Top Management Survey

COST MANAGEMENT
SUPPORTS PROFIT,
GROWTH AND BUSINESS
EXPANSION
Barometer Cost Management 2016
CONTENT
02 Content | Imprint

03 Foreword EBS & Expense Reduction Analysts

04 Executive Summary

05 Barometer Cost Management

06 Saving Potentials and Reinvestments

09 Low Interest Rates, Cheap Fossil Resources and Political Uncertainties

10 Methodology

11 Literature | Graphics

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E R Associates (Europe) Ltd
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Thomas Löwer
Christoph Schneider

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02
FOREWORD
EBS Universität für Wirtschaft und Recht
For companies to survive economically in a dynamic
environment a key factor is to be able to react to new
market conditions quickly and
efficiently. In order to do so,
companies need not only to
identify opportunities but also
to have the financial resources
to act. With a comprehensive
cost management these re-
sources can be generated and
the savings achieved reinvested in the in further busi-
ness development.
This edition of the “Barometer Cost Management” con-
ducted in cooperation with Expense Reduction Analysts
deals mostly with exogenous factors such as historically
low interest rate policies driven by the ECB, low costs
for fossil resources and political uncertainties such as
the British vote to leave the European Union. With 281
companies from 10 European countries taking part in
this survey, the picture of the economical situation for
European companies shown in the results is pretty ac-
curate. The main result: neither the stimulated interest
rates, nor the political uncertainties or the fallen prices
for gas, steel and energy have an effect on mid- or long-
term planning.
The results of this report also show that companies have
managed to achieve 4.6% of cost savings based on
their annual turnover. However these cost management
programmes are only effective on the short to medium
term. The savings themselves are mostly used for the
optimisation of existing structures or to increase prof-
it rather than for investments in the future. Companies
expect to find most savings in the categories of mobility
management, supply chain and telecommunications/IT.
We are curious to see if these savings can be identified
and secured over the coming years.
We hope that this survey provides you with some valu-
able insight.
Prof. Dr. Ronald Gleich
Expense Reduction Analysts
Profit is driven by cost savings. This is one of the main re-
sults of this survey conducted among 281 European com-
panies. Successful companies
in particular use this financial
extra to improve their situation
and make it more sustainable vs.
competition. Thus the top 25%
of companies invest up to 46%
more in the expansion of their
business and up to 34% more in
research & development and marketing & sales than the
bottom 25% of companies.
The fact that pro-active cost management is an ongo-
ing topic for financial decision- makers is made obvious
by the volatility of the success. Nearly 3 out of 4 deci-
sion-makers report that the effect of cost management
activities fades within 3 years. Here companies need to
create structures – maybe with some external support
– to be able to maintain the cost advantages in the long-
term.
There is however still a long way to go until then, as
shown by the significant drop of the Barometer Cost
Management index. Whilst companies see cost manage-
ment as an important subject, many have yet to catch up
to embed the topic in the corporate culture and to use
the right tools and develop relevant KPIs.
The study shows however that companies from Spain
and Portugal are the exception, with far more efforts
to work cost efficiently than in the rest of Europe. But
the study also shows that these activities are a matter of
survival for companies from Portugal and Spain as they
are the ones that struggle most to increase their capi-
tal. The fact that companies use most of the savings to
increase their profits means that money is not reinvest-
ed – at least not for the moment. Although – thanks to
the ECB – cheap money is available, this has no impact
on the investment strategy of the companies surveyed.
Only companies from Italy use the funds to invest more
in sales and marketing.
I hope you will find useful points in this study for your
daily work.
Fred Marfleet
03
EXECUTIVE SUMMARY
Profit driven by cost savings
The majority of the companies use the savings achieved
to increase their profit margin. The top 25%
of companies invest the savings achieved
up to 46% more in the expansion of their
business and up to 34% more in research
& development and marketing & sales and less to in-
crease their profit.
Cost savings have short- and medium-term effects
In 73% of the companies the effect of cost saving activ-
ities has faded within 3 years. Companies
need to put more emphasis on the intro-
duction of a more cost-effective corporate
culture, in the identification of the most
useful KPIs and in the use of tailored tools to ensure
the long-term success of cost management activities.
Based on their annual turnover, companies gen-
erate 4.6% additional financial resources from
cost-saving programmes
Around a quarter of the companies could
even save more than 6% with cost reduc-
tion programmes, with the most successful
companies from Benelux, Germany, Austria
and Switzerland and those from Spain, Portugal – in
spite of all the efforts undertaken in cost management
– and Italy generating the lowest percentage of cost
savings.
The index of the Barometer Cost Management
has fallen
The index of the barometer cost manage-
ment has fallen by 2.5 points in comparison
with 2014. Whilst companies from Spain
and Portugal are the best placed in terms of
cost management, Italian companies have the highest
rate of catching-up to do.
04
Largest saving potentials in Mobility Management
Companies expect to find the biggest savings in mo-
bility management (travel expenses & fleet
management). Significant savings may also
be identified in the categories of supply
chain and telecommunications/IT.
Companies do not use low interest rates to invest
more
Also historically low interest rates make
money more available, companies have
neither changed their investment strategies
nor increased the share of credit-financed
investments. Only very few companies, mostly from It-
aly, report that they took advantage of the low interest
rates to increase their share of borrowed capital.
Commodities have only little influence on achieved
savings
Though the prices for commodities such as steel, en-
ergy and plastics have fallen over the last
years, this did not play a major role for
companies. These expenses are rather seen
in an industry benchmark than stand-alone
savings. On a positive note – the low prices for fossil re-
sources do not have an influence on companies’ plans
to invest in renewable sources.
Companies take a healthy distance with current
political development
In spite of current developments like the
British vote to leave the European Union,
the refugee situation, the armed conflict in
the Ukraine and the European embargo on
Russia, companies do not change their plans. Changes
are seen as opportunities as well as risks.
 BAROMETER COST MANAGEMENT
Index Barometer Cost Management has declined

