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The Sustainability of Cost Reduction Processes
Overhead Cost Reduction Processes are Important to European Companies
www.expensereduction.comwww.ebs.edu/ime
Imprint
Publisher:Expense Reduction AnalystsSuite 24, 40 Churchill Square Kings Hill, West Malling Kent, ME19 4YU U.K.
Strascheg Institute for Innovation and Entrepreneurship (SIIE) – EBS Business SchoolBurgstraße 565375 Oestrich-WinkelGermany
Editors: Christoph Schneider Arnd GörnerProf. Dr. Ronald Gleich
Summary
The importance of overhead costs reduction processes is highlighted by the majority of firms. More than 83% of all companies that filled out the survey confirmed to have undertaken an overhead costs reduction process throughout the last three years.
Energy most important cost category. Regard-ing the different types of overhead costs, energy is by far the most important type. 43% of all partici-pants name energy as one of the three most impor-tant types of costs. Other frequently mentioned cost categories are marketing, logistics, freight and travel management.
Savings are used to increase profit margins – less than half of the companies reinvest the savings. In that perspective the studies shows that sustainable companies more often tend to reinvest the money in the development of new markets and already exist-ing markets than others.
Cost reduction processes start as result of not reaching financial goals. Mostly companies started a cost reduction process in their overhead spending as they failed to reach their desired profit margins, made losses or were not competitive enough com-pared to their competitors. However, sustainable companies have a more active treatment of their overhead costs and start programmes proactively not because of external pushes.
Most companies still use standard cost control-ling methods for their overhead costs manage-ment. Less than half of the companies acknowledge the application of methods for comparison. An active comparison of costs via the use of purchasing price analysis or the application of benchmarking with competitors is only done by 43.5 % and 42.5%.
Furthermore, employees seem to be of high importance when initiating and implementing a cost reduction process. Companies should be aware of the risk they take when not actively involv-ing their staff in such a process. Especially the most sustainable companies involve and keep their em-ployees well informed throughout the process.
Table of Contents
Introduction� 5
Results of Expert Interviews 6
Sustainability and Innovativeness of Participants 7Sustainability 7Innovativeness 8 Planning of Overhead Costs 9Companies Prove to be Cost-Sensitive 9The Most Important Types of Overhead Costs 10Processes 14Process Success 18Usage of Savings 24
Annex 26Literature 26Table of figures 27
Preface
Printing, logistics, travel management, or freight are commonly known examples of cost categories often denoted as overhead costs or indirect ex-penses. However, many companies do not focus on actively managing these costs since they consider achievable margins to be small and view many cat-egories as indispensable. So far, not much research has been conducted to explore the hidden potential of these cost categories and to analyse how and if overhead costs can be managed and reduced.
Hence, EBS Business School and Expense Reduction Analysts initiated this survey in order to investigate the importance of overhead costs, the success and success factors of overhead costs reduction processes, and the processes’ sustainability. 301 managers from seven European countries responded to the questions, there-by making it a valuable source of information for both managers and academics interested in the subject.
Opposed to the general perception, the study finds that companies do take their overhead expenses seriously. According to the firm representatives ques-tioned, more than 83% confirm to have carried out an overhead costs reduction process in the last three years in their respective enterprises.
However, such processes are rarely the result of careful planning or aim at obtaining a sustainable cost situation. In many cases, they are rather initiated as a reaction to immediate financial threats.
Employees appear to play a prominent role for the success of overhead costs reduction processes. Com-municating the need for such action to staff and actively integrating employees into the process can have a positive impact on the reduction processes. Managing overhead costs should not be considered a burden to management but a chance to make busi-nesses more efficient and sustainable.
Sincerely,
Prof. Dr. Ronald Gleich
Preface
Long-term-studies have shown that the period over which companies stay competitive in a market is shortening constantly. Only the well positioned com-panies are fit enough to survive in times of increasing global competition, complex supply chains and short-ened cycles of global financial instability. Well positioned means, companies that are able to adapt to changes in their environment quickly. Key aspects worth mentioning here are innovation and economic sustainability. In particular, economic sus-tainability, the efficient use of accessible sources, is often rated with a lower priority within companies – at least as long as sales and turnover are performing well. In an economic down turn – as we have seen during the last financial crisis – sales revenues de-cline rapidly and companies need to cut costs but the challenge is not jeopardising their productivity. Economically sustainable companies have one thing in common: they do not react to external threats with harsh knee jerk cost cutting programmes. These companies utilise professional cost management techniques on a regular basis and continue to use these tools even in times of prosperity. Furthermore, they use the achieved savings in the business as part of their current business strategy; be that investing in R&D, developing new and existing markets or building up reserves for other strategic initiatives. A cost conscious culture provides for a healthy balance sheet and a more valuable business. In order to find out how well positioned European companies are in terms of sustainability, the EBS Business School and Expense Reduction Analysts created this survey and analysed the answers of 301 companies from 7 European countries. The results clearly show in which areas sustainable companies are better positioned than others.
