Fifty-six per cent of FTSE 250 companies, UK multinationals and major public sector organisations cite the rationale behind cost-cutting initiatives as freeing up cash reserves to invest in new products and services, according to a survey of Board members and their direct reports. Fifty-three per cent cite the driver being a response to changing market conditions, and 48 per cent want to be able to invest in other areas of the business. Less than a third (29%) are still cutting costs simply to protect profitability.
While the fourth annual Barometer on Change 2015 from transformation consultancy Moorhouse reveals that cost reduction is still the single-most important objective for 24 per cent of companies, investment in new products and services, and in accessing new market segments and geographies, follow close behind at 19 per cent each.
Richard Jones, Partner at Moorhouse, provides additional context: “This year we have seen a clear strategic shift towards proactive investments. Organisations are increasingly keen to be on the front foot and drive expansion strategies intended to help them accelerate in the marketplace. Simply surviving is not enough anymore, and the majority of firms both experiencing and predicting high growth are exploring at least one of these avenues.
“However, the companies need to be aware that the likelihood of those growth expectations manifesting in increased revenues and profits is inextricably linked to two further factors: the clarity of the strategic vision throughout the organisation, and the attitude the organisation as a whole has towards change.”
Seventy per cent of organisations surveyed described themselves as ‘change-able’ or ‘change-embracing’ in 2015, up 10 per cent from the previous year. However, the number of respondents describing their organisational vision as ‘very’ or ‘extremely’ clear dropped eight per cent (to 69%) in the same period.
“While these findings may be due to the large increase in the pace and pressure of change experienced in the last year, with further increases expected over the next three years, decreasing clarity of strategic vision is not a pattern we would like to see continue,” warns Stephen Vinall, Partner at Moorhouse. “A clear and consistent vision is vital in order for teams to commit to change and for new processes to be successfully adopted as ‘business as usual’, instead of becoming a barrier to growth.”
The situation is further complicated by political uncertainty: 81 per cent of survey respondents claimed that their organisation is already being affected by uncertainty over Britain’s future role in and relationship with the EU – particularly troubling for those looking to invest in new market geographies. And with changing customer demands listed as the second-most important factor behind planned changes in product and service offerings over the next three years, clear insight into growth areas will be crucial.
“Organisations will need to ensure they adopt a pragmatic and agile approach to any transformation programme; only then can lessons be learned at speed and strategies adapted quickly enough to reflect the changing conditions of the real world,” continues Mr Vinall. “It’s particularly concerning, therefore, that just 11 per cent of companies feel that they leverage big data effectively to inform their strategic decisions.”
The Barometer on Change 2015 surveyed 200 Board members and their direct reports in UK organisations. Respondents had a combined spend on change initiatives of £5.1 billion (compared to £4.2bn in 2014), with an average project spend per respondent of over £25 million.