The index of the Barometer Cost Management has fallen in comparison with the
last survey conducted in 2014. Compared to 2014 the index has lost 2.5 points.
(Graphic 01). The survey shows clearly that companies understand and high-
light the importance of the pro-active management of expenses as it is actively
embedded both in the strategy and in the organisation. However companies
lack the necessary KPIs, culture and tools for implementation.
65,4 66,0

Graphic. 01, B
 arometer Cost Graphic. 02, B
 arometer Cost Management – Individual Dimensions
Management

69.1
65.4 65.5
63.0 62.9 61.0 60.8 62.9

55.2

2012 2014 2016 Strategy Organisation Information Tools Culture Barometer

Countries from Spain and Portugal put most emphasis on cost manage-
ment, Italian companies the least

At country level companies from Spain and Portugal clearly stand out with the
70.3% strongest emphasis on cost management activities (index 70.3) whereas Italian
56.9% companies (56.9) have the lowest index level. This is most likely to reflect the
effort of Spanish and Portuguese companies to increase their international com-
petitiveness.

05
 SAVING POTENTIALS AND REINVESTMENTS
Largest saving potentials are seen in Mobility Management –
Downsizing not seen as an opportunity to reduce costs sustainably

Over a fifth of companies see Mobility Management as an area where savings of

more than 10% could be achieved. Savings are also expected in the categories
of telecommunication/IT-costs and in the supply chain. Companies do not see
staff cutbacks as an option to reduce their expenses sustainably.

Graphic 03, Estimated Saving Potentials in Expense Areas

Cost Categories with Highest Savings Potential

Mobility Management (vehicle fleet & travel)

Supply Chain
Telecommunication / IT
Facility Management
Energy
Marketing
C-Parts
Staff / HR
Commodities (e.g. steel, plastics …)
Banking services

0% 20% 40% 60% 80% 100%

© Expense Reduction Analysts 0-5% 6-10% 11-15% 16-20% >20%

Based on their annual turnover companies are making 4.6% additional

financial resources

On average companies have achieved 4.6% savings based on their annual turn-
over through the implementation of cost management programmes. (Graphic 04).

