US Consulting Global Cost Survey 2107

Thriving in uncertainty in
the age of digital disruption

Deloitte’s first biennial global cost survey report
December 2017
Thriving in uncertainty in the age of digital disruption | Deloitte’s first biennial global cost survey report
Contents
Executive summary 4
About the study 6
Global insights from regional cost surveys 9
Zero-based budgeting: Global perspectives and lessons learned 17
Cost management practices to thrive in uncertainty 23
Margin improvement in the age of digital disruption 29
Looking ahead 39
Appendix A: Global cost management insights from key industries 43
Appendix B: Zero-based budgeting (ZBB) analysis by country/region 54
2
Foreword
Digital innovations are transforming how we live and

work, and are now beginning to have a similarly dramatic
impact on costs. Exponential technologies enable new
business and operating models with cost structures
vastly lower than before, with the result that entire
industries are being fundamentally reshaped—from
music and movies to hotels and taxis, and everything
in between.
Advanced, next-generation technologies are also having a strategic impact on costs.

In particular, robotic process automation and analytics/cognitive technologies are enabling
new levels of operating efficiency that can turn cost into a major competitive advantage.
In this rapidly changing global business environment—where cost is a true strategic

differentiator—we are delighted to share with you the findings of Deloitte’s first global
cost management survey report, which features detailed insights from more than 1,000
executives and senior managers in four major regions: the US, Latin America, Europe, and
Asia-Pacific.
The study provides an inside look at the cost management practices and trends currently
shaping the future of business globally, offering deep and practical insights that can help
any company manage costs more effectively. It also provides a forward-looking point of
view on how digital innovation and next-generation technologies can take cost reduction
and margin improvement to a whole new level.
We trust you will find the report findings useful, and look forward to hearing your thoughts
and feedback.
Omar Aguilar Jim Moffatt

Strategic Cost Transformation Head of Deloitte Global Consulting
Global Market Offering Leader
3
Executive summary
Cost management used to be something businesses only thought about when

they were struggling. In recent years, however, it has become a standard operating
practice that receives constant attention—in good times and in bad. And with the
recent emergence of disruptive innovations such as robotic process automation and
analytics/cognitive technology, cost management is now morphing into a strategic
enabler with the power to disrupt entire industries and fundamentally change how
business is done.
In 2009, Deloitte Consulting LLP conducted its first executive survey of cost
management practices and trends in the US. Since then, our efforts and geographic
scope have steadily expanded, culminating in this current study—our first biennial
global cost management survey report, which includes in-depth insights from more
than 1,000 executive survey participants in four major regions: the US, Latin America,
Europe, and Asia Pacific.
Global insights from the regional cost surveys Save to grow. The simultaneous focus on cost and growth reflects
Cost reduction is a global imperative. a “save to grow” mindset where companies use cost savings as a
Cost reduction has become a standard business practice in every strategic lever to help fund their growth efforts and initiatives—
region, with 86% of global respondents saying their companies without sacrificing profitability. This mindset is now prevalent
are likely to undertake cost reduction initiatives over the next in all parts of the world.
24 months.
A strategic paradox: Thriving in uncertainty. The top two cost
Low targets. High failure rates. Globally, nearly half of all reduction drivers globally are both directly related to growth.
organizations surveyed are pursuing cost reduction targets of less However, the next five cost reduction drivers are all defensive in
than 10%. Yet, in spite of those relatively low targets, almost two- nature. This suggests that while growth is the top strategic priority,
thirds (63%) are failing to achieve their goals. companies in every region are also protecting themselves against
uncertainty by getting numerous aspects of their cost structure
Economic concerns dominate today, but digital disruption into fighting shape.
looms large. Worldwide, the top external risk for organizations
surveyed is “macroeconomic concerns/recession” (30%), followed Developing cost management capabilities. Over the past 24
by “commodity price fluctuation” (19%). In the US, digital disruption months, companies in all regions have been actively developing
is having a major impact on many industries and is viewed as a top and improving their cost management capabilities. The top three
risk—a trend that could quickly spread to other regions. focus areas are: “forecasting, budgeting, and reporting” (55%); “new
policies and procedures” (51%); and “IT infrastructure, IT systems,
High expectations for growth. Despite widespread concerns and business intelligence platforms” (49%).
about the economy, the number of respondents that expect their
revenues to increase over the next 24 months is even higher than
the number that reported increased revenue over the past 24
months (80% vs. 74%, a 6% increase).
4
Little change in cost management approaches. Moving forward, Margin improvement in the age of digital disruption
it appears companies expect to use the same basic approaches to Digital disruption is on the rise. In the future, digital disruption—
cost management that they have used in the past, with “targeted and the exponential technologies that drive it—are likely to be key
actions” and “intensified productivity programs” being the two factors that companies need to consider as they strive to reduce
most popular approaches. The one cost management approach costs and improve margins. And for many companies, the future
that is likely to drop off significantly is zero-based budgeting, which is now.
is expected to fall from 15% to 11% globally—a real-term decline of
36%. Getting in front of the challenge. To help avoid falling behind,
companies in every part of the world should understand the
Implementation is the biggest challenge. From a tactical potential impact of digital so they can position themselves
perspective, the top barrier to effective cost management is to capitalize on the opportunities, particularly with regard to
“challenges in implementing initiatives” (53%). Also, five of the seven automation and analytics/cognitive technology, which will likely be
top lessons learned relate to implementation. the first innovation areas to emerge.
Tactical actions remain predominant. Many companies Cost management evolved. Since the 1980s, cost management
surveyed continue to focus on tactical cost actions (40%), such approaches have evolved from traditional tactical actions to
as streamlining business processes and reducing external structural approaches that are more strategic. Now, we are seeing
spend, versus strategic cost actions (33%), such as outsourcing, the rise of advanced, next-generation cost management solutions
centralization, and business reconfiguration. This tactical focus that harness the power of digital technologies to dramatically
tends to limit the magnitude of cost savings that can be achieved. improve efficiency and effectiveness, and to enable fundamentally
new business models and new ways of working.
Cost management practices to thrive in uncertainty
Tactical versus strategic. Tactical cost management approaches Exponential potential. Unlike traditional tactical and structural
typically yield cost savings of less than 10%. As such, many cost approaches—which may be nearing or past their peak—cost
companies would be better served by applying approaches that solutions based on exponential technologies are just emerging and
are more strategic and thus more likely to deliver greater savings. have the potential to deliver increasing savings over time due to the
exponential nature of digital technologies (i.e., “Moore’s Law”). Also,
A new scenario emerges. Companies pursuing strategic cost advanced digital cost solutions can be implemented more quickly,
improvements have generally fallen into one of three categories: enabling companies to achieve greater savings in much less time.
(1) distressed, (2) positioned for growth, or (3) growing steadily.
These traditional scenarios have different priorities, with each From products and customer service to business models. Until
scenario primarily focusing on two of the four strategic levers: now, the lion’s share of digital innovation has been focused on (1)
growth, talent, cost, and liquidity. However, in the current business creating new and improved products, and (2) delivering a superior
environment a new competitive scenario seems to be emerging customer experience. However, the biggest potential impact of
that simultaneously focuses on three of the strategic levers— digital innovation and exponential technologies is likely to come
growth, cost, and liquidity. We call this new scenario “thriving from enabling disruptive platforms and innovative business models
in uncertainty.” that fundamentally alter the competitive dynamics of an industry
or industries.1
Different playbooks for different markets. In some markets,
macroeconomic factors seem to be pushing companies toward A whole new level of efficiency. As digital technologies enable
greater uncertainty and distress. This requires a playbook with increased innovation in business and operating models, companies
value creation levers that are more defensive in nature. Other can expect strategic impacts that disrupt entire industries and
markets seem to be moving toward a more positive outlook, deliver sustainable cost savings of 30% or more—sometimes
which tends to favor an offense-oriented playbook with an much more—completely resetting expectations about efficiency
emphasis on growth. compared to traditional models.2
Disrupt, or be disrupted. In an increasingly digital world, disruption

is unavoidable. To thrive, companies should become their own
disrupters—rather than allow other companies to disrupt them.
1
Innovating in the digital era, Tech Trends, Deloitte University Press, 2016.
2
ethinking a company’s business model, Three steps to sustainable
R
and scalable change, Deloitte Development, 2016.
5
About the study

Deloitte Consulting LLP (Deloitte or Study objectives Firmographics
Deloitte Consulting) engaged Research The countries in the study are an accurate
•• Understand factors, approaches,
Now to conduct a series of regional cost representation of their regional
actions, and targets related to cost
management surveys in order to better economies, as well as the global economy
initiatives
understand executives’ perspectives on as a whole. Globally, the surveyed
current and future cost reduction countries account for 85% of the world’s
•• Assess the effectiveness of the cost
initiatives within large companies and GDP. For the three regions outside of the
actions, including lessons learned from
multinationals. The surveys covered four US, the surveyed countries collectively
previous efforts
major regions: account for the large majority (61% to
•• Understand the drivers and scope of 83%) of their regions’ GDP (figure 1).
•• United States (report published in future cost initiatives

Survey participation was limited to
April 2016)
•• Provide context on how digital executives at the senior management
disruption and advanced, level and above who are personally
•• Latin America: Brazil, Mexico
next-generation solutions are involved in cost management decisions.
(report published in June 2016)
affecting cost management More than two-thirds of respondents
•• Europe: UK, Germany, France, Spain, (70%) were CXOs and executives
Netherlands, Italy, Poland, Belgium, •• Assess industry results and provide (figure 2).
Denmark, Norway (report published insights on different behaviors related
in October 2016) to cost reduction The regional surveys captured findings
from a broad range of industries, with six
•• Asia Pacific: China, India, Japan, Methodology major categories: Consumer & Industrial
Australia, Hong Kong, and Singapore Products; Financial Services; Technology,
(report published in July 2017) •• Data was collected through detailed Media, and Telecommunications; Energy
online and telephone surveys & Resources; Life Sciences & Health Care;
conducted between February 2016 and Public Sector (figure 3).
Survey data includes 1,013 responses and February 2017
from CXOs, executives, and senior
management in the United States
(210 responses), Latin America Qualification criteria
(155 responses), the European Union •• Job title/level: C-suite/CXO (e.g.,
(349 responses), and Asia Pacific CEO, CFO, COO, CIO, Board of
(299 responses). Directors); Executive management
(e.g., Division/Business Unit/Regional
President, Controller, Treasurer,
or other company officer); Senior
management (e.g., SVP/VP of a business
group; SVP/VP of an enabling function
such as Finance, HR, IT)
•• Company annual revenue of $150 USD

million or more for companies in Latin
America, Europe, and Asia Pacific, or
$1.5 USD billion or more for companies
based in the US
•• Involvement in managing cost reduction

initiatives within the company
6
Figure 1: Geographic coverage

Survey sample coverage Survey sample coverage
% of respondent’s economic footprint by 2016 GDP % of respondent’s economic footprint by 2016 GDP per region
15% 100% Outside the US...
20% 17% Respondents
represented
80% 39%
Survey
respondents
61%-83%
of the regional
represent 60%
economies as
85%
85% 100% measured by GDP
of the world’s 40%
economy 61% 80% 83%
20% *US Survey is the only

country-based survey
**Only two countries
0% (Brazil and Mexico)
US* LATAM** EU APAC
represent 61% of the
GDP of countries surveyed
Surveyed Not Surveyed regional economy
GDP of potential countries not surveyed
Source: The World Bank – GDP 2016 Source: The World Bank – GDP 2016
Figure 2: Management level

Management level breakdown Management level breakdown
% of respondents by level % of respondents by level by region
30% 100% The majority of

24% C-suite and executive
28% 29%
39% management level
80% response proﬁle was
70% 18% maintained in all
regions
of responses on 60% 29%
average were received 43% 27%
34%
from C-suite
and executive 40%
management 58%
level 43%
20% 34% 37%
27%
0%
US* LATAM EU APAC
C-suite/CXO Executive management C-suite/CXO: CEO, CFO, COO, CIO, Board of Directors, etc.
Senior management Executive management: Divisional/BU/Regional President, Controller, Treasurer and other Company Oﬃcers, etc.
Senior management: SVP/VP of a Business Group OR SVP/VP of an Enabling Function like Finance, HR, IT, etc.
Figure 3: Industry breakdown

