With a relatively poor economy, many companies are now looking to enhance their bottom line through cost cutting. Often, the finance function is one part of G&A subject to this cost cutting exercise. This presentatio shares with you how companies are looking at finance and evaluating where and how much to cut.

1. Lean But Not Broken
Achieving Sustainable Cost
Reduction in Finance
October 2, 2013

2. Agenda
 Review Cost Management Survey
 Role of CFO’s/Finance
– Approach
– Size of the Opportunity
– Challenges and Lessons Learned
 Q&A
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3. 3rd biennial cost management survey − Overview
We conduct primary research on cost management trends and state of the market through
annual cost survey and related conferences, to assess client’s needs, priorities and
challenges, and to understand keys to success in cost management programs
 Our 2012 survey is an in-depth follow-up to our
breakthrough cost-improvement surveys conducted
in 2010 and 2008
– The 2012 report included 153 senior executives
from publicly-traded or private companies with
annual revenues in excess of $1.5 billion
 The Survey looks at the latest trends in cost
improvement and offers practical and demonstrated
insights to help companies achieve and sustain
improved financial and business performance
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4. Companies continue to operate in a “New Normal”: reducing costs
while maintaining revenue growth expectations
Survey responses 2010 vs. 2012
73%
Macroeconomic Factors
Political/Regulatory
39%
External Risks
(% Reponses)
24%
58%
25%
Commodity Prices
19
19
21
22
90%
59%
Balance Sheet
Mgmt.
2010
2012
6
Cost Reduction
Product Profitability
Revenue Growth
23
20
36
Strategic Priorities
(Avg. 100 point allocation)
Growth
76%
Likelihood of cost management actions in the next 24 months
76%
Growth expectations
(% Reponses)
80%
Cost Mgmt. Outlook
(% Responses)
Source: Deloitte 2012 Cost Survey Preliminary Results
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5. Targets for cost reduction programs have tempered but failure rates
of cost programs have increased
Annual cost reduction targets
Greater than 20%
10% to less than 20%
0% to less than 10%
19%
11%
36%
35%
37%
52%
Cost savings realization
Did not meet goals
Met goals
Exceeded Goals
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2012
2010
2010
2012
48%
36%
35%
33%
29%
19%
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6. Focus of cost programs has shifted to a current focus on “save to
grow” compared to “save to survive” post-recession
Drivers of cost management
2010
To gain competitive advantage over peer group 52%
Significant reduction in consumer demand
2012
65%
1
42%
24%
2
Decrease in liquidity and tighter credit
33%
Required investment in growth areas
33%
Unfavorable cost position relative to peer group
12%
54%
3
22%
35%
4
Changed regulatory structure
Other
17%
35%
3%
5%
Cost management insights on drivers to cost management programs:
1 Gaining competitive advantage over peer group remains a major driver reflecting a “save to survive” mentality
2 Reduction of programs from liquidity and consumer demand decrease focus by 20% on average
3 Re-investment in growth areas has seen a major jump of 21% over 2010
4 Complex regulatory environment is now a significant driver for cost management increasing by 18% over 2010
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7. But failure rates of cost programs have increased showing
ineffective scope, approach and/or implementation challenges of
cost programs
Insights from Deloitte cost surveys over the last six years
15.0%
% GDP Change
% Unemployment
10.0%
5.0%
0.0%
2012 Q2
2012 Q1
2011 Q4
2011 Q3
2011 Q2
2011 Q1
2010 Q4
2010 Q3
2010 Q2
2010 Q1
2009 Q4
2009 Q3
2009 Q2
2009 Q1
2008 Q4
2008 Q3
2008 Q2
2008 Q1
2007 Q4
2007 Q3
2007 Q2
2007 Q1
-5.0%
-10.0%
2008
2010
Pre-recession economic climate
with a few signs of economic
crisis
Financial crises resulted in
tighter credit and a reduction in
overall demand
2012
Recovery has been slow and
there is prolonged uncertainty in
the business climate
Typical cost action
from survey results
Companies focused on continuous
improvement programs before the
downturn
Companies focused on cost
programs aimed at low hanging fruit
to recover from reduction in
consumer demand
Companies still focused on
tactical changes mostly by
targeting processes and
organization streamlining
Reported cost
program failure rate
17%
34%
47%
Broad restructuring and liquidity
improvements
Structural costs and business model
changes to gain efficiency
Structural cost and business
model changes to fuel growth
Actual response needed
Deloitte Cost Management Survey
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8. What is the CFO’s/Finance role in cost reduction?
Increasingly the CFO is expected to lead large scale cost reduction programmes to which finance must make a
proportionate contribution whilst maintaining finance as a critical control function
Leading the charge
 The CFO is increasingly at the heart of qualifying and measuring the results of Enterprise wide cost reduction programmes, providing financial
leadership in determining strategic business direction vital to future performance (Strategist)