Graphic 04, Savings as Percentage of Turnover Achieved through Cost Reduction Programmes
Savings as Percentage of Turnover (categorial)

0-2% 40.6
3-5% 32.7
6-10% 19.2
>10% 7.5

Savings as Percentage of Turnover by Country

Benelux 6.6
DACH 5.9
Scandinavia 4.5
Italy 4.3
Iberian peninsula 4

© Expense Reduction Analysts

06
 Country-specific use of savings

It has to be noted that in spite of their cost savings efforts (index BCM), compa-
nies from Spain and Portugal achieve the lowest savings (4.0). This could be an
indication that the Spanish and Portuguese companies have already collected
most of the savings available and that it becomes more difficult to identify and
achieve further savings. In contrast, Italian companies could certainly achieve
much higher savings if more emphasis was put on cost management activities.

A quarter of the companies invests more than 6% of their turnover

The savings achieved through cost management activities are very much in line
with the investments made by European companies. Whilst companies achieve
on average savings of 4.6% based on their annual turnover, there is almost
a quarter of them to devote 6% or more of their revenues for investments –
whereas the European average is 4.5%.

Graphic 05, Investments pro Rate of Annual Turnover

Percentage of Companies in %

0-2% 48.8
3-5% 24.9
6-10% 17.4
>10% 8.9

© Expense Reduction Analysts

Achieved savings generate extra profit

Companies that achieve savings through cost management programmes use on

average 20% of those savings to increase their profit margins. The additional
financial scope is also used to increase the sales activities (12.5%), for new machin-
ery and equipment (11.8) and to recruit on train employees (11.5%).

In comparison the top 25% of companies – based on indicators like annual prof-
it growth and client satisfaction – are using their cost savings 46% more to ex-
pand their businesses and 34% more for research & development and marketing
& sales than the bottom 25%. However the top performing companies use less
of their savings to improve their current bottom line.

Graphic 06, Investments Addressed with Savings

Profit Increase 20.5%

Marketing / Sales 12.5%
Machinery / Equipment 11.8%
Capital Building 11.7%
Staff / HR 11.5%
Expansion of Business Field 9.6%
Research & Development (R&D) 9.1%
Conversion to Industry 4.0 4.0%
Mergers & Acquisitions 3.9%
Licences & Patents 3.1%

© Expense Reduction Analysts

07
 Companies from Spain and Portugal struggle to stock up capital

The importance of cost management activities for companies from Spain and
43% Portugal becomes clear as companies from both countries have difficulties to

14% stock up their capital being 43% below European average. In contrast, Italian
companies clearly focus on increasing sales and are investing 14% more of the
savings achieved than the European companies on average. The low level of
re-investments in R&D for companies in the DACH is worrying as they invest
20% less in this area than the rest of Europe.
20%
The effect of Cost Management Programmes lasts a maximum of 3 years

The effect of cost management activities is rather short to medium term (Graphic 07).
3 out of 4 companies report that the effect of cost management activities fades
after 3 years at most. In Europe, companies from Benelux, Portugal and Spain
obtain the longest benefits from cost management activities. The important
thing is to use the right tools to anchor cost management activities in the cor-
porate culture whilst continually keeping an eye on long-term success.

Graphic 07, Sustainability of Savings

Savings as Percentage of Turnover

35.2

31.6

18.0

9.2

6.0

< 1 year 1-2 years 2-3 years 3-4 years > 4 years

08
 LOW INTEREST RATES, CHEAP FOSSIL RESOURCES
AND POLITICAL UNCERTAINTIES

Brexit and other external factor have little influence

The current British vote to leave the European Union and other external fac-
tors such as the refugee situation in Europe, the armed conflict in the Ukraine
and the European embargo on Russia have very little impact on the companies’
strategic planning (Graphic 08). Most companies see opportunities as well as
risks in the current changing environment. The majority of companies do not
find this changed environment to have an impact on their medium to long-term
business planning. Similarly, only a minority of companies have to adjust their
medium to long-term planning significantly due to these external factors.