Industry breakdown Industry breakdown
% of total respondents Number and percentage of responses by industry and regions
6% Total
5%
US 48 56 41 24 17 11 13 210
6%
37% LATAM 74 21 27 12 5 5 11 155
11%
EU 115 73 48 47 17 23 26 349
APAC 138 30 59 28 16 16 12 299

17%
18% 0% 20% 40% 60% 80% 100%
Consumer & Industrial Products Financial Services Technology, Media & Telecommunications Energy & Resources Life Sciences & Health Care
Public Sector Other
7
Almost half of the organizations

surveyed indicated relatively low
cost reduction targets of less than
10% … yet 63% of respondents
are unable to meet their goals
8
Global insights from the regional cost surveys

Cost reduction is a global imperative
Cost reduction has become a standard business practice in all 24 months, and very few respondents in any region believe cost
regions surveyed. Globally, 86% of respondents say their companies reduction is unlikely. Regionally, cost reduction is most likely in
are likely to undertake cost reduction initiatives over the next Latin America (96%), and least likely in Asia Pacific (76%) (figure 4).
Figure 4: Likelihood of cost reduction over the next 24 months

1
100% 96% 2
86% 88%
83%
Globally, 86% of respondents plan to
80% 76%
undertake cost reduction initiatives
% of total respondents
60%
40% 2
22%
20% 13% 15%
11%
3% 2% 1% 1% 2% 2%
0%
Likely Neutral Unlikely
Global average US LATAM EU APAC
Survey findings
LATAM is the most likely region (96%) to undertake cost reductions actions.
Europe and APAC reported lower likelihood (83% and 76%, respectively) compared to the global average (86%) and higher neutral
position with 15% and 22%, respectively, compared to the global average of 13%.
Low targets. High failure rates

Worldwide, nearly half of all organizations surveyed are pursuing as a formal cost reduction approach. Organizations in the US and
cost reduction targets of less than 10%. Yet, in spite of those Latin America tend to have the most aggressive cost programs, with
relatively low targets, almost two-thirds (63%) are failing to achieve roughly a third (32% and 33%, respectively) citing cost reduction
their goals. Cost reduction targets tend to be the least aggressive targets in excess of 20%. Failure rates are highest in Asia Pacific
in Europe, to a point where the efforts almost cannot be viewed (72%) (figure 5).
Figure 5: Cost reduction targets and success rates

100% 100%
3
Almost half of the organizations surveyed indicated 80% ...yet 63% of respondents are
80% 72%
1 relatively low cost reduction targets of less than 10% unable to meet their goals 67%
63%
58% 58% 57%
60% 60%
48% 2
45% 43%
42% 42%
37%
40% 33% 31%
35% 35% 33% 32% 40% 34%
29%
26% 24% 27%
20% 17% 20%
13%
0% 0%
Less than 10% 10% to 20% More than 20% Met or exceeded goals Did not meet goals
Annual cost of reduction targets Success in meeting cost targets
Survey findings
58% of European programs focus mainly on targets less than 10%; this could imply that structured cost programs
are not prevalent.
Most aggressive programs are in US and LATAM with a third of programs reporting targets higher than 20%.
APAC failure rates are the highest (72%) compared to the global average (63%).
9
Economic concerns dominate today,

but digital disruption looms large
Globally, the top external risk identified by respondents is industries and is viewed as a top risk, nearly on par with
“macroeconomic concerns/recession” (30%), followed by macroeconomics/recession. Digital disruption is less of a concern
“commodity price fluctuation” (19%). These risks are rated in other regions; however, the situation could change quickly and
particularly high in Latin America (39% and 31%, respectively). dramatically given the exponential nature of digital innovations
In the US, digital disruption is having a major impact on many (figure 6).
Figure 6: External risks
Figure 6: External risks
100%
100%
Macroeconomic concerns is reported as the Digital disruption is still not recognized as a
80%
highest or second
Macroeconomic highest is
concerns risk in all regions
reported as the major risk
Digital by most is
disruption companies across regions
still not recognized as a
80%
major risk by most companies across regions
of responses
highest or second highest risk in all regions

60%
% of%responses
1
60% 2
1
39% 2
40% 1 34% 31%
30% 39% 2
2
26% 3
40% 1 34% 25% 31% 18%
30% 21% 19% 18% 20%
20% 25% 16% 17% 15% 26% 15% 16% 16% 14% 3
15%
21% 12% 11% 13% 12% 11%
19%
16% 18% 10% 18% 17% 15% 16%
20% 9%
16% 14% 6% 15% 6%
20% 12%
15% 13% 12% 11% 2%
10% 11% 9% 1%
0% 6% 6%
1% 2%
Macroeconomic Commodity Political climate Competition Government Digital disruption
0% concerns/recession price fluctuation regulation/taxes
Macroeconomic Commodity Political climate Competition Government Digital disruption
concerns/recession price fluctuation regulation/taxes
Survey findings
Although macroeconomic is the highest or second highest concern, it is reported much lower in the US (21%) and much higher in
LATAM (39%) relative to the global average (30%).
Commodity price fluctuation for LATAM (31%) and political climate for APAC (26%) are reported disproportionately as higher risks
compared to other regions.
Digital disruption is rated much higher as top risk in the US (15%) compared to all other regions.
High expectations for growth

Despite widespread concerns about the economy, the number of increased revenue over the past 24 months (80% vs. 74%,
companies surveyed that expect their revenues to increase over a 6% increase) (figure 7).
the next 24 months is even higher than the number that reported
Figure 7: Annual revenue growth

Figure 7:Past
Annual revenue growth Expected
100% 100% 2
Past Expected
1
87%
100% 1
81%
100% 85% 2
1
80% 78%
80% 1
74% 75% 80% 85% 87% 76%
% of%total
respondents
81% 73% 80%

80% 74%
67% 75%
80% 76% 78%
respondents
73% 6% more companies expect

of total
60% 67% 60%

revenue
6% moregrowth in theexpect
companies future
60% 60%
respondents
revenue growth in the future

40% 40%
of total
respondents
40% 40%
% of%total
25%
19% 20% 18%
20% 12% 12% 25% 20%
20% 13% 15%
19% 18% 10% 8% 9% 9% 9%
7% 7% 6% 6% 4% 6%
20% 3% 12% 12%
20% 13% 15%
10% 8% 9% 9% 9%
0% 7% 7% 6% 0% 6% 4% 6%
3%
0% Increase Remained the same Decreased 0% Increase Remained the same Decreased
Increaserevenue growth
Annual Remained the same
projections Decreased
over the past 24 months Increase
Annual Remained
revenue growth the same
projections Decreased
over the next 24 months
Annual revenue growth projections over the past 24 months Annual revenue growth projections over the next 24 months
Survey findings
Global respondents reported more frequently (80%) an increase on revenue growth in the future vs. 74% in the past.
EU (76%) and APAC (78%) indicate the least positive projections compared to the global average (80%).
10
Save to grow
The simultaneous focus on cost and growth reflects a “save to grow” profitability. Although respondents from different regions expressed
mindset where companies use cost savings as a strategic lever to their strategic priorities with different levels of intensity, the “save to
help fund their growth efforts and initiatives—without sacrificing grow” theme is prevalent in all parts of the world (figure 8).
Figure 8: Strategic priority in next 24 months
100%
Figure 8: Strategic priority in next 24 months
100%
80% 3
65%
% of responses
1 3 3
80%
60% 3
48% 51% 65% 1 49% 3
46% 1 3
% of responses
1 42% 43% 23
2 2 40% 39%
60%
40%
38% 3 36% 35% 34% 36% 3 34%
48% 51% 30% 46% 1 1 49% 31% 2 29% 3
28%
2 42% 43% 28%
2 40% 2 24% 25%
2
38% 39% 20%
40% 36% 35% 34% 36% 19% 34% 15%
20% 30% 28% 28% 31% 2 29% 2
24% 25%
19% 20%
20% 15%
0%
Sales growth Product profitability Cost reduction Organization and talent Balance sheet management
0%
Sales growth
Top three strategic Product
priorities: ‘Save to grow’ mentality
profitability Cost reduction Organization and talent Balance sheet management
Global average US
Top threeLATAM EU
strategic priorities: ‘SaveAPAC
to grow’ mentality
Survey findings
Top three priorities cited by respondents were sales growth (48%), product profitability (38%), and cost reduction (36%).
European companies surveyed consistently responded less frequently to all priorities compared to other regions.
LATAM companies surveyed consistently responded more frequently to all priorities compared to other regions.
A strategic paradox: Thriving in uncertainty

The top cost reduction driver for respondents globally is “to growth is the top strategic priority, companies in every region are
gain competitive advantage” (53%), followed closely by “required also protecting themselves against uncertainty by getting numerous
investment in growth areas” (46%). Both of these are directly aspects of their cost structure into fighting shape. Note that liquidity
related to revenue growth. However, the next five top drivers for emerged as a top seven driver in the US for the first time since we
cost reduction are all defensive in nature. This suggests that while began conducting these cost surveys in 2009 (figure 9).
Figure 9: Drivers of cost reduction

100%9: Drivers of cost reduction
Figure
80%
100% 3
1
% of responses
3
57% 58% 1
60%
80% 53% 53% 3 54% 51% 3
1 46% 46% 43% 3 3
% of responses
3 3 3
57% 58% 1 37% 34% 39% 4
40%
60% 53% 53% 54% 36% 51% 33% 3 30%
34% 32% 35% 34%
30%
26% 26% 3 27% 29% 28% 26% 23% 26% 3
46% 46% 43% 22% 3 22% 21% 21% 3
39% 17% 20% 17%
20%
40% 36% 33%
37% 34% 34% 32% 35% 34% 4
30% 27% 29% 28% 30%
26% 26% 26% 23% 26%
22% 20% 22% 21% 21%
0%
20% 17% 17%
To gain competitive Required investment Performance of your Changed regulatory Significant reduction Unfavorable cost Decrease in liquidity
0% advantage over peer group in growth areas international portfolio structure in consumer demand position relative to and tighter credit
To gain competitive Required investment outside your of
Performance region
your Changed regulatory Significant reduction peer group
Unfavorable cost Decrease in liquidity
advantage over peer group in growth areas international portfolio structure in consumer demand position relative to and tighter credit
Offensive drivers related to growth 2 Defensive drivers underlying the complex environment of uncertainty
outside your region peer group
Global average US
Offensive drivers LATAM
related to growth EU APAC
2 Defensive drivers underlying the complex environment of uncertainty
Survey findings
Top two drivers relate to gaining competitive advantage (53%) and required investment in growth areas (46%).
Five out of seven drivers of cost reduction are defensive in nature and reflect uncertainty.
All drivers of cost reduction rated higher for APAC companies relatively to the global average.
Notably, liquidity reappeared as a driver for the first time since onset of US Cost Survey in 2009.
11
Developing cost management capabilities

Over the past 24 months, respondents in all regions have been Among the capabilities identified in the survey, zero-based
actively developing and improving their cost management budgeting (ZBB) was the least developed capability (9%)
capabilities. The top three focus areas are: “forecasting, budgeting, (see sidebar).
and reporting” (55%); “new policies and procedures” (51%); and “IT
infrastructure, IT systems, and business intelligence platforms”
(49%) (figure 10).
Figure 10: Capabilities developed over the past 24 months
80%
67%
2
1
60% 58% 2
55% 55% 1 55%

