PwC's Trendsetter Barometer tracks the business issues and best practices of privately held US growth businesses.
The survey incorporates the views of 187 C-suite executives (CEOs/CFOs): 101 from companies in the product sector and 86 in the service sector, averaging $251.4 million in enterprise revenue/sales, and including large, $500 million-plus private companies.
NEW YORK, March 28, 2013 - Most private companies (84%) have taken substantial cost-containment measures over the past several years, with 89% of those companies seeing sustainable savings as a result, according to PwC US's Trendsetter Barometer survey. Although many (70%) of the companies that took cost-containment measures during the past one to four years say they applied the savings to keeping their businesses afloat, even more of them (84%) have reinvested the savings in growth-focused activities such as technology upgrades, research and development, and hiring new workers.
"Executives recognize they can’t sit on their hands indefinitely when it comes to reinvesting in their businesses,” says Ken Esch, a partner with PwC’s Private Company Services practice. “After considerable belt-tightening several years back, coupled with paying down debt and building up cash reserves, private businesses have migrated toward reinvesting their savings in growth activities. In doing so, they're taking a ‘spend smarter’ approach, reassessing how they allocate funds and improve profitability.”
The following chart provides a breakdown of private companies’ top reinvestment areas.
Nearly all (94%) of private companies whose cost containment measures were sustainable say those measures helped them emerge stronger from the economic downturn. Paying down debt and building up cash reserves were among the chief balance-sheet-fortifying activities that private companies put their cost-containment savings toward (57% and 52% respectively) over the past several years.
Private Companies Plan New Wave of Cost Containment
Private companies don’t plan to relax their vigilance over costs. Nearly three in four private companies (74%) rank cost containment among their top three business priorities (almost one-quarter rank it as the top priority).
Indeed, 44% of private companies are planning to implement a new wave of cost-saving measures in the next two years, anticipating that these steps will result in an estimated 7.4% cost reduction. They intend to concentrate more on paring future operational spending than on decreasing capital spending, consistent with their focus on enabling growth rather than tabling it.
“Optimal cost containment allows companies to maintain an efficient cost structure as they grow with the market,” notes Esch. “By focusing on long-term scalability instead of near-term cost reductions, companies can stay nimble, capitalizing on opportunities. With this in mind, private companies are moving from tactical cost trimming to a more transformative approach, one that increases their organizations' resilience and creates better value for customers, employees, and other key stakeholders.”
Notably, private companies that either did not take substantial cost containment measures or did not achieve sustainable savings from them (16%) say the primary reason was a focus on quick wins rather than on organizational transformation and resilience.
The following chart provides a breakdown of private companies’ goals for the next wave of cost containment.
“Leading private companies understand that to further reduce operational spending while also driving growth, they must think counter-intuitively,” says Esch. “Earlier cuts haven't left much low-hanging fruit to prune in a next wave of trimming. Private companies will therefore need to take a high-level view of cost drivers instead of focusing solely on tactical measures such as reducing what they spend on materials. For many businesses, this will involve harnessing technology to help their companies do more with less. For others, it might even entail reconsidering their business model.”
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