake cost reduction compared to the Global and Regional averages 86% 76% 90% 22% 3% 0% 2% 2% 0% Likely Neutral Unlikely Copyright 207 Deloitte Development LLC. All rights reserved. Global Average APAC Average Singapore Thriving in Uncertainty Deloitte s First Biennial Asia-Pacific Cost Survey 5

16 % of Total Respondents Cost reduction targets in Singapore are higher compared to APAC but success rates are low and consistent with APAC and Globally. Annual Cost Reduction Targets Success in Meeting Cost Targets 47% of respondents pursue goals of 0-20% Only 30% of respondents met or exceeded their goals 45% 48% 43% 47% 3% 35% 24% 7% 0% 37% 28% 30% 63% 72% 70% % of Total Respondents Less than 0% 0%-20% More than 20% Met or exceeded goals Did not meet goals Singapore APAC Average Global Average Copyright 207 Deloitte Development LLC. All rights reserved. Thriving in Uncertainty Deloitte s First Biennial Asia-Pacific Cost Survey 6

17 % of Total Respondents Revenue growth in Singapore over the past 24 months was much less than the APAC average (53% vs 75% for APAC). However, future expectations for growth are very closely aligned Annual Revenue Over Past 24 Months Annual Revenue Growth Projections Over Next 24 Months Percentage of Singapore organizations reporting decreased revenues is far higher than AP average Future growth expectations are consistent with APAC average 74% 75% 53% 40% 77% 78% 80% % of Total Respondents 7% 6% 7% 9% 8% % % 0% 0% % % 7% 6% 8% 7% 5% 0% Increase Remained the same Decreased Don t' Know Don t' Know Decrease Remain the Same Increase Global average APAC Average Singapore Copyright 207 Deloitte Development LLC. All rights reserved. Thriving in Uncertainty Deloitte s First Biennial Asia-Pacific Cost Survey 7

18 % of Respondents Enterprise-wide analysis is the top approach being adopted to manage costs, although challenges to implementing the initiatives and lack of understanding may pose barriers Approaches to Manage Costs Over the Past 24 Months Barriers to Effective Cost Management Most preferred approach by Singapore companies Lack of understanding is cited much more frequently for Singapore companies than regional average 62% 6% 59% 60% 57% 53% 56% 50% 48% 57% 52% 43% 20% 5% 7% 63% 60% 53% 42% 38% 60% 37% 33% 27% 29% 28% 24% 24% 23% 20% % of Respondents Intensify existing productivity improvement programs Targeted actions taken to reduce costs in a few divisions, business units, functions, or geographies Conduct an enterprise-wide analysis of cost structure followed by the deployment of a broad program Drive all divisions, business units and corporate functions to reduce a fixed percent of their costs Conduct zerobased budgeting efforts Challenges in implementing initiatives Lack of Weak business understanding case Poor design and tracking Erosion of savings Copyright 207 Deloitte Development LLC. All rights reserved. Thriving in Uncertainty Deloitte s First Biennial Asia-Pacific Cost Survey 8

19 % of Respondents Not surprisingly, the top lesson learned mentioned in Singapore is change management Lessons Learned - Past 24 Months Change management is by far (75%) the most frequent lesson learned mentioned by Singapore companies 73% 47% 46% 39% 40% 46% 23% 32% 37% 7% 7% 6% 8% 5% 3% 2% 5% 3% 0% 7% 0% Implementation strategy Change management Goals and objectives Budget management Continuous improvement Poor design and tracking Communication Global Average APAC Singapore Copyright 207 Deloitte Development LLC. All rights reserved. Thriving in Uncertainty Deloitte s First Biennial Asia-Pacific Cost Survey 9

20 # of Respondents Companies here have fairly balanced expectations when it comes to strategic vs cost actions. However, the most likely future action - 'streamlining business processes (57%) is tactical Cost Actions Viewed as Most Likely in Next 24 Months Strategic Tactical The most likely strategic cost action for Singaporean companies is outsource/offshore business processes Streamline business processes is the most frequently cited cost action (57%) and Improve policy compliance the least by far 53% 57% 42% 46% 43% 43% 45% 45% 32% 36% 38% 42% 46% 45% 40% 37% 37% 40% 40% 40% 35% 37% 30% 30% 20% Change business configuration Outsource/Offshore business processes Increase centralization Streamline organization structure Improve policy compliance Reduce external spend Streamline business processes Global Average APAC Average Singapore Indicates APAC average response rates within either the strategic or tactical categories Indicates Singapore average response rates within either the strategic or tactical categories Copyright 207 Deloitte Development LLC. All rights reserved. Thriving in Uncertainty Deloitte s First Biennial Asia-Pacific Cost Survey 20