53% 1
51% 51% 51%
50% 49%
47% 47%
44%
% of responses
42%
40% 38% 2
35%
32% 32%
22% 2
20% 3
14%
3
11%
9%
8%
2%
0%
Improved processes for Implement new policies Set up IT infrastructure, Created new executive position Implemented zero-based
forecasting, budgeting, and procedures IT systems, and business to drive cost managment budgeting system or process
and reporting intelligence platform
Survey findings
The three most frequently cited capabilities developed over the past 24 months were: Improved processes for forecasting, budgeting,
and reporting (55%), implement new policies and procedures (51%) and set up IT infrastructure, IT systems, and business intelligence
platform (49%).
APAC respondents consistently rate higher compared to the global average, in terms of capabilities developed over the
past 24 months.
ZBB (9%) is the least developed capability over the past 24 months with APAC companies citing more frequently this capability (14%)

relative to the global average.
12
Little change in cost management approaches

Moving forward, it appears respondents expect to use the same management approach that is likely to drop off significantly is zero-
basic approaches to cost management that they have used in based budgeting, which is expected to fall from 15% to 11%—
the past, with “targeted actions” and “intensified productivity a real-term decline of 36% (figure 11).
programs” being the two most popular approaches. The one cost
Figure 11: Approaches to manage costs—past and future
Past
100%
Approach rated similarly with the exception Approaches to manage
of ZBB which represents only 15% globally costs over past 24 months
80%
62% 61% 62%

59%
60% 56%
53% 52%
50% 52% 51% 51% 52%
47% 48% 49%
45%
43% 42%
40%
32% 31%
2
20%
20% 15% 16% 15%
7%
0%
Targeted actions taken Intensify existing productivity Conduct an enterprise-wide Drive all divisions, business Conduct zero-based
to reduce costs in a few improvement programs analysis units, and corporate functions budgeting efforts
divisions, business units, to reduce a fixed percent of
functions, or geographies their costs
Future
100%
Targeted actions and intensify existing programs are expected Approaches to manage
to remain the two most used approaches to manage costs costs over next 24 months
80%
1
1 66%
1
59% 58%
60% 56%
54%
56% 55% 57% 55%
52% 52%
47%
41% 41% 41%
40% 38%
34%
32% 32% 31%
1
2 19%
20%
11% 9%
7% 7%
0%
Targeted actions taken Intensify existing productivity Conduct an enterprise-wide Drive all divisions, business Conduct zero-based
to reduce costs in a few improvement programs analysis units, and corporate functions budgeting efforts
divisions, business units, to reduce a fixed percent of
functions, or geographies their costs
Survey findings
APAC is the only region reporting increase of use in 4 out of 5 approaches.
ZBB shows a steep decrease from 15% to 11%, which represents a real decrease of 36%.
13
Implementation is the biggest challenge

From a tactical perspective, the top barrier to effective cost are related to implementation: implementation strategy (47%);
management cited by respondents is “challenges in implementing goals and objectives (23%); budget management (16%); continuous
initiatives” (53%). Moreover, five of the seven top lessons learned improvement (15%); and poor design and tracking (12%) (figure 12).
Figure 12: Barriers and lessons learned
100%
Barriers to effective cost
management—past 24 months
80%
1 60%
60% 55%
53%
49% 48%
41% 42%
40% 38%
36%
32% 33%
29% 28%
27% 26% 26% 26% 26% 27%
23% 24% 24% 23%
20%
20% 17%
0%
Challenges in implementing Lack of understanding Weak business case Poor design and tracking Erosion of savings
initiatives
100%
Lessons learned—past 24 months

80%
60% 55% 56%
47% 46% 48%

46% 45% 46% 2
39%
40% 37%
32%
27% 27%
25%
23%
20% 19%
17% 18%
20% 16% 15% 15% 15%
12% 13% 12%
11% 11% 11% 10%
8% 9%
6% 7%
2%
0%
Implementation Change Goals and Budget Continuous Poor design Communication
strategy management objectives management improvement and tracking
Survey findings
Challenges in implementing initiatives is significantly higher than all other barriers with 53% average globally, perhaps reflecting a
transition towards technical vs. non-technical barriers, as seen in prior US cost surveys.
5 out of 7 lessons learned are related to implementation challenges.
14
Tactical actions remain predominant

Although respondents cited implementation challenges as business processes and reducing external spend, versus
the biggest barrier to effective cost management, a less visible strategic cost actions (33%), such as outsourcing, centralization,
problem that might be even more impactful is the continued and business reconfiguration (figure 13). This tactical focus tends to
reliance on tactical cost actions (40%), such as streamlining limit the magnitude of cost savings that can be achieved.
Figure 13: Cost actions viewed as most likely over the next 24 months
70%
Streamlining business processes and reducing
Cost actions viewed as most likely next 24 months external spend are the most likely cost actions
(cited by 45% and 42% globally, respectively)
60% 3
55%
1 Avg: 33%
1 Avg: 40%
50% 3 3
3
3 46% 46%
45% 45% 45% 45%
43% 3
42% 42% 42%
3 40%
40% 38% 38%
37% 37%
36% 36% 36% 36%
35%
34%
2 33%
32% 32% 32%
31%
30% 30% 30%
29%
30% 28%
27%
26%
25%
20%
10%
0%
Change business Outsource/offshore Increase Streamline organization Improve policy Reduce external spend Streamline business
configuration business processes centralization structure compliance processes
Strategic: less likely Tactical: More likely

1 Avg: 33% (Indicated average response rates within 1 Avg: 40% (Indicated average response rates within
either the ‘‘strategic’’ or ‘‘tactical’’ categories.) either the ‘‘strategic’’ or ‘‘tactical’’ categories.)
Global average US LATAM EU 3 APAC Indicates average response rates within either the “strategic” or “tactical” categories
Survey findings
33% of respondents plan to undertake strategic cost actions vs. 40% that plan to undertake tactical cost actions.
The least frequently reported cost action is strategic: Outsourcing/offshoring business processes (30%).
APAC is the only region showing higher responses compared to the global average in all cost actions.
15
On average, and according to

respondents, ZBB use is expected
to decrease globally over the next
24 months, from 13%
to 10% (a real decline of 23%).
However, usage trends vary
significantly from region to region
16
Zero-based budgeting:
Global perspectives and lessons learned
The traditional way to develop a budget Figure 14: Past and future use of zero-based budgeting
is to start with the previous period’s 20%

While ZBB users from US and LATAM reported a clear decrease in its
application, respondents from Europe and APAC reported same
budget and adjust it as needed. Zero- rates of potential use in the future
based budgeting (ZBB) is a fundamentally 1 2
different approach that involves 16% 16% 16%
developing a new budget from scratch 15%

15%
every time (i.e., starting from “zero”). In

% of total respondents citing use of ZBB per region
theory this forces decision makers to

13%
constantly look at the business with fresh

eyes, free from the limitations of past 10%*
assumptions and targets. But how well

10%
9%
does the theory translate into practice?

7% 7% 7%
On average, and according to respondents, ZBB use is expected

to decrease globally over the next 24 months, from 13% to 10%
(a real decline of 23%). However, usage trends vary significantly 5%
from region to region.
ZBB use is expected to decrease sharply both in the US (from

16% to 7%, a real decline of 56%) and in Latin America (from 15%
to 9%, a real decline of 40%). However, in Europe and Asia Pacific
the use of ZBB is expected to hold steady at current levels
(figure 14). 0%
Global US LATAM EU APAC
average
ZBB use over the past 24 months ZBB use over the next 24 months
Survey findings
US respondents reported a decrease from 16% to 7% which
represents a real decrease of 56% in the expected use of ZBB
as a cost management approach, while LATAM respondents
decrease is reported from 15% to 9%, which represents a
real decrease of 40%.

Europe and APAC respondents did not report a decrease in
use and they expect ZBB to remain at the same rates of use
as in the past.
Data point excludes Australia due to outlier data; as a result, APAC and
global averages will not match to figures shown in previous sections using
the complete data set.
17
Companies that use zero-based budgeting tend to have higher of aggressive targets (figure 15). This is somewhat surprising
cost targets. Specifically, 41% of respondents who are ZBB users since ZBB is generally considered a tactical approach, and the
are pursuing aggressive cost targets in excess of 20%, while potential cost savings from tactical approaches tend to be lower.
only 23% of non-ZBB users are pursuing those same kinds
Figure 15: Annual cost reduction targets (ZBB vs. non-ZBB)
Conducting ZBB
70%
On average 41% of respondents conducting 59%

60% ZBB reported targets above 20%
50%
50%
44%
41%
40% 37% 38%
36% 36%
32%
29%
30% 27%
26%
19%
20%
14%
12%
10%
0%
Less than 10% More than 10% More than 20%
Global conducted ZBB US conducted ZBB LATAM conducted ZBB EU conducted ZBB APAC conducted ZBB
Not conducting ZBB
70%
On average, respondents not conducting

60% 56%
ZBB cited lower targets with only 23%
reporting targets above 20%
50%
44%
42%
40% 41%
40% 36% 35%
31% 30% 30% 29%

30% 27%
23% 23%
20%
14%
10%
0%
Less than 10% More than 10% More than 20%
Global didn’t conduct ZBB US didn’t conduct ZBB LATAM didn’t conduct ZBB EU didn’t conduct ZBB APAC didn’t conduct ZBB
Data point excludes Australia due to outlier data; as a result, APAC and global averages will not match to figures shown in previous sections using the complete
data set.
18
The good news for ZBB users is they appear to be moderately for ZBB users was lower than for non-ZBB users (57% failure rate
more successful at meeting their cost targets. Although ZBB vs. 68% in Latin America; 52% vs. 56% in Europe; and 60% vs.
users in the US reported higher cost program failure rates than 71% in Asia Pacific) (figure 16).
non-ZBB users (65% vs. 57%), in all other regions the failure rate
Figure 16: Success in meeting cost targets (ZBB vs. non-ZBB)
Conducting ZBB
80%
3 Global conducted ZBB US conducted ZBB LATAM conducted ZBB
70% 65% 1
1 EU conducted ZBB APAC conducted ZBB
60%
60% 58% 57% 2
52%
50%
40%
33%
30%
29%
30% 26% 26%
20%
15% 14%
13% 13%
9%
10%
0%
Not conducting ZBB
80% 1
1
71% Global didn’t conduct ZBB US didn’t conduct ZBB LATAM didn’t conduct ZBB
68%
70%
63% 3 2 EU didn’t conduct ZBB APAC didn’t conduct ZBB
60% 57% 56%
50%
40%
33%
30% 28%
24%
21%
20% 17%
15% 15%
13%
11%
10% 8%
0%
Did not meet goals Met goals Exceeded goals
Survey findings
LATAM and APAC reported the highest benefits when conducting ZBB, an 11% positive difference in each case.
Europe reported moderately better success when conducting ZBB, a 4% positive difference.
US reported higher failure rates when conducting ZBB, an 8% negative difference.
Data point excludes Australia due to outlier data; as a result, APAC and global averages will not match to figures shown in previous sections using the
complete data set.
19
The bad news is that companies using ZBB tend to report particularly high are “weak/unclear business case” (42% vs. 25%
higher barriers to effective cost management, which suggests for non-ZBB users) and “poorly designed tracking and reporting”
ZBB may be more difficult to implement and use than other (43% vs. 23% for non-ZBB users) (figure 17).
cost management methods. Two barriers that ZBB users rate
Figure 17: Barriers to effective cost management over the past 24 months (ZBB vs. non-ZBB)
Not Conducting ZBB
100%
80%
63%
60% 55%
53%
48%
46% 46%
38% 39%
40% 35%
31% 32% 32%
28%
25% 24% 25% 25%
22% 23% 23% 21%
23% 23%
20%
20% 16%
0%
All barriers rated higher for ZBB users and top Significant increase as barrier
Conducting ZBB +17% +20%
two barriers remained equally ranked for ZBB users
100%
80%
69%
61%
58%
60% 53% 55%
52%
50%
48% 47%
44% 45%
42% 43%
41% 41%
39%
40% 37%
35%
37%
32% 31%
30% 30%
26%
22%
20%
0%
Challenges in Lack of understanding Weak business case Erosion of savings Poor design and tracking
implementing initiatives
20
ZBB use is expected to decline the most in the US and Brazil. In structured approach to cost management, are pursuing tactical
the US, high cost targets and high failure rates suggest companies improvements with cost savings targets of less than 10%, and are
might be misapplying ZBB, using a tactical approach to pursue willing to contend with the additional implementation challenges
aggressive targets that likely require strategic cost actions. In Brazil, and complexity associated with ZBB by making the necessary
where ZBB first rose to prominence, declining usage seems to be investments in training, communication, and change management.
driven by implementation challenges.
Digital zero-based budgeting
Use of ZBB is expected to remain flat in Asia Pacific, except in China, For companies interested in using zero-based budgeting,
where it is expected to rise—perhaps due to lower implementation Deloitte has developed a digital approach that can make the
barriers and lower failure rates. process faster, easier, and more effective. Key enhancements
include:
In Europe, ZBB use is relatively low but expected to hold steady.
Cost targets in the region are much less aggressive than elsewhere; •• Using cognitive technologies. These tools reduce the level of
also, structured approaches to cost management are much less manual processing, accelerating the ZBB effort and helping to
common. In this environment, ZBB—as a structured approach— identify hidden savings opportunities.
may be appealing to some companies simply because it is better
than nothing. •• Focusing on strategic drivers. This reduces the change
management challenge of ZBB, while delivering improvements
Additional data about ZBB use can be found in Appendix in the areas that matter most.
B. However, a key takeaway is that while use of ZBB seems
to be fading globally, some companies might still find it •• Attacking the problem from both ends. Supplementing
useful—particularly if they are currently in need of a more ZBB’s standard bottom-up approach with a top-down
perspective reduces the required level of detail and makes
ZBB easier to execute.
Figure 18: Traditional ZBB vs. Digital ZBB
Traditional ZBB Digital ZBB
Bottom-up and detailed approach focused on indirect Approach applying cognitive technology and accelerators
spend and indirect labor to identify strategic savings across budgets/teams
d Di d Di
en re en re
sp c sp c
ct ct
ts
ts
ire
ire
pe
pe
Ind
Ind
nd
nd
Indirect Direct Indirect Direct

