Organisations still focusing too heavily on cost-cutting being left behind

 

As the economy recovers, organisations that are focused primarily on cost-cutting are at risk of being left behind as their more proactive competitors grow at a faster rate. This is according to research amongst the most senior leaders and managers at FTSE 250, UK multinational and public sector organisations.

The Barometer on Change 2014 - now in its third year - from transformation consultancy Moorhouse, finds that in the coming year low growth organisations are more focused on cost reduction programmes than high growth ones. 49% of low growth (those that grew by under 5% in the last year, as defined by respondents) cited cost reduction as the most important business challenge a change initiative was addressing, compared with 32% of high growth organisations (growth of more than 5%).

In stark contrast to this, while 30% of high growth companies had programmes accessing new markets in the coming year, only 14% of low growth companies did.

Stephen Vinall, Managing Director at Moorhouse, comments: “While cost reduction programmes remain a fact of life for many organisations, it is important that the right balance is struck. Organisations should not focus too heavily on cost-cutting and take their eye off the ball when it comes to proactive investments, such as new products or services, or accessing new markets.

“Savings from previous cost-cutting programmes during the lean times should be invested wisely and organisations need to reallocate resources to seek growth, rather than just survive. If they keep focusing on cost-cutting they will be left behind by bolder competitors.”

Higher growth businesses were also more likely to have increased their investment in transformation over the last year compared to low growth ones, at 80% and 66% respectively.

Mr Vinall adds: “Respondents are expecting the pace and pressure of change to continue to increase over the next two to three years. Combined with the fact that high growth organisations are more likely to describe themselves as 'change embracing', it becomes even more important for low growth organisations to take a look at how they deal with change. The pressures of change are not going anywhere; the organisations that accept and adapt to this are the ones that will thrive.”

The Barometer on Change 2014 survey spoke to over 200 Board members and their direct reports in UK organisations. Respondents had a combined spend on change initiatives of £4.2 billion, with an average project spend per respondent of over £20 million.