Corporate leaders now face a challenge of identifying and employing sustainable cost cutting and cost containment strategies that protect, and even improve, enterprise value.
However, business has changed. Since the last major recession, we’ve seen the rise of globalisation, the internet has become all-pervasive and assumptions about the strength of our financial systems have been undermined.
As such, businesses are looking for innovative ways of managing costs, as the tried and tested methods of cutting business costs, such as headcount reductions, no longer return the same value they once did.
The report analyses the financial reports from FTSE 350 companies between 2008 and 2011. It reveals that businesses spend, on average, two-thirds of their revenue on non-labour costs - 68.3% in 2011. This far outstrips their collective labour costs, which averaged just 12.9% of their revenue. Yet headcount reduction is traditionally seen as the quickest and easiest strategy for cost reduction. This raises a number of questions:
Are businesses ensuring that their non-labour cost base is being effectively managed and that the cost is being contained?
If not, why not?
And what are the potential benefits of making that investment?