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Survey Shows CFOs' Top Cost-Cutting Considerations
An overwhelming 85 percent of respondents stated that cost reduction is their priority.
Posted May 4, 2004
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Booz Allen Hamilton released the results of a CFO survey that reveal trends and best practices in the management of general and administrative (G&A) functions. The survey gives insight into CFOs' thoughts on cost reduction through automation, shared services, and outsourcing. The management-consulting firm surveyed 156 CFOs specifically for their thoughts on G&A functions. Booz Allen defines these as human resources, finance and accounting, IT (including CRM), purchasing and procurement, facilities management, and risk management. North America and Europe each accounted for one third of the respondents, with the remaining third from the Asia-Pacific region and Latin America. Of the companies represented, nearly half (47 percent) have annual revenues between $1 billion to $4.9 billion. An overwhelming 85 percent of respondents stated that cost reduction is their priority. "Despite the fiscal discipline most companies imposed during the recession, overhead costs are still a target for even greater savings," said Vinay Couto, vice president at Booz Allen, in a statement. "The quick fixes have been used up, and companies need to find innovative ways to control costs." Some of the common "quick fixes" Couto says CFOs are using to lower overhead costs are reducing nonessential spending like traveling in coach versus first class, cutting advertising, and establishing hiring freezes. Seventy-one percent of CFOs stated they are reducing nonessential spending. Other frequently used approaches include standardizing service offerings (55 percent), reducing headcount (48 percent), streamlining the delivery process (45 percent), reprioritizing and deferring requests (37 percent), and physically consolidating the facilities used to provide overhead services (33 percent), the report states. "Once you get past that the next wave of value is in attacking structural costs," Couto tells CRM magazine. Only 3 percent of respondents stated they have used every outlet for cost reduction. First-movers, however, are eyeing technologies that will automate manually intensive work, as well as looking to centralize staff services through shared services, according to Couto. The third choice, outsourcing, is gaining mind share, but not much wallet share, the report states.
Shared services, or the practice of taking resources and processes that are decentralized and pooling to achieve economies of scale, is the second option. "So instead of having five divisions doing accounts payable, training, or application development, you pool them together to get economies of scale," Couto says. Outsourcing and offshoring remain much talked-about, but not highly used, options. The hurdles of outsourcing and offshoring various functions are fears of service quality, skepticism about savings actually materializing, and potential disruptions to operations. "All three are very significant barriers as to why they wouldn't consider offshoring," Couto says. "More are talking about it than doing anything about it."
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