spend spend spend spend
Indirect Direct Indirect Direct

labor labor labor labor
Ind
r
Ind
bo
bo
ir e
ct
la
ir e
ct
la
la c la c
re
t
re
t
bo bo Di
r Di r
Savings: Traditional ZBB Savings: Digital ZBB

Tactical savings Indirect spend/labor Tactical savings Indirect spend/labor
Strategic savings Direct spend/labor Strategic savings Direct spend/labor
Balanced top-down (60-70%) and

Target savings focused on ‘‘tactical’’ opportunities
bottom-up (30-40%) approach
Typical savings opportunity 10% or less
Typical savings opportunity 10-20% or more
21
•• US: 33% reported

reported not meet
A large percentage •• LATAM: Strategic li

Brazil (32%) vs Mex
of companies •• EU: Only 13% of Eu
(40%) continue to
•• APAC: Indian and C
above 10% (74% an
focus on tactical
cost management
approaches that
typically yield cost
savings of less
than 10%
22
Cost management practices to thrive in uncertainty
Low targets and high failure rates suggest At the moment, a large percentage of companies continue to
focus on tactical cost management approaches that typically yield
that cost programs globally are not as cost savings of less than 10%. However, many companies might
effective as they could be. This provides be better served by applying approaches that are more strategic
and transformational in nature, and are thus more likely to deliver
an opportunity for companies around the scalable and sustainable cost savings in excess of 10% (figure 19).
world to significantly improve how they
manage costs.
Figure 19: The continuum of cost management approaches
Currently these are the ... but environment suggests

<10% >10%
types of approaches many Cost target many companies should
respondents are pursuing pursue these approaches
targets >20% but 58%

ting targets
Tactical/continuous improvement approach Strategic/transformational approach
ikely actions rated higher in
xico (26%) Narrow/selective (e.g., streamline organization
Broad (e.g., change business configuration,
Scope/cost areas structure, improve policy compliance, reduce
uropean respondents cited cost targets >20% outsource/offshore, increase centralization)
external spend, streamline business processes)
Chinese companies rate highest for targets
nd 72% respectively). <6% (continuous improvement)/
Cost target range >10%
6%–10% tactical
Sustainability/scalability Lower Higher
Change management
Lower Higher
needs
•• US: 41% of respondents cited cost targets <10% •• US: 33% reported targets >20% but 58% reported not meeting
targets
•• LATAM: Brazil and Mexico reported high failure
rates 64% and 69% •• LATAM: Strategic likely actions rated higher in Brazil (32%) vs.
Mexico (26%)
•• EU: 52% of European respondents cited cost targets <10%
•• EU: Only 13% of European respondents cited cost targets >20%
•• APAC: Japanese and Australian companies rate the highest
for targets below 10% (74% and 50%, respectively). •• APAC: Indian and Chinese companies rate highest for targets
above 10% (74% and 72%, respectively).
23
A new scenario emerges

In the past, companies pursuing strategic cost improvements have generally fallen into one of three categories: (1) distressed, (2)
positioned for growth, or (3) growing steadily (figure 20).
Figure 20: Traditional cost management scenarios
1. Distressed 2. Positioned for growth 3. Growing steadily

Competitive •• Losing market share •• Recovering from recession •• Healthy balance sheets
situation •• Structural operating flaws •• Adjusting to demand levels •• Excess cash flow/reserves
•• Liquidity concerns •• Growth concerns •• High growth potential
•• No clear growth options •• Conditional options for growth •• Unconstrained options
Growth Talent Cost Liquidity Liquidity Talent Growth Cost Liquidity Cost Growth Talent
Cost levers
priority
Low High Low High Low High
Playbook Defensive-oriented playbook Growth-oriented playbook Growth-oriented playbook

•• Short-term tactics to •• Structural improvements, •• Achieving profitable and
improve balance sheet such as choosing the right sustainable growth through
•• Stabilize business operating model structural cost efficiencies
through any cost and/or •• Opportunities to help fund and improvements
liquidity improvements growth initiatives •• Actions to strengthen
performance and
competitive positions
These traditional scenarios have different priorities, with each scenario primarily focusing on two of the four strategic levers: growth, talent,
cost, and liquidity. However, in the current business environment a new competitive scenario seems to be emerging between “distressed” and
“positioned for growth” that simultaneously focuses on three of the strategic levers (specifically, growth, cost, and either talent or liquidity). We
call this new scenario “thriving in uncertainty.”
24
It remains to be seen whether this new category is a permanent feature of the business landscape, or simply a stepping-stone to one of
the three traditional categories (figure 21).
Figure 21: Thriving in uncertainty
1. Distressed Thriving in 2. Positioned for 3. Growing steadily

Competitive •• Losing market share uncertainty growth •• Healthy balance
situation •• Structure operating •• Flat profit growth •• Recovering from sheets
flaws •• Digital disruption recession •• Excess cash flow/
•• Liquidity concerns •• Global economic •• Adjusting to reserves
•• No clear growth volatility demand levels •• High growth
options •• Growth concerns potential
•• Conditional options •• Unconstrained
for growth options
Growth Talent Cost Liquidity Talent Liquidity Growth Cost Liquidity Talent Growth Cost Liquidity Cost Growth Talent
Cost levers
priority
Low High Low High Low High Low High
Playbook Defensive-oriented Broader and Growth-oriented Growing steadily

playbook integrated playbook playbook •• Achieving profitable
•• Short-term tactics •• Identify, prioritize, •• Structural and sustainable
to improve balance and simultaneously improvements, such growth through
sheet pursue new growth, as choosing the right structural cost
•• Stabilize business while generating cost operating model efficiencies
through any cost savings, freeing up •• Opportunities to and improvements
and/or liquidity cash, and supporting help fund growth •• Actions to
improvements capabilities to achieve initiatives strengthen
strategic vision performance and
competitive positions
25
Different playbooks for different markets

In some markets—including Brazil, France, Italy, Japan, and the UK—macroeconomic factors seem to be pushing companies toward
greater uncertainty and distress. This requires a playbook with value creation levers that are more defensive in nature (figure 22).
Figure 22: Leaning toward defense
1. Distressed New: Thriving in uncertainty 2. Positioned for growth 3. Growing steadily
? Here to stay? ?
If the global macroeconomic LATAM If we observe a reversal of the recent global macroeconomic
environment continues to slowdown, and sustained global growth emerges, organizations
worsen, organizations could could end up in ‘‘Positioned for growth’’ or ‘‘Growing steadily.”
end up in ‘‘Distressed’’
Focus Focus
Focus
•• Structural improvements, •• Achieving profitable
•• Short-term survival and
EU such as choosing the right sustainable growth through
balance sheet improvements
operating model structural cost efficiencies
and improvements
•• Stabilize the business
•• Opportunities to help
through any cost and
fund growth initiatives •• Actions to strengthen
liquidity improvements
performance and
competitive position
APAC
Defense-oriented playbook Customer Production portfolio

Marketing & sales
Revenue Pricing realization experience & innovation &
Growth Talent Liquidity Cost effectiveness
channel mix rationalization
Supply chain &

Direct cost SG&A cost Service delivery
Margin manufacturing
optimization management execution
effectiveness
Working capital Inventory Capital investment & Debt

Assets
optimization optimization divestment restructuring
Business
Governance & Optimizations & Risk, compliance
Execution performance
change talent & regulatory
management
Mergers & Business portfolio Partnership & Tax

Strategy
acquisitions optimization collaboration strategy
Low High Indicates levers that Deloitte identified as potential focus areas
26
Other markets seem to be moving toward a more positive outlook To manage costs effectively, it is important for an organization to
(US, Mexico, Netherlands, Spain, Germany, Belgium, Norway, choose a cost management playbook that aligns with its future
Australia, Singapore, Hong Kong, India, and China). This scenario needs and market position.
tends to favor an offense-oriented playbook with an emphasis on
growth (figure 23).
Figure 23: Leaning toward offense and growth
1. Distressed New: Thriving in uncertainty 2. Positioned for growth 3. Growing steadily
? Here to stay? ?
If the global macroeconomic If we observe a reversal of the recent global macroeconomic
environment continues to slowdown, and sustained global growth emerges, organizations
worsen, organizations could could end up in ‘‘Positioned for growth’’ or ‘‘Growing steadily.’’
LATAM
end up in ‘‘Distressed’’
Focus Focus
Focus
•• Structural improvements, •• Achieving profitable
•• Short-term survival and
such as choosing the right sustainable growth through
balance sheet improvements
EU operating model structural cost efficiencies
and improvements
•• Stabilize the business
•• Opportunities to help
through any cost and
fund growth initiatives •• Actions to strengthen
liquidity improvements
performance and
APAC competitive position
Growth-oriented playbook Customer Production portfolio

Marketing & sales
Liquidity Talent Growth Cost Revenue Pricing realization experience & innovation &
effectiveness
channel mix rationalization
Supply chain &

Direct cost SG&A cost Service delivery
Margin manufacturing
optimization management execution
effectiveness
Working capital Inventory Capital investment & Debt

Assets
optimization optimization divestment restructuring
Business
Governance & Optimizations & Risk, compliance
Execution performance
change talent & regulatory
management
Mergers & Business portfolio Partnership & Tax

Strategy
acquisitions optimization collaboration strategy
Low High
Indicates levers that Deloitte identified as potential focus areas
27
While 15% of US companies

reported digital disruption
as a top risk, on average
only 6% of companies
globally recognize the
potential disruptive impact
of digital technologies
28
Margin improvement in the age of digital disruption

Looking into the future, digital disruption—and the exponential is currently less of a focus for companies in other regions, their
technologies that drive it—are likely to be key factors that perspectives could change very quickly given the exponential
companies need to consider as they strive to reduce costs and speed and impact of digital technologies. To avoid falling behind,
improve margins. And for a growing number of companies, the companies in every part of the world should understand the
future is now. potential impact of digital so they can position themselves
to capitalize on the opportunities, particularly with regard to
According to the survey, digital disruption is already recognized automation and analytics/cognitive technology, which will
as a major external risk in the US (figure 24). However, it is also likely be the first innovation areas to emerge.
creating unprecedented opportunities. And while digital disruption
Figure 24: Digital disruption and exponential technologies
15% Digital disruption importance as

external risk % of respondents
6% 6%
1% 2%

average
The vast majority of companies are just starting to recognize the potential disruptive impact of digital technologies.
Source: Deloitte Regional Cost Survey Reports
Exponentials
Some exponential trends that are fueled by recent digitalization Two main areas of digital innovation to improve
of a number of technology and organizational areas margins and competitiveness are emerging
Automation
Artificial Robotics Biotechnology and

intelligence bioinformatics Before Now
Revolutionizing physical Revolutionizing knowledge-
production of goods based, labor-intensive
processes
Energy and Digital manufacturing and Computation,
environmental nanotechnology networks, & sensors
systems
Analytics & Cognitive technology
Analytics and big data to uncover hidden insights

