IN TUNE

INDUSTRY NEWS

DIGITAL TECHNOLOGY BOTH A RISK AND A MECHANISM TO GAIN COMPETITIVE ADVANTAGE

As digital technologies continue to reinvent how businesses grow and operate, the associated risks and opportunities are prompting companies to expand their cost management strategies, according to Deloitte’s second biennial global cost survey, released in late April. The report, “Save-to-transform as a Catalyst for Embracing Digital Disruption”, shows that while traditional cost reduction methods are still crucial, many organisations are also investing heavily in transformative digital technologies to improve operational efficiency and cost savings while boosting overall performance and competitiveness in an increasingly digital world.

Concurrently, as digital disruption emerges as an impetus for change, cost management remains a strong imperative globally. Among the more than 1,200 global executives and business leaders surveyed, 71% are planning to undertake cost reduction initiatives over the next 24 months. Some 68% reported total reductions of 10% or higher, and 31% have cost improvement targets above 20%. However, 81% reported being unable to meet fully their cost reduction goals during the past year, 18 percentage points worse than in 2017, due to implementation challenges, lack of effective systems, and infeasible targets.

DIGITAL DISRUPTION AND CYBERSECURITY: LEADING EXTERNAL RISKS

Demonstrating the significant role technology is playing in shaping cost management strategies, digital disruption soared to the top of the list as the biggest external risk at 61%, up from just 6% in 2017. Digital disruption was surpassed only by another technology-related risk, cybersecurity, which at 62%, ranks at or near the top of the risk list globally and in all regions except Latin America. Internally, reliability and functionality of information systems was identified as a top risk.

“Digital disruption is changing how companies view every aspect of their business, including cost management practices,” says Omar Aguilar, Principal and Global Strategic Cost Transformation Leader, Deloitte Consulting LLP, and the study shows that “businesses are now recognising they must save-to-transform, using investments in digital infrastructure to drive dramatic improvements in future performance, efficiency and market position”.

Digital risks are spurring organisations to use cost reduction as a mechanism to fund technological transformation. Globally, the survey found that application of artificial intelligence and machine learning is expected to more than double from 25% to 63%. Findings also show similar growth is expected for automation (25% to 62%) and business intelligence (35% to 59%). Cloud continues to be the most widely implemented digital technology covered by the survey at 49%, and is expected to remain popular due to its ability to tighten data security, as well as to reduce costs and improve productivity. However, all technologies in the survey are expected to be implemented at a level of 47% or higher over the next 24 months, signalling the widespread business impact of technology innovation.

REVENUE GROWTH IS ON THE RISE, BUT COMPANIES ARE CAUTIOUS

The survey also found that companies are well-positioned to undergo this type of transformation, with 86% reporting increased revenue over the past two years. But forward-thinking organisations are taking a cautionary stance as economic patterns are cyclical, and potential warning signs are starting to emerge. The study recorded a 97% increase among global respondents who are concerned about the macroeconomic risk over the next two years.

“Cost management practices and approaches have grown increasingly sophisticated over time and digital solutions, although still maturing, now represent the most advanced level of cost management,” says Mr Aguilar. “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.”