Fred MarfleetChairman, Expense Reduction Analysts
5
Introduction
Non-core costs, commonly called overhead costs, often
provide considerable potential for savings. Causing only
minor disruptions for the companies’ business opera-
tions, savings can be obtained without consuming much
time and efforts. Especially small and mid-sized compa-
nies often seem to neglect the potential for savings in
their company.
In contrast to strategic cost areas such as research & de-
velopment or investments, overhead costs have been
subject to investigation by only a few scientific studies,
partially even dating back to the 1980s and 1990s.
EBS Business School and Expense Reduction Analysts
therefore decided to undertake a study on cost-reduction
processes in the area of overheads and their sustaina-
bility. It is the study’s aim to investigate how European
companies deal with the issue of overhead costs and res-
pective reduction processes. In detail, the study examines
the types of overhead costs, the companies’ awareness
towards reduction processes and the processes’ success.
A further step is to analyse differences between more and
less sustainable companies regarding their treatment of
overhead costs.
In a last step, the study seeks to identify potential success
factors for a future-oriented management of overheads.
A thorough multi-stage research process was applied. In
a first step, relevant literature was analysed in order to
build a framework for the course of investigation. Base
on this, a semi-structured interview guideline was deve-
loped and discussed with practitioners. In a second step,
11 interviews with industry experts from a variety of in-
dustries were undertaken in which current topics concer-
ning overhead costs and respective reduction processes
were identified and discussed.
Taking these findings, a structured survey was developed
and made available to managers from European compa-
nies via the internet. Between March 2011 and May 2011,
301 managers completed the survey.
1 Vgl. z.B. Foster & Gupta 1990; Cooper 1990; Cooper & Kaplan 1988.
• Analysis of importance of overhead costs in several European markets
• Investigation of the relationship between cost-reduction processes in the area of overheads and the companies‘ sustainability and innovative behaviour
• Deduction of the importance of cost categories across industries and countries
• Comparison of more and less sustainable companies with regard to the execution of cost-reduction processes
• Investigation of the companies’ view on external knowledge
Defining Overhead Costs
Overhead costs, often labelled as non-strategic or indirect costs, are costs not directly assignable to a certain unit. Instead, they are mostly assigned to a group of products or to the production process in general. Overhead costs include (e.g.):
. Office Supplies
. Printing
. Energy
. Waste Management
. Freight
. Logistics
. Marketing
. Travel Management
. Telecommunications
. Packaging
. Insurance
. Etc.
6
Results of Expert Interviews
The interviews with experts from a variety of industries
show a high relevance on the topic of overhead costs for
today’s companies.
The majority of participants highlighted the importance of a
cost-sensitive culture for their companies
The participants’ perception of their companies’ degree of
sustainability and innovativeness showed a lot variety.
The term sustainability itself was interpreted differently by
the participants. Therefore, a thoroughly developed multi-
dimensional construct will be used in the second stage of
the study.
The managers interviewed highlighted the maintenance of
their working processes’ and products’ quality as a major
concern regarding the execution of cost-reduction proces-
ses in the area of overheads. Upholding the quality is ex-
pressed to be of utmost importance
Sample 11 companies
Data Collection Tool Open interviews, guided along a semi-structured interview guideline
Data Collection Method Personal interview
Survey Period 10th of December 2010 until 31th of January 2011
Companies by Respondents’ Position | N = 11 Companies by Number of Employeesr | N = 11
Percentage of Overhead Importance of Overheads
Managing
Director
Business Unit
Manager /
Department Head
Other
6 4
1
< 100 > 500100 – 500
2 6 3
No estimation
40%
ca. 20%very important
Fig. 1 | © Expense Reduction Analysts
important
20–30%
3
3
41
6 5
7
Sustainability and Innovativeness of
Participants
One of the core issues is to analyse cost-reduction pro-
cesses in the light of the executing companies’ success
regarding sustainability and innovativeness. As a first step
of the large-scale European survey, the necessary const-
ructs for measuring innovativeness and sustainability are
defined and explained.
Sustainability
Sustainability is operationalised using the three dimen-
sions ecology, economy and society with the indicators
long-term orientation of goals, subjective assessment of
the top management’s view and personal assessment.
1. In the left half of the diagram shown below, the cumu-
lative percentages of the respective mentions are listed
2. The respective indicators values are averaged and
converted into an „index of sustainability“, ranging from
0 to 100.
3. Based on the index values, three groups of companies
were identified (right part of the diagram). The three
groups constitute the “most sustainable companies”
(29.1%), the „sustainable companies“ (43.8%) and the
„least sustainable companies“ (27.1%).