Incentive Digital Digital and predictive decision making
competitions medicine economies
Cost management evolved and centralization—that delivered greater savings through

Since the 1980s, cost management solutions and methods have fundamental changes to a company’s operating model, service
been constantly evolving. At first, the emphasis was on traditional delivery model, and governance. Now, we are seeing the rise
tactics such as category-focused cost management, external spend of advanced, next-generation cost management solutions that
reduction, continuous improvement, and process reengineering. harness the power of digital technologies to boost efficiency and
More recently, structural approaches emerged that were more effectiveness, and to enable fundamentally new business models
strategic in nature—such as global outsourcing, offshoring, and new ways of working that dramatically reduce costs (figure 25).
29
Figure 25: The evolution of cost management3
1980s–present 2008–present 2017+
Traditional cost management: Structural cost management: Advanced/Next-gen cost

Cost categories and processes Operating models and governance management: Digital cost solutions
Maximizing traditional Alternative operating models Analytics and cognitive

cost levers solutions
•• Separation of G&A and ops/
•• Focus on cost categories commercial models •• Cognitive solutions to
•• Continuous improvement increase effectiveness
•• Globalized operating model
•• Process reengineering •• Cognitive technologies to
•• Globalized governance
supplement labor
Traditional external spend Alternative service delivery Automation

reduction levers models and demand
•• Robotics process automation
management
•• Indirect and direct sourcing (RPA) to increase efficiency
•• Global/regional/local delivery
•• More effective supply and eliminate labor
chain integration •• GBS/alternative-sourcing
•• Robotics cognitive automation
•• Introduction of CPO •• Demand management and (RCA) to increase effectiveness
policies as cost levers and supplement labor
Maturity: low high 3
Deloitte Analysis 2017
As noted above, it is likely that digital cost solutions will initially focus or past their peak potential—cost solutions based on exponential
on automation and analytics/cognitive technology—and the initial technologies are just emerging and have the potential to deliver
benefits will tend to be tactical improvements in efficiency and increasing savings over time due to the exponential nature of digital
effectiveness (i.e., replacing or augmenting human labor in existing technologies (i.e., “Moore’s Law”). In addition, advanced digital cost
business processes). At the moment, those solutions are still in the solutions can be implemented more quickly, enabling companies to
early stages of maturity. However, unlike traditional tactical and achieve greater savings in much less time (figure 26).
structural cost management approaches—which may be nearing
Figure 26: Cost solutions—Current and future potential Current or

Cost reduction expected time
Cost solutions: Current state and potential Maturity potential to results
Maximizing traditional +
1980 to Traditional cost management: cost levers $
present Cost categories and processes Traditional external spend -
reduction levers Years (base 2017)
Alternative operating +
Structural cost management: models
2008 to $
Operating models and
present governance Alternative service delivery models -
and demand management Years (base 2017)
Analytics and +
Advanced/next-gen cost cognitive solutions $
2017+ management: Digital cost
solutions Automation -
Years (base 2017)
Maturity: low high
30
Case study: Using cognitive intelligence to analyze

and help reduce external spend
A global beverage manufacturer was under severe margin pressure The tool is accurate, flexible, and fast. It learns and reasons like
as its core product offerings became increasingly commoditized, and a human, understanding the subtle nuances of industry-specific
as the industry’s production efficiency gains caused product supply language and getting smarter with every analysis. It can use
to far outpace consumer demand. This led the company to seek fragmented and unstructured data from any kind of system or ERP
better visibility into external spend and associated opportunities. platform, and its spend categories are fully customizable. One key
capability that makes a cognitive classification engine different than
As part of a rapid cost transformation initiative designed to a traditional rules-based system is that it can identify and create
deliver a cost savings impact, Deloitte helped the company apply data categories it has never seen before. Also, it can classify more
advanced cognitive technologies to reduce external spend. than 40,000 transactions per minute—a level of throughput that
Traditionally, this kind of analysis has required significant time could never be achieved through manual processing alone.
and manual effort to classify and analyze millions of purchase
transactions. However, thanks to the power of cognitive Once the company’s transactions had been accurately categorized
intelligence, the Deloitte team was able to classify more than 98% by spend category, supplier, geography, and time period, the team
of the transactions through automation, completing the task in was able to generate deep insights about the company’s external
just 2–3 weeks—rather than the 6–8 weeks that would typically spend, including identifying purchase price variance across
be needed. With improved visibility into key spend categories, the suppliers and locations, the degree of supplier fragmentation by
executive team was then able to drive actions to make a quick category, and the level of commodity risk.
and tangible impact.
These insights drove targeted actions for the global beverage
manufacturer to improve its external spend efficiency, eliminate
waste, and increase its purchasing power through supply
consolidation.
Figure 27: CognitiveSpend analysis
Inputs Processing capabilities Reporting
Spend data Category classification

Accounts payable, Breakdown of spend by
expenses, and purchase category, geography, and time
order flat file data Cognitive period integration with S&P
classification engine platform (e.g., GSI, D-Ice)
Automated, intelligent,
and industry agnostic
classification capability
Standard taxonomy Spend insights

Standard and customizable Report based on historical
classification categories to trends and benchmarks, and
provide detailed spend predictive capabilities leveraging
breakdown Tool training/ third-party data
user feedback
Feedback via internal
tool portal
Mac g
hin e learnin
Other enrichment data Custom queries
Internal proprietary data (e.g., Tool is continuously Ability to pull Excel reports
category benchmarks), client (e.g., learning as it with desired fields, and
vendor master), and third-party data receives user dynamic internal
(e.g., commodity projections) feedback visualization functionality
Deloitte’s CognitiveSpend tool uses machine learning and advanced pattern recognition to accurately and automatically categorize a
massive volume of individual purchase transactions (figure 27).
31
Also, the speed and impact of digital cost solutions is likely to increase dramatically as they evolve from narrowly focused, discrete offerings to
an integrated platform that addresses all four strategic cost levers—cost, growth, liquidity, and talent—driving cost improvement across the
entire enterprise (figure 28).
Figure 28: From discrete digital cost solutions to integrated platform

Current discrete use of advanced/next-gen cost solutions at Deloitte
Cost levers Traditional approach Deloitte’s advanced/next-gen cost solutions
Next-gen/advanced
Digital supply
outsourcing and
Robotics Cognitive spend chain
service delivery Cloud
RPA/RCA direct and indirect
Cost SG&A/COGS analysis solutions
sourcing
Org suite spans
Process X Ray
and layers
Growth Pricing analysis Polaris™: Insight driven revenue management (pricing and promotions)
Inventory/working
Liquidity Inveritas™: Inventory optimization and working capital
capital analysis
People Change management Strategic capability model and mapping
Cognitive or advanced solutions Tool/accelerator
Deloitte vision of convergence of advanced/

next-gen and digital cost solutions
Growth Tools
& accelerators
Increased shareholder value Increased shareholder value
•• Debt restructuring •• Pricing realization
•• Capital investment and divestment •• Customer experience and channel mix
•• Inventory optimization •• Sales and marketing effectiveness
•• Transactional working capital optimization •• Product portfolio innovation and rationalization
THRIVE platform
Automation—Cognitive and analytics
Collection of tools to help
companies impacting shareholder
value and achieve more meaningful
Liquidity tools results faster. Cost tools
& accelerators & accelerators
Increased shareholder value Increased shareholder value

•• Risk, compliance and regulation •• Direct/indirect cost optimization
•• Organization and talent •• SG&A cost management
•• Business performance management •• Supply chain and manufacturing effectiveness
•• Governance and change •• Service delivery execution
Talent Tools
& accelerators
32
Case study: Using cognitive intelligence for organization

simplification and optimizing spans and layers
A large automotive OEM (Original Equipment Manufacturer) relationships (figure 29). However, thanks to the cognitive intelligence
needed to streamline its organization to reduce costs. At the capabilities built into Deloitte’s OrgSuite toolset, the assigned team
same time, the company needed to retain critical talent, invest in was able to complete the task in just two weeks of part time work (20%
strategic capabilities, and reposition itself for future success. of the usual effort).
Building on the company’s existing cost management efforts— On the first pass, the OrgSuite tool’s accuracy rate was
which included external benchmarking and adoption of a Global approximately 60%, but that quickly improved to 95% as the
Business Services (GBS) model—Deloitte helped the company machine learned from its mistakes and retrained itself on the fly.
simplify its organization structure and optimize management In addition, OrgSuite’s advanced visualization capabilities enabled
spans and layers within its worldwide organization. Deloitte to present the analysis and improvement opportunities to
the executive team in a succinct and compelling manner. Instead of
Deloitte’s analysis required cleansing and classifying HR data for a cold hard numbers, the analysis was brought to life with dynamic
large subset of the company’s employee population—more than and impactful visuals that showed the potential benefits were real
30,000 employees. This complex and time-consuming task typically and achievable.
requires 3-6 weeks of painstaking full-time effort to manually
analyze and categorize each individual employee’s true position In the end, the project helped the company save $80–100 million
in the organization structure based on a variety of indeterminate annually in labor costs, while increasing its focus on critical talent
clues, such as job title, department, physical location, and reporting and strategically positioning itself for the future.
Figure 29: Cognitive labor analysis
Key inputs Spans and layers Key inputs

Understand organization
From the client team structure from the top down From the project team
•• HR data for all employees (~64k) •• Visuals to drive executive alignment
•• Qualitative knowledge of •• Target cost savings and type of
organization savings (i.e., separation, re-level)
•• Roadmap and implementation plan
From the project team
to achieve savings
•• Functional span guidance (from
•• Future state organization costs
supervisory burden analysis)
Key insights for the client
•• Function-specific guidance and/or
targets for organization design
Deloitte •• Future opportunities for broader

organization restructuring
OrgSuite
Spans of control Management layers

Understand the number of direct Understand how deep the management
reports for each manager structures are across the business
Source: Deloitte Consulting LLP 2017
33
From product and service enhancement to business model innovation

