Despite three years of cost-cutting and indecision UK firms have failed to create a culture of cost consciousness within their organisation, this is having a negative impact threatening to reverse the savings made during the recession, according to research from KPMG.
The research released reveals a workforce not empowered or equipped with the tools and training to influence cost performance within their firms, despite widespread acceptance among employees of the strategic importance of controlling costs.
The study also highlights a significant gap in awareness and participation in cost management between frontline workers and senior management, as a result of the failure to embed a cost-conscious culture.
KPMG’s Cost Boomerang report warns UK companies fear that more than 95% of costs cut during recession – some £90 billion – will return to their cost bases.
Robert Bolton, Partner at KPMG Performance & Technology, comments: “Executives need to maintain their rigorous focus on cost management and take urgent measures to embed this focus throughout their organisations.”
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Despite the urgent need to reduce costs during recession, firms have failed to equip their workforces with the right tools, training and skills to enable them to identify and deliver costs savings.
Only 40% of employees at all levels have received any kind of cost training over the last three years, KPMG found.
Less than half of finance managers (48%) have confidence in their firms’ measures and incentives to ensure the cost base is actively managed.
Worryingly, accurate and timely cost information is not delivered in around half of companies to finance functions (52%) and line managers (44%). Only 46% of firms have clear visibility of the component parts of their cost base.
Robert Bolton comments: “Broadcasting hopes and aspirations to the frontline is not enough. Management needs to understand their business from a frontline perspective, and ensure that junior ranks feel more connected to the business.”
The research reveals a diminishing cost consciousness at less senior levels of UK firms as a result of the failure to engage frontline staff.
Senior managers are overwhelmingly confident that their companies have a cost-conscious culture among management, but much less so when it comes to frontline staff. 97% agree their firm has a cost-conscious culture at senior management level, 86% per cent at middle management, but just 60% at frontline level.
Meanwhile, 85% of senior and 79% of middle managers state that there is a clear plan to drive greater efficiency, compared to less than half (44%) of the frontline workforce.
The degree of active involvement in cost management also falls away at less senior levels. A minority of frontline staff (43%) and middle managers (48%) claim to take action to address inefficient practices, compared to 85% of senior leaders.
Robert Bolton comments: “Any cost management effort not adopted by all employees is destined to fail. Organisations need to instil a greater sense of ownership among their middle managers and frontline staff.
“It is critically important that senior managers ensure all employees are engaged in the cost management process.”
The failure to equip frontline staff with the knowhow to control costs is inevitably resulting in a failure to act.
Over four fifths (81%) of all employees agree that cost effectiveness is a key strategic priority for their firm.
Yet less than a third (32%) of frontline staff have put forward a suggestion to improve cost management in the last six months, compared to 44% of middle managers and an overwhelming 86% of senior executives.
Over half (53%) of employees at all levels are too occupied by everyday duties to focus on cost control; almost half (46%) are uncomfortable taking a colleague at their level to task over extravagant expenditure.
Robert Bolton added: “Organisations must ensure that employees are empowered to drive cost management, by giving them the appropriate levels of accountability and freedom to effect change.”