 Using finance acumen and discipline, the CFO can drive that same discipline across multiple business functions to promote the behaviours
required to successfully execute against cost reduction objectives (Catalyst)
Finance is no longer
ring fenced from cost
reduction targets.
Despite the wave of
regulation within the
industry, Finance,
like other functions is
expected to do more
for less
By being a
contributor to cost
reduction efforts,
finance leadership
build credibility with
stakeholders across
the business,
facilitating their role
as strategist and
catalyst
Setting A Good Example: Lean But Not Broken
 Scrutiny over Finance’s value for money has never been more intense with CFOs looking to deliver higher quality services through increasingly
low cost business models that balance capability, cost and service to fulfill finance’s core responsibilities (Operator)
 Finance functions are taking on increasingly high percentile cost challenges, requiring a lean organisation, yet one that does not jeopardise the
quality and integrity of statutory, regulatory and other stakeholder reporting (Steward)
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9. How is successful, sustainable cost reduction delivered?
To help meet the challenges of cost reduction in finance, there are four principal types of initiatives that span the
ambition and level of sustainability of delivering finance cost reduction
 Operating Model & Organisation Alignment: Highest benefit and sustainability with corresponding complexity to implement
 Infrastructure Rationalisation: Great efficiency benefits derived from streamlining finance’s main and supporting systems
 Business Process Optimisation: Streamlining the cost base by doing what you do efficiently and effectively
 External Spend Reduction & Demand Management: Often one-off, low complexity to implement with limited sustainability
Initiatives adopted by Finance to reduce cost
Initiatives key
Establish/extend use of shared service centres
Operating Model & Organisation Alignment
Extend outsourcing/off-shoring arrangements
Increasing benefit & sustainability
Infrastructure Rationalisation
Business Process Optimisation
External Spend Reduction & Demand Management
Consolidate functions
Transfer non-core Finance activities
Review role & scope of Finance
Standardise and automate finance processes
Increase spans of control
Implement a common financial back-office
Rationalise and cleanse source systems and data
Redesign processes to increase capacity/reduce cycle time
De-layer organisation
Streamline reporting infrastructure
Eliminate waste and low value activities
Implement ERP enhancements to eliminate manual workarounds
Introduce/extend roll-out of self-service models
Improve governance and control effectiveness
Review finance project portfolio
Improve utilisation and/or productivity
Introduce cross-charging for services
Reduce the number of temps/contractors
Close all non-core vacancies and absorb work
Creating a Low Cost Operating Model
Streamlining the
Cost Base
Budgetary Quick Wins
Approaches
Increasing implementation time & cost
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10. How are finance cost reduction approaches applied?
Cost reduction initiatives align well to various approaches, each of which spans the scale of sustainability and
ease of implementation based on a number of key considerations
Focus area
Key considerations
 Represents a relatively low cost, low complexity implementation
 Should be delivered through good business as usual budgetary discipline
Budgetary quick
wins
 Sustainability of cost impacts is usually poor as costs tend to creep back in to the organisation (cancelled vacancies are
re-opened in next forecasting year, contractors re-engaged)
 Inter-relationship of costs is often an issue – for example, planning to reduce travel expense and telephony expense in
the same period
 Suspending or cancelling change programmes as a result of reviewing the finance project portfolio often has the
potential to put core finance requirements at risk (i.e. meeting statutory and regulatory requirements)
 Requires a focussed but moderate investment to deliver desired outcomes
Streamlining the
cost base
 Examines the cost base by business unit, function and processes
 Achieved primarily through levers such as structural consolidation (centralisation and rationalisation of similar functions
across the organisation) and end-to-end reengineering (generation of savings through de-duplication and process
improvement, removing waste and surplus headcount)
 Operating model changes offer the greatest and most sustainable cost reduction benefits
 Represents a significant investment in reducing the cost base and presents the greatest complexity to implement
Creating a low cost
operating model
 Requires management to develop a strategic top-down view of cost reduction opportunities based on organisational
priorities
 Reducing the cost base through structural changes requires careful management of risk and resistance in order for the
programme to succeed
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11. What does a low cost finance function look like?
To achieve high percentile cost savings, lean finance functions clearly delineate between value and
efficiency drivers
Value based segmentation
Insight, value, proximity to business
