Top Management Survey
COST MANAGEMENT
SUPPORTS PROFIT,
GROWTH AND BUSINESS
EXPANSION
Barometer Cost Management 2016
CONTENT
02
Content | Imprint
03
Foreword EBS & Expense Reduction Analysts
04
Executive Summary
05
Barometer Cost Management
06
Saving Potentials and Reinvestments
09
Low Interest Rates, Cheap Fossil Resources and Political Uncertainties
10Methodology
11
Literature | Graphics
IMPRINT
E R Associates (Europe) Ltd
Malling, Kent, ME19 4YU, U.K.
www.expensereduction.com
Authors:
Elena Freisinger
Thomas Löwer
Christoph Schneider
Layout:
okapidesign.com
Pictures:
shutterstock
Copyright:
Expense Reduction Analysts GmbH
Fee:
390 EUR
02
FOREWORD
EBS Universität für Wirtschaft und Recht
Expense Reduction Analysts
For companies to survive economically in a dynamic
environment a key factor is to be able to react to new
market conditions quickly and
efficiently. In order to do so,
companies need not only to
identify opportunities but also
to have the financial resources
to act. With a comprehensive
cost management these resources can be generated and
the savings achieved reinvested in the in further business development.
Profit is driven by cost savings. This is one of the main results of this survey conducted among 281 European companies. Successful companies
in particular use this financial
extra to improve their situation
and make it more sustainable vs.
competition. Thus the top 25%
of companies invest up to 46%
more in the expansion of their
business and up to 34% more in
research & development and marketing & sales than the
bottom 25% of companies.
This edition of the “Barometer Cost Management” conducted in cooperation with Expense Reduction Analysts
deals mostly with exogenous factors such as historically
low interest rate policies driven by the ECB, low costs
for fossil resources and political uncertainties such as
the British vote to leave the European Union. With 281
companies from 10 European countries taking part in
this survey, the picture of the economical situation for
European companies shown in the results is pretty accurate. The main result: neither the stimulated interest
rates, nor the political uncertainties or the fallen prices
for gas, steel and energy have an effect on mid- or longterm planning.
The fact that pro-active cost management is an ongoing topic for financial decision- makers is made obvious
by the volatility of the success. Nearly 3 out of 4 decision-makers report that the effect of cost management
activities fades within 3 years. Here companies need to
create structures – maybe with some external support
– to be able to maintain the cost advantages in the longterm.
The results of this report also show that companies have
managed to achieve 4.6% of cost savings based on
their annual turnover. However these cost management
programmes are only effective on the short to medium
term. The savings themselves are mostly used for the
optimisation of existing structures or to increase profit rather than for investments in the future. Companies
expect to find most savings in the categories of mobility
management, supply chain and telecommunications/IT.
We are curious to see if these savings can be identified
and secured over the coming years.
We hope that this survey provides you with some valuable insight.
There is however still a long way to go until then, as
shown by the significant drop of the Barometer Cost
Management index. Whilst companies see cost management as an important subject, many have yet to catch up
to embed the topic in the corporate culture and to use
the right tools and develop relevant KPIs.
The study shows however that companies from Spain
and Portugal are the exception, with far more efforts
to work cost efficiently than in the rest of Europe. But
the study also shows that these activities are a matter of
survival for companies from Portugal and Spain as they
are the ones that struggle most to increase their capital. The fact that companies use most of the savings to
increase their profits means that money is not reinvested – at least not for the moment. Although – thanks to
the ECB – cheap money is available, this has no impact
on the investment strategy of the companies surveyed.
Only companies from Italy use the funds to invest more
in sales and marketing.
I hope you will find useful points in this study for your
daily work.
Prof. Dr. Ronald Gleich
Fred Marfleet
03
EXECUTIVE SUMMARY
Profit driven by cost savings
The majority of the companies use the savings achieved
to increase their profit margin. The top 25%
of companies invest the savings achieved
up to 46% more in the expansion of their
business and up to 34% more in research
& development and marketing & sales and less to increase their profit.