The companies that proved to be sustainable from an eco-
nomic perspective, nearly 84% confirm this statement.
Another 64% report the observation of ecological im-
pacts while 61% acknowledge to take social impacts into
account. Nearly three quarters of all top managers are
considered to perceive their companies as sustainable.
indi
cate
d
… observing economic impacts
… long-term goals
… observing ecological impacts
… observing social impacts
From our top management teams‘ perspective, we are a sustainable company
I would personally regard our company as sustainable
In our company we place value on …
4 84
8 80
19 54
16 51
7 74
10 65
Disagree Agree Index of Sustainability
100
0
>80
61–79
0–60
29,1 %: Most Sustainable Companies; Ø Index Value 89,8
43,8 %: Sustainable Companies; Ø Index Value: 71,3
27,1 %: Least Sustainable Companies; Ø Index Value: 48,2
Ø Index: 70,4
N = 301; in %; scale points 1&2 and 4&5 are summed up, point 3 not considered
Fig. 2 | © Expense Reduction Analysts
8
Innovativeness
Similar to the index of sustainability described before,
an index of innovation has been constructed. It com-
prises the participants’ assessment of their companies’
degree of innovativeness and of their belief regarding
their company’s top management’s view on this issue.
Additionally, the index includes the employees’ openness
towards new ideas or issues.
Less than half of the participants consider their company’s
employees to be open towards new things. Interestingly,
more than half of them do, nevertheless, consider their
company as innovative.
indi
cate
d
In our management board‘s perception we are an innovative company
I would personally describe our company as innovative
Our employees are always willing to learn new things
Our employees are open-min-ded towards new things
15 61
18 53
18 45
4121
Disagree Agree Index of Innovation
100
0
>80
41–80
0–40
16,6%: Highly Innovative Companies; Ø Index value: 88,8
58,1%: Innovative Companies; Ø Index Value: 63,6
25,2%: Least Innovative Companies; Ø Index Value: 33,6
Ø Index: 60,2
N = 301; in %; scale points 1&2 and 4&5 are summed up, point 3 not considered
Fig. 3 | © Expense Reduction Analysts
9
Planning of Overhead Costs
Companies Prove to be Cost-Sensitive
Increasing competition in global markets and shortening
product life cycles are examples for current trends that
highlight the importance of an effective cost management
for European companies. Monitoring overhead costs and
identifying potential for reduction enables companies to
proactively enhance their efficiency.
Nearly Three out of Four Companies Acknowledge to Control Their Costs in Precisely Defined Periods
As a prerequisite for applying an effective management
of overhead costs, firms have to be cost-sensitive in order
to build the necessary awareness. 72% of the interviewed
companies acknowledge to periodically controlling their
costs. 62 % are confident to immediately react to a deteri-
oration of their cost situation.
We control costs in precisely defines periodical cycles
Our company reacts immediately to a deterioration in the cost situation
We give increase in tumover proority over cost reduction
The following statements essentially deal with the handling of costs. To which degree do they apply to your company?
11 72
8 65
31 34
N = 301; in %; scale points 1&2 and 4&5 are summed up, point 3 not considered
Disagree Agree
Fig. 4 | © Expense Reduction Analysts
10
The Most Important Types of Overhead Costs
Regarding the different types of overhead costs, energy
proves to be the most important one to European compa-
nies. 43.2 % of all participants name energy as one of the
three most important types of costs to their respective
company. (Fig. 5)
Costs, associated to marketing and logistics take the places
two and three. Further cost categories that were menti-
oned by more than 20 % of all participants are freight
and travel management. It is interesting to note, that four
out of these five categories appear to be energy-intensive
(energy, logistics, freight and travel management).
Differentiating the cost categories by countries allows for
interesting insights into differences across regions. While
energy proves to be an important cost category in all re-
gions, marketing expenses play a central role in Finnish,
German and Italian firms, but are much less relevant in
France and Belgium. (Fig. 4)
Logistic costs take second place in Belgium and Italy but
fall far behind in the Netherlands.
Freight turns out to be the most important cost category
to the responding French firms and are equally important
as energy to their counterparts in Spain but are nearly dis-
regarded by Italian respondents.
Travel management is most often named in Italy while
Belgian and German firms seem to place more empha-
sis on other areas of overhead expenses, Dutch firms do
hardly name this category at all.
Facility management is what the Finnish respondents do
care about, but plays only a minor role to their colleagues
in France and Spain.
Telecommunication costs are often named by Belgi-
an and Dutch firms, maintenance costs are a burden for
French respondents.
