Johannesburg - South African companies are increasingly pre-occupied with cost-cutting, with nine out of 10 planning to undertake drastic reduction programmes within the next two years to meet targets in the face of slow economic growth and a slump in global oil and commodity prices.
The startling findings are contained in a survey by auditing firm Deloitte.
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Deloitte said Sasol, Anglo American and Telkom were among major companies that had given details of their plans to reduce costs.
The survey said Sasol, for instance, initiated a response plan in January last year in response to the low oil prices and had since saved R37.1 billion in the process.
The survey, called Thriving in Uncertainty, found that more than 70 percent of local companies had missed their cost targets.
“While local companies tended towards higher cost reduction targets, their failure rates were also higher,” Deloitte said.
According to the survey, two thirds of local companies planned to cut costs by more than 10 percent annually, but programme failure rates were higher than in other regions.
“Our research shows that South African companies are more likely to engage in narrow, tactical approaches to cost-saving, such as cutting down on external spend and streamlining business processes, but these are the very tactics that often result in implementation problems and an inability to achieve desired cost reduction objectives.
“Companies need to be more strategic about reducing costs, and examine their business and operating models to implement fundamental change. Ultimately, this leads to changes in their cost structure which are more sustainable and longer lasting,” said Daryl Elliott, the leader for strategic cost transformation at Deloitte Africa.
Optimistic
The survey showed that South African companies were optimistic about the next 24 months with 90 percent of them projecting increased growth, but they were still planning to cut costs.
It said 36 percent of the companies expected below-inflation growth, against a backdrop of a sluggish economy with significant political and macroeconomic risks.
“During periods of uncertainty, companies that take bold action can recover more quickly and gain sustainable competitive advantages that boost performance both in good times and bad.
“Companies that are able and willing to make bold cost moves could find the current economic environment is a prime opportunity to position themselves for long-term success,” Elliott said.
Christopher Gilmour, an investment analyst at Barclays Wealth & Investment Management, said yesterday that the cost-cutting measures took place against the backdrop of slow economic growth.
Gilmour said the sluggish economic growth was likely to last a few more years.
“In a low growth environment, companies tend to focus on those things that they can control. That usually includes costs,” Gilmour said.
The JSE forecast a 1.2 percent and 1.6 percent economic growth next year and 2018 respectively.
BUSINESS REPORT