Largest saving potentials in Mobility Management
Companies expect to find the biggest savings in mobility management (travel expenses & fleet
management). Significant savings may also
be identified in the categories of supply
chain and telecommunications/IT.
Cost savings have short- and medium-term effects
In 73% of the companies the effect of cost saving activities has faded within 3 years. Companies
need to put more emphasis on the introduction of a more cost-effective corporate
culture, in the identification of the most
useful KPIs and in the use of tailored tools to ensure
the long-term success of cost management activities.
Companies do not use low interest rates to invest
more
Also historically low interest rates make
money more available, companies have
neither changed their investment strategies
nor increased the share of credit-financed
investments. Only very few companies, mostly from Italy, report that they took advantage of the low interest
rates to increase their share of borrowed capital.
Based on their annual turnover, companies generate 4.6% additional financial resources from
cost-saving programmes
Around a quarter of the companies could
even save more than 6% with cost reduction programmes, with the most successful
companies from Benelux, Germany, Austria
and Switzerland and those from Spain, Portugal – in
spite of all the efforts undertaken in cost management
– and Italy generating the lowest percentage of cost
savings.
Commodities have only little influence on achieved
savings
Though the prices for commodities such as steel, energy and plastics have fallen over the last
years, this did not play a major role for
companies. These expenses are rather seen
in an industry benchmark than stand-alone
savings. On a positive note – the low prices for fossil resources do not have an influence on companies’ plans
to invest in renewable sources.
The index of the Barometer Cost Management
has fallen
The index of the barometer cost management has fallen by 2.5 points in comparison
with 2014. Whilst companies from Spain
and Portugal are the best placed in terms of
cost management, Italian companies have the highest
rate of catching-up to do.
Companies take a healthy distance with current
political development
In spite of current developments like the
British vote to leave the European Union,
the refugee situation, the armed conflict in
the Ukraine and the European embargo on
Russia, companies do not change their plans. Changes
are seen as opportunities as well as risks.
04
BAROMETER COST MANAGEMENT
Index Barometer Cost Management has declined
65,4
66,0
Graphic. 01, B
arometer Cost
Management
The index of the Barometer Cost Management has fallen in comparison with the
last survey conducted in 2014. Compared to 2014 the index has lost 2.5 points.
(Graphic 01). The survey shows clearly that companies understand and highlight the importance of the pro-active management of expenses as it is actively
embedded both in the strategy and in the organisation. However companies
lack the necessary KPIs, culture and tools for implementation.
Graphic. 02, B
arometer Cost Management – Individual Dimensions
69.1
63.0
65.4
62.9
65.5
61.0
60.8
62.9
55.2
2012
2014
2016
Strategy Organisation Information
Tools
Culture
Barometer
Countries from Spain and Portugal put most emphasis on cost management, Italian companies the least
70.3%
56.9%
At country level companies from Spain and Portugal clearly stand out with the
strongest emphasis on cost management activities (index 70.3) whereas Italian
companies (56.9) have the lowest index level. This is most likely to reflect the
effort of Spanish and Portuguese companies to increase their international competitiveness.
05
SAVING POTENTIALS AND REINVESTMENTS
Largest saving potentials are seen in Mobility Management –
Downsizing not seen as an opportunity to reduce costs sustainably
Over a fifth of companies see Mobility Management as an area where savings of
more than 10% could be achieved. Savings are also expected in the categories
of telecommunication/IT-costs and in the supply chain. Companies do not see
staff cutbacks as an option to reduce their expenses sustainably.