Energy
Marketing
Logistics
Freight
Travel Management
Facility Mangement
Telecommunications
Maintenance
Insurance
Fleet Management
Packaging
Printing
Office Supplies
Taxes
Factory Consumables
Waste Management
Cleaning
Other
Couriers
Security
Industrial Gases
Uniforms
Merchant Card Fees
43,2
28,2
27,2
25,2
20,6
19,9
18,6
16,9
15,6
14,6
9,3
9,0
8,3
8,3
8,0
5,6
5,3
4,7
3,0
2,7
1,0
1,0
0,3
Fig. 5 | © Expense Reduction Analysts
Up to three choices possible
Fig. 6 | © Expense Reduction Analysts
Germany France Italy Spain Netherlands Belgium Finland
Energy
Marketing
Travel Management
Facility Management
Logistics
Freight
Telecommunication
Maintenance
Insurance
Fleet Management
Up to three choices possible
60
50
40
30
20
10
0
11
Only 18.3 % of all responding companies realise overhead-
related purchases through decentralised departments,
while 37.9 % confirm to have centralised purchasing de-
partments. (Fig. 7)
Centralised purchasing provides the purchasing party
with greater buying power and, therefore, a more
powerful position in negotiations. Decentralised pur-
chasing may have the advantage to enable the company
to profit from specialised knowledge of specific categories
and local supplier advantages.
Nearly 44 % of all companies combine both ways of pur-
chasing in order to profit from the respective advantages.
Especially the highly sustainable companies seem to ap-
ply both forms of purchasing. As it can be seen in Fig. 8,
more than 56 % of the highly sustainable companies use
this combination in contrast to only 34.6 % in case of the
least sustainable companies.
Companies still stick to „classic“ instruments and methods for managing their overhead costs
A variety of tools and methods exist, that companies may
apply to their cost management. Most companies in the
sample (62.8 %) still use only standard cost controlling
methods for their overhead costs management. More
than 60 % of the firms engage in negotiations. (Fig. 9)
Less than half of the companies acknowledge the appli-
cation of methods for comparison. An active comparison
of costs via the use of purchasing price analyses or the
application of a benchmarking with competitors is only
done by 43.5 % and 42.5 %.
A special tool designed for the management of over-
head costs is the overhead-value analysis. Despite its
special design only a minority of companies confirm the
use of an overhead-value analysis as a tool for managing
overheads.
Multiple entries possible
Cost Controlling
Negotiations
Purchasing Price Analyses
Benchmarking
Acquisition Price Comparison
Contract Management
Cost Allocation Sheet
Internal Cost Allocation
Supplier Ratings
Ratio Systems
Overhead-Value Analysis
Checklists
Other
62,8
60,1
43,5
42,5
32,2
30,2
29,6
28,6
26,9
23,3
12,0
11,3
0,3
Fig. 9 | © Expense Reduction Analysts
Both
Decentralised bodies
Central purchasing
43,9 37,9
18,3
Fig. 7 | © Expense Reduction Analysts
Sustainability
Low Average High
Central 40,7 38,2 34,0purchasing
Both 34,6 44,2 56,6
Decentralised 24,7 17,6 9,4bodies
N = 301; in %
Fig. 8 | © Expense Reduction Analysts
12
Across Europe, the various instruments’ use is quite
diverse. While traditional cost controlling is named by
nearly three quarters of all firms in Germany and Finland,
only 35% of Spanish firms report to use cost control-
ling. Negotiations are the most important instrument for
Belgian French and Dutch respondents. Purchase price
analyses are applied by half of the Spanish and Dutch
firms while only every fifth French firm in the sample con-
firms their use.
An equally diverse picture can be obtained by looking
at benchmarking: 64% of the Dutch firms claim to use
benchmarking, in contrast to only 20% of the Italian com-
panies. Acquisition price comparison plays a major role to
the Dutch, Belgian and French respondents, but is hardly
mentioned by firms from Finland or Spain. Internal cost
allocation is named by 42% of Finnish and 40% of Ita-
lian firms. Great differences can also be identified regar-
ding overhead-value analysis. While 44% of the French
respondents use it as a tool, only 4% of the German and
3% of the Finnish firms confirm to do so.
44% of the French companies use the specially de-signed tool overhead-value analysis - but only 4% of the companies in Germany and 3% of companies in Finland
74
64
45
43
24
27
36
34
30
40
4
14
61
70
22
35
65
52
26
22
35
30
44
9
50
45
30
20
30
25
35
40
5
5
10
15
35
52
52
52
9
17
22
0
39
9
22
9
41
73
50
64
73
23
9
9
27
0
14
5
50
77
36
32
68
41
23
32
27
5
18
14
71
52
48
48
13
32
23
42
3
0
3
7
Fig. 10 | © Expense Reduction Analysts
Multiple entries possible
Germany France Italy Spain Netherlands Belgium Finland
Cost controlling
Negotiations
Purchase price analyses
Benchmarking
Acquisition price comparison
Contract Management
Cost allocation sheet
Internal cost allocation
Supplier ratings
Ratio systems
Overhead-value analysis
Checklists
13
Companies that do report to use an overhead-value analysis show greater process satisfaction
In a next step, the frequency of the respective methods’
application is compared to the level of satisfaction that
companies show regarding the overall cost reduction
processes. Firms that acknowledge applying the over-
head-value analysis to their company’s overhead costs
management show a high level of satisfaction regarding
the overall cost-reduction process. As it can be seen in the
table below, companies applying overhead-value analy-
sis, purchase price analyses and checklists reach higher
scores regarding process satisfaction than the companies
applying other methods or instruments.
