Part 2: ‘Find the money’ phase

What does ‘find the money’ mean?

A recent Deloitte survey found a staggering 82 per cent of companies fell short of their cost reduction targets in 2024, up from 72 per cent the year before. This trend means organisations are under increasing pressure to become more cost resilient.

Cost resilience has three distinct phases: ‘find the money’, ‘get the money’ and ‘sustain the cost position’. We consistently see organisations fall into several common pitfalls when trying to ‘find the money’. Across both direct and indirect cost categories, organisations often leave significant savings unidentified. While volatility exists within each area, a well-executed cost resilience program can identify substantial additional value.

Organisations are embracing the digital transformation, the Deloitte 2024 State of Generative AI report found 67 per cent of organisations are increasing their investments in GenAI. The most common objective of these initiatives is to improve productivity and efficiency, with 34 per cent citing this, this will drive a fundamental shift in functional cost bases.² By embracing a proactive, data-driven approach to cost resilience, both product and service-based organisations can navigate the evolving landscape, unlock hidden value and fuel sustainable growth.

A key decision that faces many organisations is how they can get started. Based on our experience, organisations looking for quick wins through tactical cost saving initiatives can find savings of up to 10 per cent, whereas those who adopt a longer-term transformational approach can find significant savings of up to 40 per cent.

Figure 1. Tactical cost levers and savings ranges

Source: Deloitte LLP, 2023.

The dual dimensions of cost resilience: Cost to serve and demand

Phase one ‘Find the money’ requires a firm grasp of two fundamental dimensions; cost to serve and demand. By effectively managing both, organisations can identify substantial year-on-year cost improvements. Figure 2 illustrates how these dimensions intersect to form distinct zones of saving opportunities.

Figure 2: Cost resilience zones for organisations

Source: Deloitte analysis, 2024.

‘Find the money’: Common pitfalls
 

1. Overlooking easy wins in indirect SG&A
   Companies often neglect consistent scrutiny of indirect selling, general and administrative (SG&A) expenses. Building a culture that regularly reviews and challenges these costs can potentially pre-empt more disruptive measures such as headcount reductions
2. Limited expenditure visibility
   Many organisations lack granular insight into spending patterns (‘who spends how much on what’) across functions and categories. This limited visibility, often stemming from inadequate tools and controls, hinders informed decision-making regarding cost optimisation. It can be suggested that the majority of IT spend is driven by the business, rather than the IT function itself, however the full extent of IT spend across a business is not always known
3. Insufficient focus on demand management
   Failing to effectively analyse demand leads to misallocated investments in infrastructure and staffing. Post COVID-19, we see organisations still struggling to understand demand patterns. This is in part linked to not having the right forecasting algorithms to understand variables, and model ones that have a meaningful impact on demand. This can result in either unnecessary build-up or reactive, inefficient spending when demand spikes. Cost reduction strategies must extend beyond price negotiations and encompass demand-side optimisation
4. Siloed functional approaches
   Siloed communications and cost reduction efforts, confined within individual functions, often drive misplaced efforts. An example of this is decentralised procurement - this fragmented approach, characterised by a long list of suppliers and decentralised spend management, results in bloated service catalogues, operational inefficiencies and an inflated cost-to-serve model. Siloed functional transformation plans often driven by C-suite personalities, miss economies of scale and, at worst, build in cost that needs to be unpicked in the mid-term. Organisations must break down functional barriers and embrace a cross-functional and process-oriented perspective to unlock substantial and sustainable cost savings through volume aggregation or better negotiation with suppliers
5. Fixation on benchmarking
   Benchmarking, while useful for context, can be deceptive for cost optimisation. Fixating on static benchmarks ignores the reality of dynamic markets and continuous improvement by top performers, while also ignoring any nuance behind an organisation’s cost profile. A cautionary example is a global consumer packaged goods company that, despite achieving over £2 billion in SG&A savings, remained in the second quartile for many categories after a three-year highly successful programme. Their peers, never standing still, had raised the bar, highlighting that true cost leaders embrace continuous improvement. Benchmarking given the pace of change has and will become increasingly irrelevant at a granular cost category level
6. Neglecting maintenance costs
   Business cases often overlook the long-term impact on maintenance expenses. We often see a build-up of machinery and equipment pre-onset of demand in manufacturing and production setups. This then leads to even more spares being built up, this in turn increases the cost-to-serve for products being manufactured. Another example is within IT functions, whereby business cases will often ignore the ongoing maintenance costs of new platforms or solutions. By engaging technology, commercial and operational functions early on, organisations can do a comprehensive cost assessment and optimise future costs
7. Underestimating cost avoidance
   The allure of immediate and tangible savings often overshadows the importance of cost avoidance. Organisations should proactively identify and mitigate future cost increases, such as contract renewals, expiring discounts or accumulating technical debt. Organisations can navigate the complexities of today's business environment and achieve sustainable cost resilience by embracing a holistic, continuous approach to cost management
8. Hidden costs of complex networks
   Product-based organisations often fall into the trap of overcomplicating their supply chain management from demand generation to cash conversion. This complexity creates a convoluted cost-to-serve landscape, hindering their ability to respond effectively to competitive pricing pressures or market shifts. A structured approach that simplifies and streamlines key supply chain elements can unlock substantial cost resilience and reduction opportunities. This optimised foundation provides the agility to scale operations efficiently when demand dictates
9. Not challenging the status quo
   Too often those working on these programmes do not, or are not empowered to, challenge the status quo of the organisation. Whether done by in-house teams or independent advisors, teams are often looking to tow the party line and will not challenge senior management on why demand is so high, or the real costs behind their cost-to-serve. To really find the money and uncover opportunities that would otherwise have been missed, the C-suite needs to give those charged with finding the money the freedom to truly delve into an organisation. Alongside this, those teams need to be armed with the experience and confidence to push an organisation into uncomfortable territory.

Conclusion

Phase one ‘Find the money’ in the pursuit of cost resilience requires a keen eye for both quick wins and transformative opportunities. While tactical cost-saving initiatives can yield immediate but limited returns, organisations seeking substantial and sustainable cost reductions must embrace a longer-term and strategic approach. This involves challenging the existing norms, breaking down functional silos and fostering a culture of continuous improvement that permeates all levels of the organisation.

Moreover, effectively navigating the complexities of cost-to-serve and demand requires a data-driven approach, granular visibility into spending patterns and a willingness to challenge traditional cost drivers. By addressing common pitfalls, organisations can build effective programmes that can deliver substantial value.

If you are interested in learning more about how we can help you with your Strategic Cost Transformation programme, please get in touch with one of our experts.

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References:

1. 2024 MarginPLUS study: Refocusing amidst uncertainty, Deloitte, 2024.
2. Now decides next: Moving from potential to performance, Deloitte, 2024.