Graphic 03, Estimated Saving Potentials in Expense Areas
Cost Categories with Highest Savings Potential
Mobility Management (vehicle fleet & travel)
Supply Chain
Telecommunication / IT
Facility Management
Energy
Marketing
C-Parts
Staff / HR
Commodities (e.g. steel, plastics …)
Banking services
0%
© Expense Reduction Analysts
20%
0-5%
40%
6-10%
60%
11-15%
80%
16-20%
100%
>20%
Based on their annual turnover companies are making 4.6% additional
financial resources
On average companies have achieved 4.6% savings based on their annual turnover through the implementation of cost management programmes. (Graphic 04).
Graphic 04, Savings as Percentage of Turnover Achieved through Cost Reduction Programmes
Savings as Percentage of Turnover (categorial)
0-2%
40.6
3-5%
32.7
6-10%
>10%
19.2
7.5
Savings as Percentage of Turnover by Country
Benelux
6.6
DACH
5.9
Scandinavia
4.5
Italy
Iberian peninsula
© Expense Reduction Analysts
06
4.3
4
Country-specific use of savings
It has to be noted that in spite of their cost savings efforts (index BCM), companies from Spain and Portugal achieve the lowest savings (4.0). This could be an
indication that the Spanish and Portuguese companies have already collected
most of the savings available and that it becomes more difficult to identify and
achieve further savings. In contrast, Italian companies could certainly achieve
much higher savings if more emphasis was put on cost management activities.
A quarter of the companies invests more than 6% of their turnover
The savings achieved through cost management activities are very much in line
with the investments made by European companies. Whilst companies achieve
on average savings of 4.6% based on their annual turnover, there is almost
a quarter of them to devote 6% or more of their revenues for investments –
whereas the European average is 4.5%.
Graphic 05, Investments pro Rate of Annual Turnover
Percentage of Companies in %
0-2%
48.8
3-5%
24.9
6-10%
17.4
>10%
8.9
© Expense Reduction Analysts
Achieved savings generate extra profit
Companies that achieve savings through cost management programmes use on
average 20% of those savings to increase their profit margins. The additional
financial scope is also used to increase the sales activities (12.5%), for new machinery and equipment (11.8) and to recruit on train employees (11.5%).
In comparison the top 25% of companies – based on indicators like annual profit growth and client satisfaction – are using their cost savings 46% more to expand their businesses and 34% more for research & development and marketing
& sales than the bottom 25%. However the top performing companies use less
of their savings to improve their current bottom line.
Graphic 06, Investments Addressed with Savings
20.5%
Profit Increase
12.5%
Marketing / Sales
Machinery / Equipment
11.8%
Capital Building
11.7%
11.5%
Staff / HR
Expansion of Business Field
9.6%
Research & Development (R&D)
9.1%
Conversion to Industry 4.0
Mergers & Acquisitions
Licences & Patents
© Expense Reduction Analysts
4.0%
3.9%
3.1%
07
Companies from Spain and Portugal struggle to stock up capital
43%
20%
14%
The importance of cost management activities for companies from Spain and
Portugal becomes clear as companies from both countries have difficulties to
stock up their capital being 43% below European average. In contrast, Italian
companies clearly focus on increasing sales and are investing 14% more of the
savings achieved than the European companies on average. The low level of
re-investments in R&D for companies in the DACH is worrying as they invest
20% less in this area than the rest of Europe.
The effect of Cost Management Programmes lasts a maximum of 3 years
The effect of cost management activities is rather short to medium term (Graphic 07).
3 out of 4 companies report that the effect of cost management activities fades
after 3 years at most. In Europe, companies from Benelux, Portugal and Spain
obtain the longest benefits from cost management activities. The important
thing is to use the right tools to anchor cost management activities in the corporate culture whilst continually keeping an eye on long-term success.