1 Cost controlling
2 Negotiations
3 Purchase price analyses
4 Benchmarking
5 Acquisition price comparison
6 Contract Management
7 Cost allocation sheet
8 Internal cost allocation
9 Supplier ratings
10 Ratio systems
11 Overhead-value analysis
12 Checklists
While it can not be deducted that the level of satisfaction
is only dependent on the tool or method chosen for over-
head-costs management, results can still act as an indica-
tor and trigger firms to critically assess their management
accounting tools and methods applied.
N = 301
Frequency of Mention
4
21
57
968
10
3
Process Satisfaction
Fig. 11 | © Expense Reduction Analysts
1211
14
Processes
Companies actively drive overhead-costs reduction processes
Asking the companies whether they have carried out an
overhead-costs reduction process during the last three
years, more than four out of five companies confirm to
have done so. Only 16 % negate this statement. Out of
the companies that did not carry out such a process, more
than half report to concretely plan or at least consider it.
This reduces the total percentage of firms that are averse
to a reduction process to 6 % of the total sample. (Fig. 12)
Regarding the companies that report to have undertaken
a reduction process, more than a third acknowledge to
have undertaken the reductions with support by a specia-
lised consultancy.
Across Europe, the picture drawn is fairly stable. Spanish
and French companies in the sample appear to use exter-
nal support by consultancies more often than their Finnish
and German counterparts. In sum, less Italian firms have
carried out reduction processes in the past three years,
but those that have not show a great tendency to consi-
der doing so. The percentage of companies that has not
carried out such a process and reports to neither plan nor
consider it is quite similar across all countries. (Fig. 13)
Have you carried out processes to reduce overhead costs in the
past three years in your company?
Yes
Yes, without support by specialised consultancy
43,9
Yes, with support by specialised consultancy
39,5
No
Considered 7,0
Neither considered nor planned
6,0
Concretely planned 3,7
Fig. 12 | © Expense Reduction Analysts
N = 301; Answers in %
Yes, without support by consultancy
GermanyFinlandNetherlandsBelgium
FranceSpainItaly
Have you carried out processes to reduce overhead costs in the past three years in your company?
Planned Consider Nothing at allYes, with support by consultancy
Fig. 13 | © Expense Reduction Analysts
60
50
40
30
20
10
0
15
If such a process is neither considered nor planned: what are the
reasons for this?
At the moment we have other priorities
We already work efficiently in the area of overhead costs
Such a cost-reduction process cannot be communicated to our staff at
the moment
N = 18; in %; scale points 1&2 and 4&5 are summed up,
point 3 not considered
Disagree Agree
Fig. 14 | © Expense Reduction Analysts
780
4112
2544
In a further step, the 6 % of companies negating to even
consider a reduction process were questioned with regard
to their reasons for not doing so. The majority of these
companies answered to have other current priorities. In-
terestingly, 7 firms named the belief to already work cost-
efficiently in the area of overheads as a reason for not
planning or carrying out a reduction process. Referring to
the total number of firms, this part of the companies that
answered the survey is quite small, accounting for only
2.3 % of the whole sample. (Fig. 18)
Other priorities reason for not carrying out cost reduction processes
Cost reduction processes as a mere reaction of not reaching financial goals
Regarding the reasons for undertaking reduction pro-
cesses, the view is twofold. The analysis indicates, that
overhead-cost reduction processes are often a direct re-
sult of an assessment of the short-term performance or
as a reaction to current threats. Companies in the sample
mostly initiate reduction processes as reaction of not re-
aching predetermined financial goals. Half of all respon-
ding companies acknowledge to have failed on reaching
the desired profit margin as a reason. A further 23 % con-
firmed that the reduction processes were initiated as a re-
action to losses. Another 29 % assessed its own company
as not profitable enough but came to this conclusion by
actively comparing the company to other competitors in
the field. (Fig. 15)
In contrast to these results, a positive view can be taken
upon the involvement of employees. 70 % of the com-
panies acknowledge using suggestions of employees in
order to identify potential improvements in the area of
overheads.