Until now, the lion’s share of digital innovation has been focused on enhancing products and customer service—using digital technologies to
create new and improved products, and to deliver a superior customer experience that is richer and more engaging (figure 30).
Figure 30: Innovation in products and customer service
Understanding client engagement and use

of digital to improve product/service
Factor is menu Loyalty members want:
#1
Guests want the
when selecting a
ability to customize
restaurant for the
their orders
first time 51%
44%
Guests want to Pay by phone
50%
40% order online
of those who do,
and when they do,
want to use a
spending increases
restaurant app
13%
26% QSR casual and
fast casual 48% drive 46%
through take-out
87% of respondents
belong to fewer
than 3 loyalty
programs Discounts Engagement
31% in restaurant
rewards
Define a full approach to leverage digital

and enhance customer experience
Next generation—Advanced guest experience
Entice Enter Engage Exit Extend
•• Guest views restaurant •• Guest determines •• Guest determines •• Guest waits for meal •• Guest finished meal
website to review menu, what to order/how how he/she would •• Looks for something •• Reviews new loyalty
price, location to customize like to pay for meal to do to occupy him/ points
•• Consults third-party sites •• Places order online/on an to customize herself •• Engages social media
•• Selects a restaurant app or in-restaurant •• Pays bill and may opt
to split with friend •• Determines if he/
she will return
Source: Deloitte Digital, Next-Generation guest experience survey report 2016
However, the biggest potential impact of digital innovation and exponential technologies is likely to come from enabling disruptive
platforms and innovative business models that fundamentally alter the competitive dynamics of an industry or industries.
34
For example, digitally enabled ride-sharing services are completely for multiple ride-sharing companies simultaneously, switching
transforming the taxi business. However, they aren’t just a cheaper affiliations on the fly in response to real-time market demand.
alternative; rather, they represent a fundamentally new business
paradigm where workers are disconnected from the companies Similarly, increasingly sophisticated smartphones have enabled
that employ them4—creating new levels of efficiency and flexibility new business platforms that are transforming or eliminating entire
for workers and companies alike. In fact, many people drive product categories (figure 31).
Figure 31: Industry-wide digital disruption
Technology advancement and widespread adoption Platform-based innovation is already shaping

is the main enabler of new business platforms the transport and hospitality industries, and is
An average smartphone equipped with all the functionality expected to expand across all industries
of over 12 separate electronic devices
Money
Lending, insurance
services, payments, etc.
Easy-to-use VHS AM/FM
phone answerer camcorder clock radio
$49.95 $799 $13.88
Fashion
$3055 Accessories,
(1991) clothes, make-up
Mobile cellular 20 memory Handheld

telephone $199 + speed-dial cassette tape $
mobile CB $49.95 phone $29.95 recorder Transport
$29.95 Bikes, cars, carpool,
~$250 parking, boat sharing, taxis
(2014)
Micro thin All weather Personal Travel

calculator personal computing Accommodation, experiences,
$4.88 stereo $11.88 $1599 guides, tours, etc.
Equipment
10 channel Deluxe portable Stereo Machinery, pets, photography,
desktop CD player headphones sports equipment, tools
scanner $159.95 $7.88
$99.95
Source: Deloitte, The next billion dollar idea | Growth perspective 2014
4
“ Radically open: Tom Friedman on jobs, learning, and the future of work,” Cathy
Engelbert and John Hagel, Deloitte Review, July 31, 2017.
35
Case study: Using robotic process automation to

improve productivity and reduce costs
A global Fortune 1000 bank needed to expand its operational •• Applying a tailored rule-set to transactional data, and then feeding
capacity to handle a high volume of financial transactions without the results into a remediation calculator for processing and payment
hiring additional staff. Thanks to robotic process automation (RPA),
the bank has been able to boost its throughput in lending and retail The bank’s first bot was developed and deployed in just six weeks as
banking by the equivalent of 300 full-time employees—and the a pilot project to prove the viability of RPA, and to start getting teams
number continues to grow as the scope and scale of bot deployment across the enterprise to buy in. However, the effort quickly expanded to
increases. include 30–50 bots within the first six months, and 150 bots within the
first year and a half (handling 90,000 operational requests per week).
Before RPA, many of the bank’s processes were highly manual in
nature, which had a negative impact on both efficiency and quality. As a key part of the effort, an RPA-specific quality assurance (QA)
However, bank leaders were initially skeptical about automation methodology was developed to ensure that quality is constantly
because: (1) many of the bank’s processes were highly complex, (2) the maintained, and that bots do not fail in production. Manual checks
required data was scattered across numerous legacy and third-party are regularly performed on samples of recent bot output, and defined
systems, and (3) most of the processes—when viewed in isolation— test cases are periodically rerun to verify each bot is producing the
did not justify deployment of a full robot. However, Deloitte’s expected results. Also, the Risk and Internal Audit teams periodically
end-to-end analysis of the business found that RPA was indeed conduct assurance reviews on deployed bots and on the RPA Center
a viable option because many of the processes were sufficiently of Excellence and hubs.
similar to allow a combined approach to bot planning, development,
implementation, optimization, and maintenance. Today, more than 150 bots are executing more than 120,000
operational requests per week, at only 30% of the cost that would
Specific examples of RPA use at the bank include: have been incurred had the bank been required to hire additional
•• Accepting requests for credit card remediation due to an issue or staff. Overall, the payback period for this effort was just six months,
refund, and then gathering thousands of related data items for each and over the first three years RPA is expected to save the bank more
remediation application than $40 million.
•• Logging into a statement repository and converting PDF-based

unstructured data into structured data, using the power of natural
language processing to identify key terms to inform claims assessment
Figure 32: Automation roadmap
2 months 6 months 18 months
Infrastructure 3 physical PCs 10+ virtual PCs 150 virtual PCs
Bots 1 30–50 150
Processes 1 5–10 20
Weekly
<2k 10 –20k 90k
requests
Total
1/2 million 4 million
requests
Team
20% 50% -100%
adoption
36
As digital technologies enable increased innovation in business of 30% or more—sometimes much more—completely resetting
and operating models, companies can expect strategic impacts expectations about efficiency compared to traditional models
that disrupt entire industries and deliver sustainable cost savings (figure 33).
Figure 33: Future impact of digital innovation

Potential savings
Potential savings: Low High Current digital innovation
Impact Source Focus Results

Tactical Maturing Product Cost
exponential efficiency and reduction
technologies customer potential
applied engagement ≤ 10–20%
internally by innovation
companies
10 types of innovation5
Business and operating model innovation
Profit Product Product Customer

model Network Structure Process Service Channel Brand
performance system engagement
Product-based innovation Customer experience-based innovation
Future digital innovation
Impact Source Focus Results

Strategic Externally Focus on Cost
driven by innovation of reduction
market platforms and potential
disruptors business ≥ 30%
or disruptive operating
M&A models
Potential savings

5
T en Types of Innovation: The Discipline of Building Breakthroughs,
Larry Keeley, Ryan Pikkel, Brian Quinn, Helen Waters, Deloitte Development
LLC, John Wiley & Sons, Inc, April 2013, 2017.
37
Companies need to be
looking for opportunities
to disrupt the status quo
through innovative new
business models and
operating models
38
Looking ahead
Digital innovations are already

transforming the way people all over
the world live and work. And in the
months and years ahead, it could have
that same kind of transformational
impact on company cost structures.
To position themselves for success in the digital age, companies
in every region and industry need to start looking for ways
to harness the power of automation and analytics/cognitive
technology to reduce costs and improve efficiency.
At the same time, companies need to be looking for

opportunities to disrupt the status quo through innovative
new business models and operating models. In an increasingly
digital world, the future belongs to those who are bold enough
to embrace it. To thrive, companies need to become their own
disruptors—rather than allow other companies to disrupt them.
39
Report Authors
Author
Omar Aguilar is the Global Leader of the Strategic Cost Transformation service offering for Deloitte
Consulting LLP, focused on supporting and serving multinationals and local clients across the globe.
His areas of expertise include strategic cost transformation, margin improvement, restructuring,
turnarounds, and business model transformations.
Prior to his current role, he was the Americas Strategy & Operations Regional Leader and prior to that
he was the US Enterprise Cost Reduction Practice Leader. Omar has published widely on the topic
of sustainable and scalable cost management, and has been quoted by or has written for Business
Omar Aguilar Finance, The Journal of Cost Management, and The Wall Street Journal, among others. He is a frequent
Principal speaker and has been a guest lecturer at the University of Pennsylvania’s Wharton School of Business,
Deloitte Consulting LLP Stanford University’s Graduate School of Business, and Carnegie Mellon’s Tepper School of Business.
Strategic Cost Transformation He holds bachelor and master of science degrees in nuclear engineering from the University of
Global Market Offering Leader Missouri-Rolla, and a master of business administration (MBA) from the University of Notre Dame.
oaguilar@deloitte.com
USA +1 215 870 0464
International +1 267 226 8956
Contributor
Fernando Jimenez Barria
Manager, Strategy & Operations
Deloitte Consulting LLP
fejimenez@deloittemx.com
40
Contacts
Global Gaurav Gupta (India) Willem Christiaan van Manen (Netherlands)
Omar Aguilar Partner Director
Principal Deloitte Touche Tohmatsu India LLP Deloitte Consulting B.V.
Deloitte Consulting LLP +91 12 4679 2328 +31 882883118
+1 267 226 8956 gugaurav@deloitte.com wvanmanen@deloitte.nl
oaguilar@deloitte.com Yusuke Kamiyama (Japan) Joachim Gullaksen (Norway)
Partner Partner
Americas Deloitte Tohmatsu Consulting LLC Deloitte AS
Heloisa Montes (Brazil) +81 8 04367 7943 +47 905 34 970
Partner ykamiyama@tohmatsu.co.jp jogullaksen@deloitte.no
Deloitte Consultores
Wendy Lai (Singapore) Irina Biryukova (Russia)
+55 11 5186 1004
Executive Director Partner
heloisamontes@deloitte.com
Deloitte Consulting Pte Ltd Deloitte Russia
Paul Macmillan (Canada) +65 6232 7133 +74 957870600
Deloitte Canada wenlai@deloitte.com ibiryukova@deloitte.ru
Partner
Gorka Briones (Spain)
+1 416 874 4203 Europe
Partner
pmacmillan@deloitte.ca Eric Baart (Belgium) Deloitte Consulting, S.L.
Federico Chavarria Partner +34 914432520
(Latin American Country Organization) Deloitte Belgium gobriones@deloitte.es
Partner, Deloitte Consulting + 32 473 30 27 96
ebaart@deloitte.com Jonas Malmlund (Sweden)
+506 2246 5300
Partner
fechavarria@deloitte.com Zlatko Bazianec (Croatia) Deloitte Sweden
Froylan Campos (Mexico) Partner +46 75 246 33 03
Partner Deloitte Croatia jmalmlund@deloitte.se
Deloitte Consulting Mexico +385 1 2351 906
zbazianec@deloittece.com Simon Brew (UK)
+52 55 5080 7046
Partner
frcampos@deloittemx.com Ulrik Bro Muller (Denmark) UK1W
Omar Aguilar (US) Partner +44 20 7007 8989
Principal Deloitte Denmark sbrew@deloitte.co.uk
Deloitte Consulting LLP +45 30 93 40 13
+1 215 870 0464 umuller@deloitte.dk Gillian Molyneux (UK)
oaguilar@deloitte.com Director
Anne Gronberg (Finland) UK1W
Faisal Shaikh (US) Partner +44 20 7007 5460
Principal Deloitte Finland gmolyneux@deloitte.co.uk
Deloitte Consulting LLP +35 8207555607
+1 214 840 7321 anne.gronberg@deloitte.fi
Middle East and Africa
fshaikh@deloitte.com Cyril Gay Belan (France) Ozgur Yalta (Turkey)
Partner Partner
Asia Pacific Deloitte France Deloitte Danismanlik A.S.
Vanessa Matthijssen (Australia) +33 1 58 37 93 72 +90 212 366 60 77
Partner CGayBelan@deloitte.fr oyalta@deloitte.com
Deloitte Touche Tohmatsu
Christine Mareen Rupp (Germany) Mat James (UAE)
+617 3308 7203
Partner Partner
vmatthijssen@deloitte.com.au
Deloitte Consulting GmbH Deloitte & Touche (M.E.)
Christine Ahn (China) +49 711165547556 +971 2 408 2424
Partner crupp@deloitte.de matjames@deloitte.com
Deloitte Touche Tohmatsu CPA LLP
Umberto Mazzucco (Italy) Daryl Elliott (South Africa)
+86 21 6141 2208
Equity Partner Associate Director
christineahn@deloitte.com.cn
Deloitte Consulting SRL Deloitte South Africa
Jez Heath (Hong Kong) +39 0283323053 +277 31955829
Partner umazzucco@deloitte.it delliott@deloitte.co.za
Deloitte Advisory Limited
+85 2 2238 7864
jerheath@deloitte.com.hk
41
All industries report

similarly high results
for the likelihood of cost
reduction. However
drivers, priorities,
external risks, and
likely actions may be
perceived differently
by industry
42
Appendix A: Global cost management

insights from key industries
Global respondents were grouped into six major industries to uncover industry-specific cost management insights (figure A-1).
Figure A-1: Industry presence across regions
Consumer and
Figureindustrial productspresence48
A-1: Industry across regions 74 115 138 375
Consumer and
Financial services
industrial products 4856 21 74 73 30 115180 138 375
Number of
Technology, media and
4156 27 21 48 73 59 30 175
Financial services
telecommunications 180
Number
Technology,
Energy andmedia and
resources 24 41 12 111
27 47 48 28 59 175
respondents
telecommunications
Life sciences and health care 17 5 17 16 55
of respondents
Energy and resources 24 12 47 28 111
Life sciences andPublic

healthsector
care 11
175 5 23
17 16
16 55
55
Other
Public sector 13 5 11 23 26 16 1255 62
11
0 13 11 26 5012 62 100 150 200 250 300 350 400

