London: A new report from Source Information Services (Source) released today says that despite recent economic improvements, global organisations are currently spending just over $12bn on cost cutting, productivity/efficiency and simplification initiatives. The area expected to grow the fastest is simplification — up from $1.8bn now to around $4.2bn by 2017.
The Source report is based on interviews with 800 global organisations that use management consultants. It found that for many of these organisations, simplification is the key to scalable growth and therefore bridges the space between the cost-control, growth and regulatory agendas. Simplification will therefore be one of the most important consulting markets over the next five years
However, the Source report says that for consulting firms to succeed in this area, a number of critical factors will be important. These include: the ability to bring best practice to clients; the ownership of proprietary data and benchmarks; developing innovative tools in which data analytics are embedded; the ability to offer a wider range of services — not just conventional operational improvement ones; and a willingness to accept outcomes-based payment.
Fiona Czerniawska, Joint Managing Director of Source Information Services said, "Whilst simplification excited and intrigued many of the executives we interviewed, and we expect it to experience the fastest growth over the next five years, it's not yet crystallised to a point where it's driving the same level of investment and effort as cost cutting."
The report states that as simplification straddles the cost and growth agendas — it is more important in developing economies. From an industry sector perspective, simplification appeals most to the services sector — with financial services, healthcare and retail just behind. It is less important in industries which either struggle to simplify further an already simple model (energy companies) or those that have invested heavily in this area in the past. The public sector appears to lag behind the move towards simplification with only around 60 per cent of organisations saying that simplification is an area of interest.
The CEOs view on simplification
A CEO from a services sector company based in Sweden, who was interviewed for the Source report said, "We are consolidating the group's activities — reducing the number of companies we have in this sector from 30 to around five. The reason is that we want to drive top-line growth and simplification will help us to produce a better end result and an improved client experience. It won't necessarily reduce our staff numbers but it will free up our capacity for growth. For us, the challenge of the future lies in being better, cheaper and faster."
Source also asked the 800 interviewees whether their investment in cost-cutting, productivity and simplification initiatives would collectively increase their expenditure on management consulting in 2014. Those organisations which said that this was most likely were based in the GCC — with 57 per cent saying that this will be the case, France (55 per cent), Spain (55 per cent), and the UK (51 per cent).
Fiona Czerniawska concluded, "Our report shows that there is no desire from organisations to use teams of consultants for long-term implementation projects in the cost-cutting/productivity/simplification market. Consultants certainly need to provide advice and recommendations which are implementable; they may also be asked to run or be involved in pilot programmes, testing ideas in practice. But the work thereafter should be done by internal staff."