Potential for improvements in the area of overheads were identified in
our company using internal sources
The company did not reach the desired profit margin
Potential for improvements in the area of overheads were pointed out
to our company through external sources
Our company was not profitable enough in
comparison with our competitors
The company made losses
N = 301; in %; scale points 1&2 and 4&5 are summed up,
point 3 not considered
Disagree Agree
5129
7013
2845
2949
2361
Fig. 15 | © Expense Reduction Analysts
16
Sustainable companies have a more proactive treat-ment of overhead spendings
In a further step, these results are compared to the com-
panies’ level of sustainability. The analysis indicates that
more sustainable companies tend to have a more active
treatment of overheads instead of purely reacting.
Reducing overhead costs as a reaction to not having met
the desired profit margin is most often named by those
companies that can be considered as less sustainable.
Saving potentials identified by internal sources seem to
be used much less as a justification for introducing reduc-
tion processes in the area of overheads.
In turn, the most sustainable companies acknowledge
that internal sources are a major driver of overhead-costs
reduction processes. More sustainable companies do not
tend to introduce reduction processes as a mere result of
losses or missed profit margins. These results can be con-
sidered as one indication for a more forward-looking way
of cost management.
Potential for improvements in the area of overheads were identified in
our company using internal sources
Potential for improvements in the area of overheads were pointed out
to our company through external sources
Our company was not profitable enough in comparison with
our competitors
The company did not reach the desired profit margin
The company made losses
N = 301; mean
1
1 = Disagree
high
middle
low
5 = Agree
2 3 4 5
Fig. 16 | © Expense Reduction Analysts
Reasons for Introducing Cost-Reduction Processes (by Sustainability)
17
Looking at the groups involved in the reduction processes,
one observes a major role of internal positions that are in-
corporated. The management board is the most important
group, with their incorporation being confirmed by 94 %.
Accounting and purchasing staff is also a major contribu-
tor to reduction processes. 89 % report the incorporation
of accounting staff and 85 % do the same for purchasing
professionals. Production staff is still being named by
nearly 65 % of respondents.
Management board deals with reducing overhead spendings
41.5 % report to integrate specialised consultants as a
source of external knowledge into the reduction process.
Every third firm acknowledges having individual experts
on board. Management consultants are incorporated into
the process by only 26 % of the firms.
Which of the following groups are incorporated in an overhead reduction process?
Management board
Accounting staff
Purchasing staff
Staff from other departments
Production staff
Specialised consultants
Individual experts
Management consultants
Other
N = 301; in %
94,4
89,3
85,0
74,8
64,6
41,5
34,1
26,1
15,2
Fig. 17 | © Expense Reduction Analysts
18
Process Success
Results show a general satisfaction with overhead reduc-
tion processes carried out in the various companies in the
sample. More than two thirds of all respondents express a
general satisfaction. Only 7.2% are disappointed with the
results. Interestingly, companies that report the highest
satisfaction level concerning the overhead-costs reduc-
tion processes, on average achieve the highest ranking
on the sustainability index. (Fig. 18) While the least satis-
fied companies reach a score of 67.6 %, the most satisfied
companies reach a score of 79.5 , 17.6 % more. (Fig. 19)
Sustainable companies more satisfied with achieved savings
Process Satisfaction
Fig. 19 | © Expense Reduction Analysts
79,5
73,1
67,6
High
Average
Low
Sustainability Index
-11,9
1 Not satisfied at all
N = 301; in %
2
1,3 5,9 10,0
3 4 5very satisfied
∑ = 7,2
∑ =68,2Mean: 3,70
Fig. 18 | © Expense Reduction Analysts
24,7 58,2
19
During the expert interviews participants highlighted the
importance of maintaining the quality of their products
or services despite the cost reduction process. Results of
the survey show that the products’ or services’ quality
is not influenced negatively by the reduction processes.
78 % confirm that the quality of their services or products
remained the same after the reduction process.
Quality of products and services is not negatively in-fluenced by cost reduction processes
Furthermore, 68 % of all firms confirmed that their emplo-
yees had learned to pay more attention to overhead costs
in the course of the reduction process. No clear effect can
be determined regarding the reduction processes’ influ-
ence on the atmosphere in the respective companies. 31 %
confirm a positive influence while 25 % report a negative
influence. Therefore, it can be assumed that a reduction
process’ influence on the working atmosphere depends
on the individual firm culture and special circumstances
that can be found in the firm.