Graphic 08, Impacts of Changed Circumstances on Company Planning Not true True
In perspective, the changed circumstances primarily mean a risk for our company. 51 20

In perspective, the changed circumstances primarily mean a chance for our company. 44 18

The medium- and long-term corporate planning are adapted significantly due to the changed circumstances. 57 17

The medium- and long-term corporate planning are hardly influenced by the changed circumstances. 35 42

© Expense Reduction Analysts

Low interest rates have no impact on companies investment behaviour

The low interest rates policy driven by the ECB has little effect on the investment
behaviour of European companies. (Graphic 09). Although cheap money is avail-
able, companies do not use credit-based investments more than in previous
years. As earlier studies have shown, only 12% of the investment capital needed
is acquired from credit-based sources whereas 22% come through cost manage-
ment activities. Furthermore, companies did not adjust their investment plans
and prioritise investments because of cheap money available. The assumption
that accessing these credits has been made more restrictive because of the
introduction of the Basel III regulations is rejected by 71% of companies.

Graphic 09, Consequences of Low Interests

Not true True
The period of low interest rates has led to a stronger focus on debt financing in our company in the past year. 64 17

In general, the share of debt in overall financing has increased in our company. 64 18

The “cheap money” from the period of low interest rates has led to investments being 70 10
brought forward in the past year.

The uncertainty in the financial market in recent years has led us to increasingly invest with equity. 65 15

Due to legal requirements such as Basel III it has become more difficult for our company to get cheap credits. 71 10

© Expense Reduction Analysts

09
 Italian companies use the low interest rates to increase borrowing

In comparison with other countries, the low interest rates are specifically attrac-
tive to Italian companies who increasingly use them to obtain external financing
30% and carry their investments forward by 30% more than in other countries. At
the same time, the restrictions of the Basel III regulations have made it harder
122% for Italian companies – 122% above European average – in particular to obtain
favourable loans.

Commodity prices have little effect on general cost savings

Just like for the low interest rates, the favourable prices of fossil fuels have little
impact on companies’ strategies (Graphic 10). Though the low commodity prices
could generate savings – to a manageable extend – these additional funds are
not much used in investment projects but rather in profit improvement initia-
tives. The current situation of the world market has little impact on companies to
rethink their commitments towards renewable energies – only 8% of them say
to be influenced by that situation.

Graphic 10, Consequences of Cheap Resources

Not true True
Our costs strongly decreased due to the dropped resource prices. 56 19

The willingness to invest in renewable energies has decreased in our company. 62 8

The savings made thanks to cheap resource costs have led 71 5

to investments being brought forward last year.

Due to the revenue problems of mining companies and/or the shrinking 70 14

markets in oil-countries, the number of orders received has decreased.

© Expense Reduction Analysts

METHODOLOGY
Between April 7th and July 20th 2016 281 decision makers from 10 European coun-
tries were surveyed in a standardised online questionnaire. Among the partici-
pating companies SMEs are the largest group with 75.8% having up to 500 em-
ployees. 87.9% of participants are from senior management positions or heads
of departments.