Graphic 07, Sustainability of Savings
Savings as Percentage of Turnover
35.2
31.6
18.0
9.2
6.0
< 1 year
08
1-2 years
2-3 years
3-4 years
> 4 years
LOW INTEREST RATES, CHEAP FOSSIL RESOURCES
AND POLITICAL UNCERTAINTIES
Brexit and other external factor have little influence
The current British vote to leave the European Union and other external factors such as the refugee situation in Europe, the armed conflict in the Ukraine
and the European embargo on Russia have very little impact on the companies’
strategic planning (Graphic 08). Most companies see opportunities as well as
risks in the current changing environment. The majority of companies do not
find this changed environment to have an impact on their medium to long-term
business planning. Similarly, only a minority of companies have to adjust their
medium to long-term planning significantly due to these external factors.
Graphic 08, Impacts of Changed Circumstances on Company Planning
Not true
In perspective, the changed circumstances primarily mean a risk for our company.
True
51
20
44
In perspective, the changed circumstances primarily mean a chance for our company.
18
The medium- and long-term corporate planning are adapted significantly due to the changed circumstances. 57
17
35
The medium- and long-term corporate planning are hardly influenced by the changed circumstances.
42
© Expense Reduction Analysts
Low interest rates have no impact on companies investment behaviour
The low interest rates policy driven by the ECB has little effect on the investment
behaviour of European companies. (Graphic 09). Although cheap money is available, companies do not use credit-based investments more than in previous
years. As earlier studies have shown, only 12% of the investment capital needed
is acquired from credit-based sources whereas 22% come through cost management activities. Furthermore, companies did not adjust their investment plans
and prioritise investments because of cheap money available. The assumption
that accessing these credits has been made more restrictive because of the
introduction of the Basel III regulations is rejected by 71% of companies.
Graphic 09, Consequences of Low Interests
Not true
True
The period of low interest rates has led to a stronger focus on debt financing in our company in the past year.
64
17
In general, the share of debt in overall financing has increased in our company.
64
18
The “cheap money” from the period of low interest rates has led to investments being
brought forward in the past year.
The uncertainty in the financial market in recent years has led us to increasingly invest with equity.
70
65
Due to legal requirements such as Basel III it has become more difficult for our company to get cheap credits. 71
10
15
10
© Expense Reduction Analysts
09
Italian companies use the low interest rates to increase borrowing
30%
122%
In comparison with other countries, the low interest rates are specifically attractive to Italian companies who increasingly use them to obtain external financing
and carry their investments forward by 30% more than in other countries. At
the same time, the restrictions of the Basel III regulations have made it harder
for Italian companies – 122% above European average – in particular to obtain
favourable loans.
Commodity prices have little effect on general cost savings
Just like for the low interest rates, the favourable prices of fossil fuels have little
impact on companies’ strategies (Graphic 10). Though the low commodity prices
could generate savings – to a manageable extend – these additional funds are
not much used in investment projects but rather in profit improvement initiatives. The current situation of the world market has little impact on companies to
rethink their commitments towards renewable energies – only 8% of them say
to be influenced by that situation.
Graphic 10, Consequences of Cheap Resources
Not true
Our costs strongly decreased due to the dropped resource prices.
True
56
The willingness to invest in renewable energies has decreased in our company.
19
62
The savings made thanks to cheap resource costs have led
to investments being brought forward last year.
71
Due to the revenue problems of mining companies and/or the shrinking
markets in oil-countries, the number of orders received has decreased.
70
8
5
14
© Expense Reduction Analysts
METHODOLOGY
Between April 7th and July 20th 2016 281 decision makers from 10 European countries were surveyed in a standardised online questionnaire. Among the participating companies SMEs are the largest group with 75.8% having up to 500 employees. 87.9% of participants are from senior management positions or heads
of departments.
Graphic. 11, Sample Characteristic
Position (in %)
Team Leader
Management Assistant
1.1
Employee (specialist) 2.9 2.9
Department
5.1
Head of
Department
Other
32.6
55.3
10
Member of the Board /
CEO / Chairman
LITERATURE
Deloitte (2016): Thriving in uncertainty. Deloitte’s
fourth biennial cost survey: Cost improvement practices
and trends in the Fortune 1000.