Other
US LATAM EU APAC Total

0 50 100 150 200 250 300 350 400
AllFigure
industries
US report
LATAM similarly
A-2: Likelihood
EUhigh results
of cost reduction
APAC for the likelihood of cost reduction, ranging from 78% (public sector) to 87% (consumer and
Total
in next 24 months
industrial products) (figure A-2).
100%
Figure A-2: Likelihood of cost reduction in next 24 months
On average, 86% of respondents across industries
86% 87% 86% 86% 85% plan to undertake cost reduction initiatives
100% 83% 1
80% 78%
On average, 86% of respondents across industries
86% 87% 86% 86% 85% plan to undertake cost reduction initiatives
83% 1
80% 78%
of total respondents
60%
% of total%respondents
60%
40%
1
40%
20%
20% 15%
13% 12% 12% 13% 12% 1
20%
20% 15% 2% 2% 2% 2% 3% 2%
1%
13% 12% 12% 13% 12%
0%
Likely Neutral Unlikely
2% 2% 2% 2% 3% 2%
1%
0%
Global average ConsumerLikely
and industrial products Financial services Technology,
Neutral media and telecommunications Unlikely
Life sciences and health care Energy and resources Public sector
Global average Consumer and industrial products Financial services Technology, media and telecommunications
Survey findings
Public sector respondents reported the lowest likelihood (78%) and the highest neutral position to undertake cost reduction (20%).
43
Expectations for future revenue growth are generally higher than reported performance over the past 24 months; however, the degree of
confidence about future growth varies from industry to industry (figure A-3).
Figure A-3: Annual revenue growth
Annual revenue growth over past 24 months Annual revenue growth projections over next 24 months
100% 100%
On average, 80% of respondents cited

3 1 1
increase in revenues in the future 3
85%
84% vs. 74% in the past 84%
82%
80% 81% 2
80% 77% 78% 80% 76%
74%
72% 71%
1 69%
63%
60% 60%
40% 40%
30%
21% 20%
19% 18%
20% 16% 20%
14%
11% 11% 11% 10% 9% 10%
8% 9% 9% 9% 9% 10% 9%
7% 8% 7% 7% 8%
5% 6%
4%
0% 0%
Increase Remain the same Decreased Increase Remain the same Decreased
Global average Consumer and industrial products Financial services

- Change on annual revenue growth projected +
Technology, media and telecommunications Life sciences and health care
-2% 2% 7% 7% 9% 13%
Energy and resources Public sector LSHC PS C&IP TMT FSI E&R
Survey findings
TMT (85%) followed by C&IP (84%) and FSI (81%) reported the highest rates of growth projections over the next 24 months.
Although Energy and Resources reported an increase in projected revues (63% to 76%), it still reported lower rates of revenue increase
(76%) compared to the Global average of 80%.
LSHC is the only industry reporting a decrease in revenues (84% to 82%).
44
The majority of respondents in all industries have cost reduction targets of less than 20%. Success rates are also low across the board,
particularly in C&IP and FSI (figure A-4).
Figure A-4: Cost reduction targets and success rates
Annual cost reduction targets Success in meeting cost targets

100% 100%
LHSC and TMT respondents 63% of respondents on average reported

reported the highest targets not meeting goals, with C&IP and FSI rating
across all industries above or equal to the average
80% 80%
1
2
65%
63% 63%
59% 59%
60% 57% 60% 58%
53%
47%
45%
43% 3
42% 42%
41% 41%
39% 39%
40% 38% 40% 37% 37%
35% 35% 35% 35%
32%
31%
30%
29%
28%
26%
25%
24% 24%
19%
20% 20%
11%
0% 0%
Less than 20% 10 to 20% More than 20% Did not meet goals Met or exceeded goals
Global average Consumer and industrial products Financial services Technology, media and telecommunications
Survey findings
The majority of industries did not meet cost reduction targets (range 53–65%) with an average of 63%.
C&IP and FSI reported higher failure rates (65% and 63%, respectively).
Life Sciences & Health Care (39%) and TMT (32%) are the industries undertaking cost reduction targets higher than 20% compared to

an average of 24% for all respondents.
45
Rankings of external risks vary widely across industries. Not surprisingly, companies in technology, media and telecommunications
express much greater concern about digital disruption than do companies in other industries (figure A-5).
Figure A-5: External risks
50% 50% 50%

C&IP, FSI, and PS rated top for E&R is clearly the industry most PS followed by LSHC are the most
macroeconomic concerns impacted by commodity price concerned about political climate
40% 40% 40%
34%
33% 33%
30%
29% 30% 30%
30% 28%
27% 27%
% of respondents
% of respondents
% of respondents
24% 24%
23%
19% 19%
20% 20% 20% 18%
17%
16% 16%
15% 15%
14%
13%
10% 10% 10%
0% 0% 0%
Macroeconomic concerns/recession Commodity by price fluctuation Political climate
50% 50% 50%

Competition is evenly rated TMT is by far the most concerned PS followed by FSI and LSHC are the most
with the execption of PS about digital disruption concerned for government regulations
40% 40% 40%
30% 30% 30%

% of respondents
% of respondents
% of respondents
21%
19% 19% 19%
20% 20% 20%
17%
16%
15%
14% 14%
12% 12%
9% 9%
10% 10% 8% 10%
7% 7% 7%
6%
4%
3% 3%
0% 0% 0%
Competition Digital disruption Government regulations
Average (all industries) Consumer and industrial products Energy and resources Financial services
Life sciences and health care Public sector Technology, media and telecommunications
46
Consumer and industrial products

In the consumer and industrial products industry, the top drivers Risks beyond macroeconomic and political climate focus on
of cost management are “to gain competitive advantage” and price of commodities and competition.
“required investment for growth,” which is consistent with the
overall findings across industries (figure A-6). 4 Top strategic priority is sales growth followed by product
profitability, both reported much more frequently vs. the
Top drivers are to gain competitive advantage over peer group average from all industries.
and required investment for growth.
5 Likely cost actions are similar to the average from all industries
C&IP companies have focused significantly more on areas with change business configuration rating much higher.
related to reducing operational costs.
Figure A-6: Consumer and industrial products insights

Drivers of cost management Top areas for cost reduction External risks
To gain competitive 1
53% 30%
advantage over peer Reduction in 58% Macroeconomic
group 60% administration costs
60%
concerns 33%
Required investment 46%

in growth areas 19%
53% 2 Commodity price 3
Reduction in 54% 24%
Performance of your 33% operational costs 62%
portfolio abroad
33% 18%
Reduction in purchased Political climate
15%
Changed 30% products and services 44%
regulatory contributing to
27% 50%
structure overhead
15%
Competition 3
Significant reduction 27% 17%
in consumer
25% Reduction in sales 35%
demand
and marketing costs
39% 12%
Unfavorable cost Government
26%
position relative regulations 9%
to peer group 26%
Decrease in Reduction in 31%

22% 6%
liquidity and working capital 35% Digital disruption
tighter credit 25% 4%
Strategic priority Likely cost actions
Streamline business 45%

48%
Sales growth processes 47%
51%
Reduce 42%
4
external spend 45%
Product 38%
profitability 43% Streamline 38%
organization
40%
structure
36% Increase 36%

Cost reduction
36% centralization 38%
Improve policy 35%
31% compliance 32%

Organization
and talent 31%
Change business 32%
5
configuration 41%
Balance sheet 24%

management 21%
Outsource/offshore 30%
business process Average (all industries)
32%
Consumer and industrial products
47
Financial services
In financial services, the top drivers are also consistent with the Risks beyond macroeconomic and political climate focus on
overall results across industries. However, the percentages are government regulation and competition.
lower in absolute terms (figure A-7).
4 Strategic priorities related to sales growth and organization
Top drivers are consistent but rated lower compared to average and talent rated much lower relative to the average from all
from all industries. industries.
Reduction in operational costs and in purchased products and 5 Likely actions are consistent with the average from all
services rated much lower compared to the average from all industries but outsource/offshore rated much higher.
industries.
Figure A-7: Financial services insights

To gain competitive 53%

Reduction in 30%
advantage over peer 58% Macroeconomic
group 47% administration costs concerns
59% 34%
1
in growth areas 19%
37% Commodity price
portfolio abroad
35% 18%
2
14%
34% 34%
structure overhead 15%
Competition
in consumer
26% Reduction in sales 35% 3
demand
and marketing costs
36% 12%
Government
Unfavorable cost 26% regulations 16%
position relative
to peer group 30%
Decrease in Reduction in working 31%

6%
22%
liquidity and capital 25% Digital disruption
23% 7%
tighter credit

48%
37%
4
Reduce 42%
external spend 37%
Product 38%
organization
37%
structure
36% Increase 36%

Cost reduction
Improve policy 35%
31% compliance 32%

Organization
4
and talent 24%
Change business 32%
configuration 29%
Balance sheet 24%

management Outsource/offshore 30%
23% 5 Average (all industries)
business process 37%
Financial services
48
Technology, media, and telecommunications

In technology, media, and telecommunications, the top drivers Risks beyond macroeconomic and political climate focus on
are consistent with the overall results across industries. However, competition.
“required investment in growth areas” and “significant reduction
in consumer demand” are ranked much higher than the overall 4 All priorities rated much higher compared to the average from
industry averages (figure A-8). all industries, but especially sales growth and balance sheet
management rated much higher.
Top drivers are consistent with the average from all industries
but required investment for growth and significant reduction in 5 Top likely cost action for TMT respondents is to reduce
consumer demand rated much higher. external spend.
Although most areas of cost reduction rated similar to the

average from all industries, reduction in working capital rated
much lower.
Figure A-8: Technology, Media, and Telecommunications insights

Reduction in 30%
group 53% administration costs concerns
57% 27%

in growth areas 1 19%
52% Commodity price
portfolio abroad
34% 18%
16%
31% 47%
Competition 3
in consumer 1
demand
and marketing costs
36% 12%
Government
position relative
to peer group 26%

6%
22% 2
22% 12%
tighter credit

48%
57%
Reduce 42%
5
external spend 46%
Product 38%
organization
41%
structure
36% Increase 36%

Cost reduction 4
Improve policy 35%
31% compliance 35%

Organization
and talent 39%
Change business 32%

configuration 38%
Balance sheet 24%

management 33% Outsource/offshore 30%
Average (all industries)
Technology, media and communications
49
Energy & resources

In the energy & resources sector, the strategic priorities of “sales Major risk perceived by far is price of commodities.
growth” and “product profitability” are rated much lower than
average (figure A-9). 4 Sales growth and product profitability rated far behind as
strategic priorities compared to the average from all industries
Drivers related to required investment for growth and and costs reduction rated the second highest.
reduction in consumer demand differ significantly from the
average of all industries. 5 Outsource/offshore business processes is the least likely action
and rated much lower compared to average from all industries.
Reduction in administration costs rates much lower compared
to the average from all industries and reduction on working
capital rates much higher.
Figure A-9: Energy & Resources insights

Reduction in 30%
group 51% administration costs concerns 24%
49% 2
Required investment
46%
in growth areas 1 19%
34% Commodity price
54%
3
Reduction in 28%
portfolio abroad
38% 18%
17%
24% 43%
structure overhead
15%
Competition
in consumer 1
demand
and marketing costs
31% 12%
26%
to peer group 28%

22% 2 6%

48%
33%
Reduce 42%
external spend 36%
Product 38%
organization
33%
structure
36% Increase 36%

Cost reduction 4
Improve policy 35%
31% compliance 37%

Organization
& talent 28%
Change business 32%
configuration 32%
Balance sheet 24%

management 14% 5 Average (all industries)
Energy & resources
50
Life sciences and health care

