NEW YORK, N.Y., April 16, 2014 (GLOBE NEWSWIRE) -- According to new research released today by AlixPartners, the global business-advisory firm, over two-thirds (66%) of business executives from a wide range of industries surveyed globally say that they are looking to remove close to 10% from SG &A (selling, general and administrative) costs in the next 12 to 24 months, and 34% are targeting cuts of 11 to 20% in that timeframe. Survey respondents say they will mainly be focusing on organizational design as well as supplier sourcing and indirect expenses. However, the same respondent group also expects actual achieved savings to be lower compared to previous years, as they say that in the past 12-24 months they'd cut SG &A by 14% on average. The difficult position of executives around the world is therefore expressed by a paradox: They say that significant savings are planned, but they also believe that their previous cost-cutting efforts did not always fully deliver in the long term -- so their future expectations for profit impact from SG &A actions are cautious.
Executives globally today are weighed down by unprecedented pressures. The economy is characterized by low growth in developed economies and slowing growth in emerging economies. As echoed in the results of AlixPartners' survey, competitive pressures and labor costs weigh heavily on executives' minds and many are convinced that organic growth alone will not create enough profitability to satisfy their shareholders. Significant M &A is therefore expected to enable growth, says the study, which itself will generate new costs, at least in the short term. Executives know they need to continue saving and cutting costs, but this might prove to be all the more difficult in the current environment. AlixPartners' survey furthermore indicates that executives are concerned that costs which are initially taken out tend to creep back in at a later date.
The survey reveals that companies across the world are looking to contain or cut SG &A costs, but local differences in priorities and methods are apparent from its findings. Asian executives in the survey are more focused on lean manufacturing (with 46% of those surveyed saying so) than those in the US (17%) and Europe (36%). Executives from all regions in the survey rate execution delivery as a crucial factor in achieving efficiency, but while Asian leaders believe that acquiring the right business design and clearly-defined goals are also crucial factors in achieving operational efficiency, European and North American executives perceive the commitment of senior management as highly important.
John Maloney, managing director at AlixPartners, said, "The US and EU have been going through a sustained period of restructuring, with multiple cost cuts along the way. It's therefore not surprising that executives in these regions have come to the conclusion that implementation is paramount, whereas many companies in parts of Asia, such as China, are focusing on structural cost reduction for the first time."
Beyond slimming-down overhead costs in the short term, executives globally agree that one of their key future objectives is to produce sustainable improvements in SG &A costs in the long term. According to the survey, 61% of respondents reported that previous cost-reduction initiatives led to improved financials, suggesting that although many programs have borne fruit, there is still room for improvement. The main criteria for evaluating the success of overhead cost-saving initiatives are to ensure that they achieve their objectives and are sustainable (i.e., support the company to prosper and grow), according to the survey. Indeed, "longer-term SG &A improvements" (cited by 65% of respondents) and "sustainability of these improvements" (cited by 64%) are the top two objectives of the surveyed executives. However, combining these two objectives in one effective delivery program is one of the key challenges faced by companies, according to the survey.
The AlixPartners study concludes that companies not only have to slim down overhead costs but, if the companies are to achieve above-market growth in today's challenging environment, they must design from the outset lean overhead SG &A structures that support core functional capabilities.
Michael Weyrich, managing director at AlixPartners, said, "Businesses need a more-sophisticated approach to reducing their cost base and taking a zero-based approach is a key way to enable the next level of savings when costs have been reduced multiple times before and such initiatives are getting more complex. Rethinking structures and simplifying processes can enable the development of a resilient, lower-cost business model."
About the Survey
The AlixPartners Sustainable Overhead Cost Management Survey polled online more than 150 C-level and other senior executives from 18 countries representing 13 major industries in November and December 2013 in order to understand their views on growth and cost reduction priorities over the coming 12-24 months. The executives surveyed were from industries including financial services, telecommunications, media, technology, consumer goods, and building and construction.
AlixPartners is a leading global business-advisory firm of results-oriented professionals who specialize in creating value and restoring performance at every stage of the business lifecycle. We thrive on our ability to make a difference in high-impact situations and deliver sustainable, bottom-line results. The firm's expertise covers a wide range of businesses and industries whether they are healthy, challenged or distressed. Since 1981, we have taken a unique, small-team, action-oriented approach to helping corporate boards and management, law firms, investment banks and investors respond to critical business issues. For more information, visit www.alixpartners.com.
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