21 Agenda. Global Cost Surveys & APAC results 2. Singapore overview and cost survey insights 3. Choosing the right approach and advanced cost solutions 2

22 High failure rates suggest that cost programs in APAC and globally are not that effective, creating an opportunity for companies to significantly improve how they manage costs 48% of APAC respondents have cost targets of less than 0%. 46% of APAC respondents plan to undertake tactical cost actions. Japanese and Australian companies rate the highest for targets below 0% (74% and 50% respectively). 47% of APAC respondents have cost targets of more than 0%. 42% of APAC respondents plan to undertake strategic cost actions. Indian and Chinese companies rate the highest for targets above 0% (74% and 72% respectively). Currently, these are the types of approaches many APAC respondents are pursuing 0% <0% Cost Target >0% but the environment suggests many APAC companies should pursue these approaches Tactical / Continuous Improvement Approach Strategic / Transformational Approach Scope / Cost Areas Cost Target Range Sustainability / Scalability Change Management Needs Narrow / selective (e.g., streamline organization structure, improve policy compliance, reduce external spend, streamline business processes) <6% (Continuous Improvement) / 6% - 0% (Tactical) Lower Lower Broad (e.g., change business configuration, outsource/offshore, increase centralization) >0% Higher Higher 22

23 Traditionally, companies in pursuit of strategic cost improvements have fallen into one of three categories: () distressed, (2) positioned for growth, or (3) growing steadily Traditional cost management scenarios. Distressed 2. Positioned for Growth 3. Growing Steadily Losing market share Recovering from recession Healthy balance sheet Competitive situation Structural operating flaws Liquidity concerns Adjusting to demand levels Growth concerns Excess cash flow / reserves High growth potential No clear growth options Conditional options for growth Unconstrained options Priority balance Low focus G T C L Low focus L T G C Low focus L C G T High focus High focus G Growth T Talent C Cost L Liquidity High focus Primary objectives Conserve cash Renegotiate costs Restructure debt Downscale business model Transform operating model Optimize business processes Right-size FTE structure Fuel growth through savings (capital efficiency) Focus on investment and M&A Optimize and align customer and product portfolios Focus on efficient execution and delivery 23

24 However, a new competitive situation may be arising called thriving in uncertainty that sits between distressed and positioned for growth New. Distressed Thriving in Uncertainty 2. Positioned for Growth 3. Growing Steadily If conditions continue deteriorating organizations might end distressed And they would need to focus on certain value creation levers Low focus T L? JP Here to stay? AU HK? SG IN CN If economic volatility continues in the shortterm and growth is stable but slow, then organizations might remain in this new scenario called Thriving in Uncertainty G Value creation levers on which to focus Low focus C? If economic variables change and sustainable and fast-paced growth emerges, organizations could position as Positioned for Growth or Growing Steadily L T C G Revenue Margin Pricing Realization Direct Cost Optimization Marketing & Sales Effectiveness SG&A Cost Management Customer Experience and Channel Mix Supply Chain and Manufacturing Effectiveness High focus Product Portfolio Innovation & Rationalization Service Delivery Execution Revenue Margin Pricing Realization Direct Cost Optimization Marketing & Sales Effectiveness SG&A Cost Management Customer Experience and Channel Mix Supply Chain and Manufacturing Effectiveness High focus Product Portfolio Innovation & Rationalization Service Delivery Execution Assets Working Capital Optimization Inventory Optimization Capital Investment and Divestment Debt Restructuring Assets Working Capital Optimization Inventory Optimization Capital Investment and Divestment Debt Restructuring Executio n Governance & Change Organization & Talent Business Performance Management Risk, Compliance and Regulatory Execution Governance & Change Organization & Talent Business Performance Management Risk, Compliance and Regulatory Strategy Mergers and Acquisitions Business Portfolio Optimization Partnership & Collaboration Tax Strategy Strategy Mergers and Acquisitions Business Portfolio Optimization Partnership & Collaboration Tax Strategy Legend Indicates levers that Deloitte identified as potential focus areas G T L C Growth Talent Cost Liquidity 24