In life sciences and health care, “performance of your portfolio Risk perceptions are focused on macroeconomic and political
abroad” and “changed regulatory structure” were rated much climate.
higher than average as cost management drivers (figure A-10).
4 Product profitability rates as second priority but was cited
Performance of portfolio abroad and changed regulatory more frequently compared to the average.
structure rated clearly higher as cost drivers compared to the
average from all industries but gain competitive advantage 5 Top likely cost action for LSHC is to improve policy compliance
remains the most important driver. which is rated significantly above the average from all
industries.
Cost reduction related to working capital rated much higher
compared to the average from all industries.
Figure A-10: Life Sciences and health care insights

Reduction in 30%
47% 3
group administration costs concerns 29%
58%
in growth areas 19%
36% Commodity price
portfolio abroad
42% 18%
1 Reduction in purchased Political climate 3
23%
36% 27%
Competition
in consumer
demand
and marketing costs
29% 12%
Government
position relative
to peer group 24%

6%
22%
capital 2 Digital disruption
liquidity and 47%
13% 7%
tighter credit

48%
49%
Reduce 42%
external spend 35%
Product 38%
profitability 42%
4 Streamline 38%
organization
38%
structure
36% Increase 36%

Cost reduction
Improve policy 35%

compliance 5
31% 51%
Organization
and talent 31%
Change business 32%
configuration 33%
Balance sheet 24%

management 25% Average (all industries)
Life sciences and health care
51
Public sector
In the public sector, “changed regulatory structure” was the top Due to the nature of the industry, risks are focused on
driver of cost management. This is a very different result than for macroeconomic concerns, political climate, and government
other industries (figure A-11). regulation.
Changed regulatory structure is rated much higher as driver of 4 Given the nature of the public sector, sales growth and product
cost management compared to the average from all industries. profitability rated much lower, making cost reduction and
organization and talent top priorities for public sector.
Reduction of administrative costs rated as top area and much
higher compared to the average from all industries. 5 Improved policy compliance rated much higher compared to
the average from all industries.
Figure A-11: Public sector insights

To gain competitive 2
53% 30%
advantage over peer Reduction in 58% Macroeconomic
42% administration costs 3
group concerns 33%
64%
in growth areas 19%
42% Commodity price
portfolio abroad
20% 18%
Reduction in purchased Political climate 3
27%
regulatory 1 contributing to
44% 47%
structure overhead
15%
Competition
in consumer
demand
and marketing costs
15% 12%
26% 3
to peer group 22%

6%
22%

48%
24%
Reduce 42%
external spend 33%
Product 38%
organization
36%
structure
36% Increase 36%

Cost reduction
4
Improve policy 35%
5
31% compliance 45%
Organization
and talent 31%
Change business 32%
configuration 16%
Balance sheet 24%

management Outsource/offshore 30%
18% Average (all industries)
Public sector
52
ZBB use is expected

to decrease sharply
both in the US and
in Latin America.
However, in Europe and
Asia Pacific the use of
ZBB is expected to hold
steady at current levels
53
Appendix B: Zero-based budgeting (ZBB)

analysis by country/region
United States
Potential misapplication along with higher implementation challenges and failure rates may be key
contributors to the steep decrease on expected future use of ZBB.
Figure B-1: Use of ZBB in the United States Past and future ZBB use
1 Use
20
US companies show the steepest decrease in use over the
next 24 months from 16% to 7% (9% absolute drop and a 1
56% relative decrease), relative to any other region.
16% 16% 16%
2 Targets 15%
ZBB users reported cost reduction targets >20% much more
frequently compared to those that did not (59% vs. 27%,
15
13%
respectively) potentially indicating misaligned use of ZBB.
3 Success rates
Companies implementing ZBB reported higher failure rates
65% vs. 57% (8% difference). 10%
4 Barriers 10 9%
Barriers for ZBB users are much higher in 4 out of 5 categories.

7% 7% 7%
Annual cost reduction targets

80 0
2 Global average US LATAM EU APAC
59% ZBB use over the past 24 months ZBB use over the next 24 months
60
44%
Barriers to effective cost management
40
29% 30%
27%
70.0
63%
20
12%
4
53%
0
Less than 10% 10% to less More than 20%
52.5
47%
than 20%
41% 41%
Success in meeting cost targets
80 3
35%
65% 35.0 32%
60 57%
23%
22%
21%
40
26%
28% 17.5
20 15%
9%
0 0.0
Did not meet goals Met goals Exceeded goals Challenges in Weak/unclear Lack of Poorly designed Erosion of savings
implementing business case understanding/ reporting and due to infeasible
intiiatives for cost acceptance of tracking target setting
improvement the solution by
US conducted ZBB US didn’t conduct ZBB the audience
54
Europe
With structured cost programs not likely prevalent in Europe, ZBB use is moderately more successful as it is
a structured cost management approach.
Figure B-2: Use of ZBB in Europe Past and future ZBB use
1 Use
20
ZBB use in Europe (7%) is below the global average (13%) and
expected to remain flat compared to the previous 24 months.
2 Targets 16% 16% 16%
The majority of ZBB users reported targets of 10% to less 15%
than 20% (44%). The majority of cost programs in Europe
reported targets of less than 10% (56%), suggesting that 15
structured cost programs may not be prevalent in Europe. 13%
3 Success rates
ZBB users reported moderately higher success (4%)
compared to non-ZBB users. 10%
4 Barriers 10 9%
1
Barriers for ZBB users are much higher in 4 out of 5
categories with 2 out of 4 being much higher. 7% 7% 7%

80 0
2
60 56% 2
44%
37%
40
30%
80
19%
20 14%
0 60
than 20%
48%
Success in meeting cost targets 44% 4
80
3
40 37% 37%
60 56% 31%
52%
26%
23%
22%
40 20%
33% 33% 20 16%
20 15%
11%
0 0
Did not meet goals Met goals Exceeded goals Challenges in Lack of Poorly designed Weak/unclear Erosion of savings
implementing understanding/ reporting and business case due to infeasible
intiiatives acceptance of tracking for cost target setting
the solution by improvement
EU conducted ZBB EU didn’t conduct ZBB the audience
55
Brazil
Although more effectively used as a tactical tool and its application resulting in moderate relative
success, its use is expected to drop sharply, possibly due to higher barriers to implementation.
Figure B-3: Use of ZBB in Brazil Past and future ZBB use
1 Use 24 1
Brazil reported a high use of ZBB in the past that is expected
to decrease sharply from 21% to 13% (8% absolute drop and 21%
almost 50% relative decrease) in the future.
2 Targets
More than half of ZBB users (53%) are targeting cost
reduction of less than 10%. 18
16% 16% 16%
3 Success rates 15%
Companies conducting ZBB reported lower failure rates 56%
vs. 64% (8% positive difference). 13% 13%
4 Barriers
Despite its tactical use, all barriers for ZBB users are higher 12
10%
when conducting ZBB, with two being much higher.
9%
7% 16% 16%

80 0
Global average US LATAM Brazil EU APAC
2
60
53%
44%
40
29%
33% 80
27%
4
20
13%
63%
0 60 56%
than 20%
50%

80 41%
3
64%
40 38%
60 56% 31%
28%
25%
21% 22%
40
31% 20
19%
20 17%
13%
0 0
Brazil conducted ZBB Brazil didn’t conduct ZBB the audience
56
APAC
Despite potential misapplication and high barriers to implementation, success is higher but its use is
expected to remain flat.
Figure B-4: Use of ZBB in APAC Past and future ZBB use
20
1 Use
ZBB use in APAC (16%) rated above the global average (13%)
1
and it is expected to remain flat in the future.
2 Targets 16% 16% 16%
ZBB users reported targets of more than 20% much higher 15%
compared to non-ZBB users (36% vs. 23%, respectively).
15
3 Success rates 13%
ZBB users reported much lower failure rates compared to
non-ZBB users (60% vs. 71%, respectively).
4 Barriers 10%
All barriers are higher when conducting ZBB, with poorly
designed reporting and weak business case showing high
10 9%
differences compared to non-ZBB users.

7% 7% 7%

80 0
60
2
41% Barriers to effective cost management
38%
40
80
36% 36%
26% 4
23%
20 69%
63%
0 60
Less than 10% 10% to less More than 20% 55%
than 20% 52%
50%
46%
80
3
71%
40
60%
32% 32%
60 31%
28%
40
20
26%
21%
20
14%
8%
0 0
APAC conducted ZBB APAC didn’t conduct ZBB the audience
57
China
Lower barriers compared to other regions, along with higher targets and success rates, may be key
factors to the expected increase in ZBB use.
Figure B-5: Use of ZBB in China Past and future ZBB use
1 Use 24 1
ZBB use in China rated above the global average and is
21%
expected to increase from 14% to 21%.
2 Targets
ZBB users reported targets of 10% to 20% much higher
compared to non-ZBB users (55% vs. 45%, respectively)
and similar targets of more than 20%.
18
16% 16% 16%
3 Success rates 15%
ZBB users reported lower failure rates compared to non-ZBB 14%

users (55% vs. 67%, respectively). 13%
Barriers
12
4
While challenges in implementation and erosion of savings 10%
rated lower than non-ZBB users, three barriers rated higher
9%
or much higher compared to non-ZBB users.
7% 21% 13%

80 0
Global average US LATAM EU APAC China
2
60 55%
45%
40
29%
80
27% 26% 74%
4
18%
20
64%
0 60
Less than 10% 10% to less More than 20% 55% 55%
than 20%
Success in meeting cost targets 45%

80 3
40%
67% 40
33%
60 55% 30% 30%
40
30% 20
27%
20 18% 9%
3%
0 0
China conducted ZBB China didn’t conduct ZBB the audience
58
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Thriving in uncertainty in

the age of digital disruption

About the study 6

Global insights from regional cost surveys 9

Zero-based budgeting: Global perspectives and lessons learned 17

Cost management practices to thrive in uncertainty 23

Margin improvement in the age of digital disruption 29

Appendix A: Global cost management insights from key industries 43

Appendix B: Zero-based budgeting (ZBB) analysis by country/region 54

Digital innovations are transforming how we live and

Advanced, next-generation technologies are also having a strategic impact on costs.

In this rapidly changing global business environment­—where cost is a true strategic

Omar Aguilar Jim Moffatt

Cost management used to be something businesses only thought about when

Disrupt, or be disrupted. In an increasingly digital world, disruption

About the study

•• United States (report published in future cost initiatives

•• Company annual revenue of $150 USD

•• Involvement in managing cost reduction

Figure 1: Geographic coverage

20% *US Survey is the only

Figure 2: Management level

30% 100% The majority of

Figure 3: Industry breakdown

37% LATAM 74 21 27 12 5 5 11 155

APAC 138 30 59 28 16 16 12 299

18% 0% 20% 40% 60% 80% 100%

Almost half of the organizations

Global insights from the regional cost surveys

Figure 4: Likelihood of cost reduction over the next 24 months

Global average US LATAM EU APAC

Low targets. High failure rates

Figure 5: Cost reduction targets and success rates

Global average US LATAM EU APAC

Economic concerns dominate today,

highest or second highest risk in all regions

High expectations for growth

Figure 7: Annual revenue growth

81% 73% 80%

73% 6% more companies expect

60% 67% 60%

revenue growth in the future

A strategic paradox: Thriving in uncertainty

Figure 9: Drivers of cost reduction

Global average US LATAM EU APAC

Developing cost management capabilities

Figure 10: Capabilities developed over the past 24 months

55% 55% 1 55%

Global average US LATAM EU APAC

Little change in cost management approaches

Figure 11: Approaches to manage costs—past and future

62% 61% 62%

Global average US LATAM EU APAC

Implementation is the biggest challenge

Figure 12: Barriers and lessons learned

Lessons learned—past 24 months

60% 55% 56%

47% 46% 48%

Global average US LATAM EU APAC

Tactical actions remain predominant

Strategic: less likely Tactical: More likely

On average, and according to

is to start with the previous period’s 20%

based budgeting (ZBB) is a fundamentally 1 2

In this rapidly changing global business environment—where cost is a true strategic