The quality of our products / services remains
the same even after the cost reduction proces
7 78
In the course of reducing overhead costs our staff
have learned to pay more attention to those costs
12 65
The atmosphere in the company was positively
influenced by the cost reduction process
25 31
N = 301; in %; scale points 1&2 and 4&5 are summed up,
point 3 not considered
Disagree Agree
Fig. 20 | © Expense Reduction Analysts
20
The most sustainable firms in the sample are able to obtain
the best results in reduction processes. These companies
are able to deliver the best results of all three sustainabi-
lity types in all three dimensions discussed. Sustainability
therefore, seems to contribute to the successful imple-
mentation of these processes. (Fig. 21)
For successfully carrying out reduction processes a num-
ber of factors show clear support from respondents. Im-
plementing the recommended measures is of crucial
importance for the success. Furthermore, informing the
staff about the changes and making sure that employees
understand the need for the measures is also of utmost
importance for success. Leaving staff out of the process,
therefore, appears to endanger its success. (Fig. 22)
In addition to staff involvement, a majority of 58 % of re-
spondents confirm an important role of suppliers. In their
opinion, suppliers need to be involved in order to be suc-
cessful. 15 % do negate this statement.
Respondents do not give a clear idea of whether manage-
ment should react to objections from staff referring to the
measures of the reduction process. While 39 % of respon-
dents answer accordingly, 31 % do not agree.
It proved/proves important for the success of overhead cost
reduction processes that …
… recommended measures are also implemented and
do not simply remain on paper
… the staff are informed about
the need for the measures
… the staff understand the
need for the measures
… the staff are actively involved in the
formation of the processes
… the suppliers are included
… the company management make the final
decision without staff involvement
N = 301; in %; scale points 1&2 and 4&5 are summed up,
point 3 not considered
Disagree Agree
3931
Fig. 22 | © Expense Reduction Analysts
812
853
873
757
15 58
The quality of our products / services remains the same even after the
cost reduction process
In the course of reducing overhead costs our staff have learned to pay
more attention to those costs
The atmosphere in the company was positively influenced by the cost
reduction process
N = 301; mean
1
1 = does not apply at all
high middle low
5 = Fully Applies
2 3 4 5
Fig. 21 | © Expense Reduction Analysts Resistance or Barriers (by Sustainability)
21
Analysing these statements with respect to sustainabili-
ty, answers show a clear tendency: The most sustainable
companies vote for an active involvement of staff. Less
sustainable companies are more reluctant to do so. With
regard to management’s commitment to objections from
staff regarding the process, the more sustainable compa-
nies seem to reject the idea to decide without involve-
ment of staff while the other groups of firms show no
clear picture.
Sustainable companies involve staff more often
It proved/proves important for the success of overhead cost
reduction processes that …
… recommended measures are actively implemented
and do not simply remain on paper
… the staff are informed about the need for the measures
… the staff understand the need for the measures
… the staff are actively involved in the formation of the processes
… the suppliers are included in the process
… the company management make the final decision
without staff involvement
N = 301; mean
Success Factors by Sustainability
1
1 = does not apply at all
high
middle
low
5 = Fully Applies
2 3 4 5
Fig. 23 | © Expense Reduction Analysts
22
When carrying out overhead costs reduction processes,
various resistances or barriers may exist. Respondents to
the survey do not draw a clear picture regarding the poten-
tial types of barriers. However, the largest consent can be
identified regarding staff that fears changes and, therefore,
acts dismissively. 42 % of respondents acknowledge this
as a major problem in their company. In contrast to this,
difficulties in switching suppliers are confirmed by only
every fifth respondent to be an important barrier. (Fig. 24)
Results are therefore twofold. On the one hand, they in-
dicate that a multitude of potential barriers or resistances
may prevent reduction processes from being carried out
successfully. Each company should consider which fac-
tors might be of particular importance to it. On the other
hand, employees seem to be of great importance, even
across company borders.
More sustainable companies seem to encounter less pro-
blems arising from staff fearing changes and acting dis-
missively. One potential reason for that could be that a
company’s commitment to sustainability in general increa-
ses employees’ trust and loyalty which prevents them from
initially reacting dismissively in case of changes. (Fig. 25)
Fig. 24 | © Expense Reduction Analysts
In the following we present you a number of statements regar-
ding resistance or barriers which can emerge when implementing
the cost reduction measures. How do/did the statements regar-
ding resistance or barriers apply to your company?
Staff feared changes and acted dismissively
Due to organizational reasons the
implementation was difficult
During the processes implementation
the business environment changed
Difficulties in switching suppliers
Staff feel their work is put into question
N = 301; in %; scale points 1&2 and 4&5 are summed up,
point 3 not considered
Disagree Agree
31 42
40 30
44 27
42 21
39 32
Fig. 25 | © Expense Reduction Analysts
Staff feared changes and acted dismissively
Due to organizational reasons the implementation was difficult
Difficulties in switching suppliers
During the process implementation the business
environment changed
Staff feel their work is put into question
N = 301; mean
1
1 = does not apply at all
high
middle
low
5 = Fully Applies
2 3 4 5
Resistance and Barriers by Sustainability
In the following we present you a number of statements regarding resistance or barriers which
can emerge when implementing cost reduction measures. How do/did the statements regarding
resistance or barriers apply to your company?