Deutsche Bundesbank (2012): Long-term developments in corporate financing in Germany – evidence
based on the financial accounts. Monthly Report,
January 2012, Frankfurt/Main.
Deutsche Bank Research (2016): The ECB must
change course, Frankfurt/Main.
European Central Bank (2016): Statistical Data Warehouse. Accessible via: https://www.ecb.europa.eu/
stats/html/index.en.html
Expense Reduction Analysts GmbH/EBS Business
School (2011): Nachhaltigkeit von Reduktionsprozessen im Gemeinkostenbereich – Studie zur Umsetzung
von Kostenreduktionsprogrammen und Nutzung der
eingesparten Potenziale, Köln/Oestrich-Winkel.
Expense Reduction Analysts GmbH/EBS Business
School (2012): Barometer Kostenmanagement 2012.
Studie zur Kosteneffizienz im Unternehmen und deren
Erfolgsfaktoren. Köln/Oestrich-Winkel.
Expense Reduction Analysts GmbH/EBS Business
School (2013): Barometer Cost Management 2013. Cost
Management in Times of Crisis, Köln/Oestrich-Winkel.
Expense Reduction Analysts GmbH/EBS Business
School (2014): Barometer Cost Management 2014.
Financing Investments and Growth, Köln/Oestrich-Winkel.
Franz, Klaus-Peter/Kajüter, Peter (Hrsg., 2002):
Kostenmanagement – Wertsteigerung durch systematische Kostensteuerung, 2. Auflage, Schäffer-Poeschel,
Stuttgart.
Himme, Alexander (2007): Erfolgsfaktoren des Kostenmanagements – Empfehlungen für Kostenmanagementprojekte, in: Projektmanagement aktuell, Nr. 4,
S. 16-23.
Himme, Alexander (2008): Erfolgsfaktoren des Kostenmanagements – Ergebnisse einer empirischen Untersuchung, Arbeitspapiere des Lehrstuhls für Innovation,
Neue Medien und Marketing der Universität Kiel.
Himme, Alexander (2009): Kostenmanagement
– Bestandsaufnahme und kritische Beurteilung der
empirischen Forschung, in: Zeitschrift für Betriebswirtschaft, 79. Jg., S. 1051-1098.
Horngren, C. T., Datar, S. M., Rajan, M. V. (2015):
Cost Accounting: A Managerial Emphasis. Pearson
Education, Inc.
Kajüter, Peter (2005): Kostenmanagement in der
deutschen Unternehmenspraxis – Empirische Befunde
einer branchenübergreifenden Feldstudie, in: Zeitschrift
für betriebswirtschaftliche Forschung, 57. Jg., Heft 2,
S. 79-100.
GRAPHICS
01, Barometer Cost Management, p.5
02, B
arometer Cost Management – Individual
Dimensions, p.5
03, Estimated Saving Potentials in Expense Areas, p.6
04, S avings as Percentage of Turnover Achieved
through Cost Reduction Processes, p.6
05, Investments pro Rate of Annual Turnover, p.7
06, Investments Addressed with Savings, p.7
07, Sustainability of Savings, p.8
08, Impacts of Changed Circumstances on Company
Planning, p.9
09, Consequences of Low Interests, p.9
10, Consequences of Cheap Resources, p.10
11, Sample Characteristic, p.10
11
ABOUT EXPENSE REDUCTION ANALYSTS
Established in 1992, Expense Reduction Analysts is a cost management consultancy focused on delivering improved business performance to clients of all
sizes in both the private and public sectors. Operating in over 25 countries,
Expense Reduction Analysts‘ 700 consultants provide deep industry expertise
in a wide variety of expense categories, such as waste management, insurance,
transport, marketing costs, bank charges, fleet management, telecommunications and many others.
Expense Reduction Analysts‘ clients include thousands of mid-sized companies
and many well-known names.
To find out more, visit www.expensereduction.com