25 Although digital disruption is still not widely recognized globally, exponential technologies are already pointing to some clear trends related to enterprise efficiency and cost reduction... Digital disruption importance as external risk % of respondents 9% zz Exponentials Exponential trends that are fueled by recent digitization of a number of technology and organizational areas. Two main areas of digital innovation to improve margins and competiveness Automation 7% 6% 2% Digital Disruption % Global Average US EU APAC LATAM Artificial Intelligence Robotics Biotechnology & Bioinformatics Energy & Environmental Systems Digital Manufacturing & Nanotechnology Before Revolutionizing physical production of goods Now Revolutionizing knowledge-based, labor-intensive processes Analytics and cognitive technology Source: Deloitte Regional Cost Survey Reports The vast majority of companies are just starting to recognize the potentially disruptive impact of digital technologies Computation, Networks & Sensors Incentive Competitions Digital Medicine Analytics and big data to uncover hidden insights and predictive decision-making Digital Economies 25

26 The journey towards advanced cost solutions is just emerging but will accelerate and first converge around automation and cognitive technologies / analytics 980s - Present Traditional Cost Management: Cost Categories & Processes Present Structural Cost Management: Operating Models & Governance 207+ Advanced Cost Management: Digital Cost Solutions Maximizing Traditional Cost Levers Focus on cost categories Continuous improvement Process re-engineering Alternative Operating Models Separation of G&A and ops/commercial models Globalized operating model Globalized governance Analytics and Cognitive Solutions Cognitive solutions to increase effectiveness Cognitive technologies to supplement labor Traditional External Spend Reduction Levers Indirect and direct sourcing More effective supply chain integration Introduction of CPO Alternative Service Delivery Models and Demand Management Global/regional/local delivery GBS/alternative-sourcing Demand Management and policies as cost levers Automation RPA to increase efficiency and eliminate labor RCA to increase effectiveness and supplement labor Maturity: Low High 26

27 Advanced cost solutions are already becoming a common experience but are mostly being applied discretely Cost Levers Traditional Approach Deloitte s Advanced Cost Solutions Cost SG&A / COGS Analysis Robotics RPA/RCA Next Gen Outsourcing & Service Delivery Spans & Layers Cognitive Spend Direct & Indirect Sourcing Digital Supply Chain Process X Ray Cloud solutions Growth Pricing analysis Polaris: Insight-driven revenue management (pricing & promotions) Liquidity Inventory / Working capital Analysis Inveritas : Inventory Optimization and Working Capital People Change management Strategic capability model and mapping Cognitive or advance solutions Tool / Accelerator 27

28 Although digital cost solutions are currently being applied discretely, their use will grow rapidly in the future with oftentimes unexpected and/or strategic implications Cost solutions: Current state and potential Maturity Cost reduction potential Time to results 980 to Present Traditional Cost Management: Cost Categories & Processes Maximizing Traditional Cost Levers Traditional External Spend Reduction Levers + $ Years (Base 207) 2008 to Present Structural Cost Management: Operating Models & Governance Alternative Operating Models Alternative Service Delivery Models and Demand Management + $ - - Years Years (Base 207) 207+ Advanced Cost Management: Digital Cost Solutions Analytics and Cognitive Solutions Automation + $ Years (Base 207) Maturity: Low High 28

29 Digital cost innovations and solutions will migrate from a tactical to a strategic impact by converging on platform-based innovation 0 TYPES OF INNOVATION: Current Digital Innovation Impact SOURCE IMPACT FOCUS RESULTS Tactical Product efficiency and customer engagement innovation Maturing Exponential Technologies applied internally by companies Cost reduction potential 0-20% Platform based innovation Product based innovation Customer experience based innovation Future Digital Innovation Impact SOURCE IMPACT FOCUS RESULTS Externally driven by FCost reduction Focus on innovation of platforms market disruptors or Strategic potential and business operating models disruptive M&A 30% Cognitive and automation technologies will eventually converge to disrupt whole sectors and industries from external market disruptors or eventually organically 29

30 Summary Global cost management findings Strategic priorities are focused on cost and growth ( save-to-grow ) Focus on cost management is ubiquitous and mostly tactical Failure rates and implementation barriers are consistently high APAC cost management outlook APAC countries show high disparity in cost positioning China and India have most intense focus on cost management Failure rates are consistently high and programs mostly have tactical focus Singapore cost management insights Revenue growth expectations are more positive than the past Higher likelihood of local companies to undertake cost reduction Unlike other areas, both implementation and change management are barriers Digital solutions With the exception of the US, digital disruption is not seen as a risk Cognitive technologies and automation will impact future cost solutions Disruptors will not only come from external disruptors but will start emerging from established competitors by disrupting operating models digitally 30

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