Graphic. 11, Sample Characteristic

Position (in %) Team Leader
Management Assistant
1.1
Other
Employee (specialist) 2.9 2.9
Department
5.1
Head of 32.6
Department
55.3 Member of the Board /
CEO / Chairman

10
LITERATURE Kajüter, Peter (2005): Kostenmanagement in der
deutschen Unternehmenspraxis – Empirische Befunde
Deloitte (2016): Thriving in uncertainty. Deloitte’s einer branchenübergreifenden Feldstudie, in: Zeitschrift
fourth biennial cost survey: Cost improvement practices für betriebswirtschaftliche Forschung, 57. Jg., Heft 2,
and trends in the Fortune 1000. S. 79-100.
Deutsche Bundesbank (2012): Long-term develop-
ments in corporate financing in Germany – evidence
based on the financial accounts. Monthly Report,
January 2012, Frankfurt/Main. GRAPHICS
Deutsche Bank Research (2016): The ECB must
change course, Frankfurt/Main. 01, Barometer Cost Management, p.5
European Central Bank (2016): Statistical Data Ware- 02, B  arometer Cost Management – Individual
house. Accessible via: https://www.ecb.europa.eu/ Dimensions, p.5
stats/html/index.en.html 03, Estimated Saving Potentials in Expense Areas, p.6
Expense Reduction Analysts GmbH/EBS Business 04, S avings as Percentage of Turnover Achieved
School (2011): Nachhaltigkeit von Reduktionsprozes- through Cost Reduction Processes, p.6
sen im Gemeinkostenbereich – Studie zur Umsetzung 05, Investments pro Rate of Annual Turnover, p.7
von Kostenreduktionsprogrammen und Nutzung der 06, Investments Addressed with Savings, p.7
eingesparten Potenziale, Köln/Oestrich-Winkel. 07,  Sustainability of Savings, p.8
Expense Reduction Analysts GmbH/EBS Business 08, Impacts of Changed Circumstances on Company
School (2012): Barometer Kostenmanagement 2012. Planning, p.9
Studie zur Kosteneffizienz im Unternehmen und deren 09, Consequences of Low Interests, p.9
Erfolgsfaktoren. Köln/Oestrich-Winkel. 10,  Consequences of Cheap Resources, p.10
Expense Reduction Analysts GmbH/EBS Business 11,   Sample Characteristic, p.10
School (2013): Barometer Cost Management 2013. Cost
Management in Times of Crisis, Köln/Oestrich-Winkel.
Expense Reduction Analysts GmbH/EBS Business
School (2014): Barometer Cost Management 2014.
Financing Investments and Growth, Köln/Oestrich-Winkel.
Franz, Klaus-Peter/Kajüter, Peter (Hrsg., 2002):
Kostenmanagement – Wertsteigerung durch systema-
tische Kostensteuerung, 2. Auflage, Schäffer-Poeschel,
Stuttgart.
Himme, Alexander (2007): Erfolgsfaktoren des Kost-
enmanagements – Empfehlungen für Kostenmanage-
mentprojekte, in: Projektmanagement aktuell, Nr. 4,
S. 16-23.
Himme, Alexander (2008): Erfolgsfaktoren des Kost-
enmanagements – Ergebnisse einer empirischen Unter-
suchung, Arbeitspapiere des Lehrstuhls für Innovation,
Neue Medien und Marketing der Universität Kiel.
Himme, Alexander (2009): Kostenmanagement
– Bestandsaufnahme und kritische Beurteilung der
empirischen Forschung, in: Zeitschrift für Betriebs-
wirtschaft, 79. Jg., S. 1051-1098.
Horngren, C. T., Datar, S. M., Rajan, M. V. (2015):
Cost Accounting: A Managerial Emphasis. Pearson
Education, Inc.

11
ABOUT EXPENSE REDUCTION ANALYSTS
Established in 1992, Expense Reduction Analysts is a cost management con-
sultancy focused on delivering improved business performance to clients of all
sizes in both the private and public sectors. Operating in over 25 countries,
Expense Reduction Analysts‘ 700 consultants provide deep industry expertise
in a wide variety of expense categories, such as waste management, insurance,
transport, marketing costs, bank charges, fleet management, telecommunica-
tions and many others.

Expense Reduction Analysts‘ clients include thousands of mid-sized companies

and many well-known names.

To find out more, visit www.expensereduction.com