UK businesses guilty of taking a quick fix approach to cost cutting

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Manufacturing News, Source : TheManufacturer.com
Published : 10 Apr 2002 9:05
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British firms are guilty of taking a short-term, quick fix approach to cost-cutting, characterised by investment cuts, recruitment freezes and staff lay-offs, according to a new global study published by PricewaterhouseCoopers.

Two-thirds (66 per cent) of UK chief financial officers - the highest in the study - concede that the costs they are currently cutting from their businesses will creep back within two to three years.

Financial executives in charge of UK companies are also most likely to adopt a 'copy-cat' culture of short-term cost cutting that is overriding the drive for long-term prosperity. 66 pe cent of UK CFOs admit that cost cuts are driven more by a keenness to impress analysts and shareholders than to improve their own businesses.

The findings are among the highlights of a new survey by PricewaterhouseCoopers - the first of its kind to be undertaken, exploring the attitudes of over 590 businesses in Europe, the Americas, Africa and Australia towards cost cutting and the current economic uncertainty.

The survey reveals that while the vast majority of UK CFOs understand the importance of long-term strategic cost reduction, they are failing to practice what they preach. This gulf between theory and business reality is demonstrated by a number of contradictory survey findings including:

· While 96 per cent of UK respondents agree that significant short-term cost reduction programmes can be strongly detrimental to staff morale and loyalty;

· 80 per cent of firms have imposed a freeze on recruitment and nearly 64 per cent have reduced staff

· 90 per cent agree that, during a downturn, companies should be willing to invest to add long-term value to the business

· However, 46 per cent have deferred or cancelled investment, with another 30 per cent cutting back on web and e-business development.

· While 70 per cent agree that companies often get their cost-cutting priorities wrong by cutting what is easy to measure rather than what most needs cuttings;

· Just 38 per cent of UK firms have a cost reduction strategy in place, the lowest in the global study except for France at 28 per cent.

· While 42 per cent of UK respondents think it is inevitable that all businesses will have an online procurement process in place within 2-3 years, and 48 per cent of respondents currently without online procurements systems say they plan to introduce them in the future; 58 per cent of UK firms claim much of the use of e-technology is founded on hype and peer pressure rather than any genuine long-term benefit.

Jonathan Tate, partner at PricewaterhouseCoopers and sponsor of the report 'Strange Days - Are businesses equipped to catch opportunity in an unpredictable world?', said:

"Cost is not the root of all evil. Too much cost cutting can be fatal, leaving companies under-resourced for the future. But our survey shows that UK firms in particular have yet to understand this - quick fix cost reduction dominates the corporate agenda, with 80 per cent putting recruitment on hold and 46 per cent deferring or freezing future investment.

"UK companies are failing to differentiate between good costs and bad costs and shareholder appeasement is winning out over long-term strategic management.