Cost management is no longer simply a way for companies to improve margins and save money. Finance leaders are now using cost reduction as a powerful lever for digital transformation and to gain better insight into their business. Often times, CEOs delegate responsibility for cost reduction efforts to other leaders within the business. This hands-off approach could be costing their company a lot more money and strategic opportunities than they realize because CEOs have the clout and broad organizational reach to break down a lot of barriers that often hinder successful cost reduction efforts. By bringing a more strategic perspective to cost management, and directly encouraging teams to think bigger, CEOs can enable breakthroughs that are more impactful, such as re-configuring the business or changing the operating model. These strategic cost management approaches offer potential savings that are much larger − and much more sustainable.
Businesses that are not making digital transformation a priority have a much greater risk of going out of business in the next decade than those that are. Why? Successful digital transformation allows businesses to operate with a level of agility necessary to adapt to a marketplace that is increasingly volatile, uncertain, complex, and ambiguous. The rising intelligence of enterprise technologies presents tremendous opportunities for midsize businesses to outpace the rest of their competition. However, their growth depends on the strength of a unified modern data platform, which is critical for turning data into insight. Finance and IT leaders must create a strong foundation of connected, real-time data that is integrated enterprise-wide and provides the necessary visibility for decision makers to ultimately maximize profit growth.
“While, on average, 81% of a company’s costs are defined by the industry they are in, the remaining 19% are largely determined by executive decision-making.” – Jason Boldt, Gartner
According to Gartner, almost 90% of businesses suffer from poor cost visibility, and the same amount struggle with understanding their costs. These challenges are mainly symptoms of relying on outdated cost models – a major cost anchor that holds the majority of businesses back from gaining actionable insights. To overcome poor cost visibility, leading cost management executives encourage positive cost behaviors, or “cost ladders” that alleviate the strain that bad practices put on the business. These ladders include increasing cost agility, figuring out what cost models best fit the business goals, and detecting early cost warnings. However, Gartner found that only one in three companies practice any of these behaviors in their costing activities.
While supply chain managers understand that uncertainty and volatility come with their territory, they also hold the responsibility to properly understand what will happen next and how to react to it. Still, many lack the insight necessary to navigate through unforeseen changes that could affect the business in any way, at any time. For a business to transform their supply chain, they must first build a solid and strategic foundation that can bring their supply chain analytics as close as possible to real time operational processes. More than ever, users need insight on demand, supply, and environmental events in real time. Embedded analytics can provide that insight and even streamline processes by automating decision-making. To help meet the challenge of supply chain volatility, leading organizations are focusing in on three key pillars for a better supply chain strategy.
Simulation capabilities are being used by manufacturers everywhere to help decision makers understand what has happened or will happen in the future of their business. In the case of additive manufacturing, simulating the material properties and the processes embedded in devices, helps OEMs guarantee that they have the right combination of material and settings to manufacture the necessary part. This ensures the part strength, support structure, and other key requirements will be met so that the part will be successfully produced. Finance departments use simulations for scenario analysis and planning. They want to answer the questions, “what will happen if…?” and be prepared for potential outcomes. With manufacturers focusing more on financial planning & analytics functions to drive their strategies, they need the ability to confidently and accurately predict the impact of internal and external changes on both costs and profits.