Focus
High Value Activities
(Business Partner)
High Value Production
(MI)
Non – Core
Finance
Transaction Processing
(Ops, Reporting)
Control, efficiency, low cost
Key questions to ask of the finance function
• Are core finance activities separated from non-core finance activities (e.g. Strategy, Risk, Legal etc.)?
• Is there a clear 1st vs 2nd line of support , transferring activity to the front line functions where appropriate?
• Is there differentiation of the Finance Processing Group (operations and reporting) and CFO and specialist functions (e.g Partnering, Policy)?
• Are processing activities leveraging low cost shared service options ?
• Do transaction processing groups benefit from strong leadership, reducing the likelihood of failure?
• Can Centres of Excellence (CoEs) be employed to deliver knowledge based processes more efficiently and effectively?
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12. How big is the opportunity?
It is imperative to match the approach and application of cost reduction levers to the target level of ambition
around desired savings and timeframes
Whilst cost management may be achievable through minimal business impact, cost reduction presents the most sustainable
and impactful means of reducing finance’s cost base.
Cost management
Cost reduction
Magnitude of
opportunity
Typically 5-10%
Typically 15-40% +
How it is delivered
Through budgetary discipline and management
Through a Program (e.g. Finance Transformation, Finance
Integration)
Impact on the business
Minimal, often focusing on belt tightening (non staff) or
management of vacancies and contingent workers
Significant, usually resulting in one or more rounds of
redundancies and involving changes to the operating model
Who gets involved
Usually directed by the CFO and driven by Functional Directors
and Heads of Finance
Senior Executives, HR and Union representatives, Staff
Consultation forums, Functional Directors and Heads of Finance,
Group/Divisional Directors/Heads
What it means to
the CFO
Depends on the visibility outside Finance. Can be a ‘housekeeping
exercise’ or can be driven by CEO agenda
Significant personal credibility at stake. Often this comes as part of
a declaration of intent to the market
How long does it take
Two – three months focussed effort, cost impacts are often
nearly immediate
Two – three months of design and planning, execution and
implementation depend on scale of change but typically in the
range of 6 – 18 months to achieve full run rate savings
How is it measured
Usually directly linked to the budget via quarterly forecasting and
cost reporting. If project driven, tends to be through project
benefits tracking
Either as a set of run-rate or annualized savings over X years.
Tracked both within the annual budget, corporate plan and
separately as part of program lifecycle reporting
Sustainability
Short term cost savings can eventually leak away as they are often
achieved through reducing costs from all parts of the businesses
resulting in unsustainable savings
Through addressing the spend culture, cost reductions can be
achieved on a long term basis
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13. What are the challenges in delivering finance cost reduction?
Cost reduction programs face several significant barriers to success that bear further consideration before
embarking on a finance cost reduction
Barriers to cost reduction success
Buy-in
Lead times
Dependencies
If senior and operational staff do not
engage with the cost reduction agenda,
the program’s goals could be obstructed
Underestimating lead times can lead to
savings not being realised during the
intended time period
The absence of a robust critical path can
result in contradictory plans, rework and
delays to benefits realization
Accountability
Double counting
Accurate valuations
If no-one is clearly accountable for
delivery, the tough decisions required to
realise savings and make them
sustainable can be left unaddressed
Counting savings for both business units
and functions can set false expectations
regarding feasible savings targets
If savings are over-valued, stakeholders
can stop looking to identify further
savings prematurely, and prioritise the
wrong initiatives
Defined benefits
Leakage
Specialist staff
Where goals are not clearly defined,
decision-making is not made in the
context of a specific, desired outcome
and the cost reduction exercise lacks
direction
If savings are not realised, the cost
reduction exercise can become a net
cost for the business
The scope for cost reduction is narrowed
by the existence of “sacred cows”
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14. What is the Deloitte approach to cost reduction?
The Deloitte approach is a five stage end-to-end methodology which has been developed and refined on a global
basis over several years through engagement with many clients
Diagnostic
Top down target
Scope and define
Validate and design
Opportunity
identification &
commitment
Baseline
analysis/confirmation
Mobilize and deliver
Quantification &
re-affirmation of
commitment
Tracking, monitoring
& reporting
Budgeting Cycle and Monthly/Quarterly Reporting
Deliverables
Activities
Wider Program Reporting Cycle
Top Down Target
 Assign key sponsors
 Validate strategy
 Perform functional/industry
benchmarking


