UK firms believe 95 percent of recession cost cutting is unsustainable

UK businesses are worried that they will not be able to maintain 95 percent of the cost reduction that took place during the recession, according to a new survey.

This means that £90 billion of extra and returning costs could hit businesses, unless they pursue more sustainable cost-cutting initiatives, KPMG’s ‘Cost Boomerang’ report said.

IT has already seen signs of this ‘cost boomerang’ with suppliers reporting growing sales. In part this is because organisations are replacing aging equipment and renewing vital licenses, as well as investing albeit cautiously for future growth. But there are also fears that some IT shops are returning to ‘business as usual’ rather than exploring new alternatives, such as cloud and software as a service.

KPMG surveyed 525 senior finance managers from among the largest 350 companies in the UK, Germany, Switzerland, Spain and the Netherlands. It found that UK respondents were most pessimistic believing just five percent of savings were sustainable, compared to the Netherland’s 9.3 percent.

Report author Martin Scott, partner of KPMG Performance and Technology, said: “Only 12 months ago, most companies were single-mindedly focused on cutting costs in an all-out effort to withstand the financial crisis.

“Worryingly, business leaders now expect the vast majority of costs they worked hard to shed to come surging back.”

The costs could start seeping back into the business due to short term cost-cutting measures taken during the recession, as well as a lack of cost control as businesses reacted to early signs of recovery.

Thirty-eight percent of British finance managers were concerned that the returning costs would cancel any cost savings made once the economy returns to health, with a similar number also expecting the cost of rebuilding resources will surpass the costs saved.

“Organisations need to redouble their cost-management efforts to make sure that their recession-driven cost improvements are not lost in the exhilaration of renewed growth,” Scott warned.

For the majority of the UK respondents (nearly 80 percent), the cost of finance is mainly responsible for the returning cost.

However, higher costs from increased salaries and headcount also play a significant role for 76 percent and 70 percent of respondents, respectively.

“UK firms need to look hard at their existing business and operational models, and challenge complacency if cost-cutting is to be a long-term lifestyle choice, not a crash diet,” Scott said.

Meanwhile, another global KPMG survey, of 291 chief financial officers (CFO) at consumer products retailers and manufacturers, found that many businesses were looking at IT investment for their cost and strategic growth initiatives.

More than 70 percent of the respondents said that their companies will invest in IT systems for customer relationship management (CRM), business intelligence (BI), enterprise resource planning (ERP) and forecasting this year.

In addition, more than half plan to invest in technology in order to improve their supply chains, according to the ‘CFO Insights: A Global Survey of Consumer Markets Executives’ report.

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