Sustainable Cost Reduction

…a disciplined approach to cost management and control

With economic growth now faltering and the impact of the credit crunch spreading through from financial
institutions and property to dampen market and consumer confidence, company executives are under
increasing pressure to maintain and improve shareholder returns. With limited scope in the near term for
revenue growth, focus is on cost reduction to deliver value. However, executives are conscious of the need
to embed sustainable cost reductions within their business as opposed to short term measures which may
damage long-term growth.

PwC Points of View • Consistent investment in cost control is required – sustainable

Our involvement with our clients since the onset of the credit crunch
indicates that:
• Cost management is now the priority issue for the foreseeable
future - fundamental re-thinking regarding business strategies,
operating models and cost structures will all be necessary
• The baseline for cost analysis must be aligned to current forecast
revenues – if margins are to be maintained, costs must be
reduced in line with revenue contraction
• An understanding of the true profitability of each business is
essential – analysing revenue, margin and cost by product, by
customer, by business unit enables meaningful management
decisions
• The cost focus must be enterprise wide - focusing on operational
costs alone will not be sufficient
• Many organisations confuse “cost postponement” with total cost
management – sustainable cost reduction is not about deferring
a number of investment projects until market conditions improve;
it involves re-defining existing cost structures to generate target
revenues whilst maintaining or improving service levels
• A well organised end-to-end program is needed – cost cutting
programs must be aligned across the organisation to avoid
sub-optimal execution and must be championed by senior
management
cost reduction not only involves the implementation of cost
cutting programs, it requires a culture of continuous improvement
to be embedded in every facet of the organisation and measured
and managed regularly
• The tone at the top is key – the overall objectives, targets and
business decisions made at the executive management level must
energise and reinforce sustainable improvement
• An executive dashboard is required to monitor results – targets
must be aligned to the corporate strategy and converted into
specific and measurable key performance objectives, which are
reported upon throughout the month
Our Cost Reduction team focuses on identifying and validating
sustainable cost reduction opportunities for our clients and
supporting them, as appropriate in implementing these changes. Our
focus is enterprise wide focusing on such aspects as procurement;
IT; treasury; supply chain; sales administration; finance, etc and
includes an analysis of alternative sourcing structures, e.g. shared
services and/or outsourcing.
Cost Reduction Approach
The PwC approach to cost reduction is outlined below. It should be
noted that as part of the spend analysis phase, we not only focus on
identifying cost reduction drivers, we also focus on cost management
and control which reflects on the cost culture within the organisation.

PwC’s four step process to sustainable cost reduction

I. Spend Analysis, Cost Reduction II. Design Initiatives and Develop
and Cost Management Roadmap the Business Improvement Plan (BIP)
1. Spend analysis to define operational cost drivers 1. Stabilisation
& baseline activity levels as well as • Execute the “immediate actions”
t
discretionary spend cos De to stabilise the key cost controls
nd si
2. Headcount benchmarking analysis i o na gn
ini
and mitigate instructions
3. Cost management and control ct ap t iat 2. Create the Business Improvement Plan
du m iv e
framework gap analysis re road s • Using the roadmap from the
t
em st

n
ag co

an

4. Forensic contracts review to Assessment Phase, build the design

e

Build the
d
n ,
ma lysis

de

identify potential leakage cost of each prioritised initiatives

ve
na

opportunities roadmap • Generate an overall Business

lo

Identify the
da

pt

5. Build go-forward sustainable gaps and • Stabilising Improvement Plan incorporating

he
n
Spe

cost management roadmap opportunities • Develop BIP all initiatives

B
IP

• Refine the cost and benefit analysis

Analyse current
cost base and
revise budgets
Implem

• BIP rollout
• Continuous
improvement • Pilot(s)
ent

• Performance
IV. Implement Company-Wide Cost
c

management
ost

Strategy and Sustain Benefits

s
tra

1. Rollout company-wide cost

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III. Construct the Business Improvement

eg

strategy
ya

Plan (BIP)
nd

2. Continuous Improvement
)
(s

su t
st lo 1. Construct and execute the Business
3. Corporate Performance Management a in pi
be IP Improvement Plan pilots
(CPM) tB
ne uc
fits str 2. Incorporate learning into the plan
4. Establish incentive mechanisms to drive Con
3. Finalise the company-wide rollout plan
sustainable improvement

Professional advice. Distinctive service.

 How can we help?
PwC benefits realisation PwC’s consultants have significant commercial experience in driving
performance improvement initiatives across multiple industries. We
approach offer a flexible approach to cost reduction that enables clients focus
on known areas of concern or on enterprise wide operations. The
services we provide include:
Define
soft/hard • Identifying cost drivers
benefits Agree • Benchmarking performance against peer groups
Set benefits • Challenging cost management and control framework
the baseline 3 realisation • Establishing KPI’s that are aligned to corporate strategy
strategy
2 • Simplifying and standardising business practices
4 • Structuring shared services and outsourcing arrangements for
Finance, IT, Treasury, Logistics, Operations, etc
Agree 1 • Adapting IT to support business needs
strategic Realise Align the
priorities Benefits 5 organisation • Embedding a culture of continuous improvement within
organisations

8
6 Example Engagement
Measure
Input to plans / 7 benefits
budgets Large Irish Food FMCG Company – Cost Reduction
& performance
Challenge: This company had experienced exceptional year-on-
Manage tracking
year growth with senior management focus on acquisitions and
benefits- indigenous growth. Little focus had been placed on the efficiency
related risk and effectiveness of internal operations. PwC was requested to
establish if opportunities existed for optimising the investment in
Finance, Administration and IT, within the group’s businesses in
Ireland and the UK.
Approach: Having gained a high level understanding of the business,
PwC conducted detailed interviews with senior management in
Benefits Realisation all targeted companies. Metrics were gathered, business plans
reviewed, IT strategy interrogated and finance and administration
The key to successful cost reduction programmes is to focus first operations mapped and analysed. Performance was benchmarked
and foremost on strategic priorities, linking these very closely against best practice, whilst opportunities for centralisation and
to operational targets and the subsequent change management outsourcing were assessed. We also analysed the tax structures
activities. PwC’s client experience highlights the importance of underlying existing operations. A business case for change reflecting
designing, developing and implementing a benefits realisation plan costs and benefits was prepared.
when implementing cost reduction initiatives. By maintaining focus Benefit: PwC identified cost savings in excess of €6m per annum (c.
on target benefits, the opportunity to divert from pre-defined cost 8%). Our observations included: leveraging existing best practice
reduction initiatives is limited. across the Group; coordinating IT implementations, leveraging
existing capability; completing a program of centralisation, which
had stalled impacting return on investment; accelerating the close
process and tailoring business intelligence to Group needs; and
leveraging group purchasing power. Two separate IT implementations
were immediately deferred and the Group generated significant cost
savings from the implementation of PwC recommendations.

For more information on our approach to Cost Reduction assignments,

please contact:

Garrett Cronin Ciaran Kelly

Partner Partner
PricewaterhouseCoopers PricewaterhouseCoopers
One Spencer Dock One Spencer Dock
North Wall Quay North Wall Quay
Dublin 1 Dublin 1
T: +353 1 792 8807 T: +353 1 792 6408
E: garrett.cronin@ie.pwc.com E: ciaran.kelly@ie.pwc.com

www.pwc.com/ie/performance

Professional advice. Distinctive service.

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