Case for change
High level targets by
functional area
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Assess size of opportunity
 Validate strategy
 Formulate & analyse
financial baseline
 Draw up current & ‘could be’
operating models
 Undertake opportunity
analysis


Cost Baseline
Addressable spend analysis
Setting up a framework for
cost reduction
 Prioritise opportunities
 Align and manage
stakeholders
 Structure the cost reduction
programme
 Report progress and track
benefits



Initial Opportunity List
Revised view of targets by
functional area
High Level Cost Model
Validate & Design cost
savings
 Assess business structure
 Perform ‘Deep Dive’ analysis
 Formulate business cases
 Perform detailed validation of
initiatives
 Package initiatives for
delivery



Detailed Cost Savings Model
Supporting organisation
design and associated
budgets
Finalised Opportunity List
Mobilize & Deliver
 Mobilise change teams
 Update budgets (BaU)
 Implement initiatives
Control & Sustain
 Review & track progress
 Manage benefits leakage
 Revisit Opportunity List
 Revise Cost
Model/Benefits Tracker





Initiative lifecycle flow
Initiative and release tracker
Stakeholder reports
Benefits dashboard
Benefits map
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15. What is the Deloitte capability for finance cost reduction?
Our people and experience
The breadth of our practice enables us to apply a range of lenses (customer, value chain, process, function) to provide a
thorough understanding of the drivers of cost and to assist in the identification of opportunities.
Our people
World map– Our locations
Global reach
Canada focus
Finance & Consulting: 1500 people
Process
Target
Operating
Model
(Functional
Design)
Systems
(Automation,
Processes)
Change
(People and
HR)
Support
Audit Advisory
(Financial
Reporting)
Tax, Treasury &
Specialist Services
(Specialist Function)
ERS
(Control/Function)
Recognised thought leadership
Depth of capability
Outcome based approach
 Ranked No. 1 in Finance Transformation,
Operations Excellence by Gartner and Kennedy
 High degree of business led intuition to deliver
cost reduction while maintaining the ability for
finance to deliver its core function and
fiduciary duties
 Structured, proven methodology driven by
outcomes and shared risk of not delivering
required targets
 Experienced pool of subject matter experts
across competencies who have participated in
cost reduction programmes within Energy and
Resources industry
 Deep subject matter expertise to validate
existing initiatives and identify further
opportunities
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 Cross service capabilities with experts in tax,
actuarial services and audit
 Independent, objective approach − we have no
predisposition to IT, hardware, software, or
business process outsourcing
 Provision of assistance to understand
implications of entity rationalisation and
entity disposal
 Effective and continuous change management
analysis helps deal with areas of passive/active
resistance
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16. What is the Deloitte supporting capability for cost reduction?
We have developed a comprehensive set of related methodologies, tools and accelerators that enable us to rapidly
deploy our cost reduction approach.
Target Operating Model
Deep experience in target operating model
design enables the build of a finance function
consistent with low cost principles
Customer segments e.g. HNW
Organisation Design
Lean Six Sigma
Aligning the organisation design to the target
operating model is key to ensure cost remains
out of the function and HR impacts are
effectively managed
Lean Six Sigma focuses on the thorough
elimination of waste throughout the value
chain and is key tool for delivering finance
process change
Modeling
Cost modelling capability is critical throughout
the cost reduction process, particularly in
establishing the baseline, the impact of cost
reduction actions and tracking actuals
Actuarial & Risk
Reducing cost in a way that does not break
the finance function is imperative and our
specialist actuarial and risk capability helps to
be sure cost reduction is sustainable
Channels e.g. D2C
Products e.g. Mortgages
Processes e.g. Money In
Information e.g. Customer, MI
Technology e.g. Apps, Data, Hardware
Organisation e.g. Contact Centres
People e.g. FTEs, Roles
Physical sites e.g. Buchanan Street
Finance Systems
Finance Systems Operating model depicts an
integrated view of the relationship between
data capture, processing, analysis and
information
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17. Contact us
If you would like to discuss any of the issues raised in this short piece, please do not hesitate to get in touch
Marc Joiner
Partner
Randy Watt
Partner
16 Deloitte’s Business Class
Partner – Finance Transformation
Western Canada
mjoiner@deloitte.ca
403-503-1346
Finance Transformation Leader
Western Canada
rwatt@deloitte.ca
403-267-0516
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