23
Implementing measures and controlling their success are important parts of a successful reduc-tion process
Cost reduction processes can be split up into the following four groups:
a) Status Quo Analysis
b) Compilation of a List of Measures
c) Implementation of Measures
d) Control of Success
For each of these phases, respondents were asked to rate
the phases’ respective importance for the process’ suc-
cess. The same was done for two additional steps that
were deducted from the expert interviews and further
discussion.
All four measures received great support from basically all
respondents regarding their importance, only the compi-
lation of measures was confirmed by „only“ 89 %. The in-
vitation to tender for the necessary service also received
support by 59 % of respondents. Using external bench-
marks is considered to be important by a relative majority
of 46%.
How important are the following steps for the success
of overhead cost reduction processes?
Controlling of activities‘ success
Implementing recommended measures
Carrying out a status quo analysis
Compiling measures
Invitation to tender for the necessary services
Use of external benchmarks
N = 301; in %; scale points 1&2 and 4&5 are summed up,
point 3 not considered
Not important Important
95
94
3
2
91
2 89
11 59
20 46
d
a
c
b
Fig. 26 | © Expense Reduction Analysts
24
What did you do or are you intending to do with the
achieved savings?
1 Increasing profit
2 Increasing efficiency
3 Investment in existing
business
4 IInvestment in new
areas of business
5 Research & Development
6 Investment in new markets
7 Advertisement
8 Pay rises
9 Other purpose:
Multiple entries possible N = 251
Frequency of Responses
12
3
789
Increasing Sustainability
Usage of Savings
The study wanted to shed light on the question for which
purpose the companies use savings that were achieved in
the course of overhead reduction processes.
The simple increase of profit and efficiency is the major
goal for the firms in the sample. Investment in existing
business is claimed by 36.7 %. Although being of minor
importance, this still means that every third company
uses the money saved from over head reduction proces-
ses for a long-term goal such as investment in business.
In addition to that, a quarter of the companies report to
invest the money saved in new areas of business. 17.9 %
report to direct the money to research and development
and 17.6 % confirm to invest it in completely new markets.
(Fig. 27)
72,9
66,9
36,7
24,7
17,9
17,5
8,0
4,4
2,8
Saving money from overheads can therefore be a way to
substantially increase the competitiveness of a company
by identifying funds that are invested in order to improve
the company’s competitive position and long-term success.
(Fig. 28)
Most companies use the achieved savings for increasing profit margins – not for reinvestments
Fig. 27 | © Expense Reduction Analysts
Fig. 28 | © Expense Reduction Analysts
5
4
6
25
Results across countries are quite similar regarding the
savings’ purpose of use. Belgian firms are the ones which
most often mention the increase of profits as a purpose.
Investment in existing business is acknowledged by more
than half of all French respondents and 45% of German
firms. While entries for investments in new markets are
generally scarce, more than a quarter of German firms
confirm this purpose. Every third Italian firm does the
same for research and development. (Fig. 29)
In the following graph, companies are grouped with res-
pect to their geographical origin and then compared re-
garding their degree of innovativeness and sustainability.
In addition the symbol’s form and colour indicates the
group’s relative cost sensitivity and satisfaction with the
reduction process. (Fig. 30)
Increasing profit
Increasing efficiency
Investment in existing business
Investment in new areas of business
Research & Development
Investment in new markets
Advertisement
Pay rises
Other purpose
75
50
25
33
33
8
8
0
0
76
71
19
5
14
5
10
0
5
Fig. 29 | © Expense Reduction Analysts
Multiple entries possible
Germany France Italy Spain Netherlands Belgium Finland
69
68
45
28
22
26
7
4
2
79
53
53
37
21
21
16
5
5
72
72
11
0
0
0
0
0
6
85
75
25
25
10
15
20
5
0
77
69
31
19
8
0
4
4
8
Innovativeness
Sustainability
Fig. 30 | © Expense Reduction Analysts
GermanyFrance
Spain
Netherlands
Italy
Finland
Belgium
High Cost Sensitivity
Average Cost Sensitivity
Low Cost Sensitivity
High Process Satisfaction
Average Process Satisfaction
Low Process Satisfaction
26
Literature
Banker, Rajiv D. / Potter, Gordon / Schroeder, Roger G. (1995): An empirical analysis of manufacturing overhead
cost drivers, in: Journal of Accounting and Economics 19,
S. 115–137
Foster, George / Gupta, Mahendra (1990): Manufactu-
ring Overhead Cost Driver Analysis, in: Journal of Accoun-
ting and Economics 12, S. 309–337
Heimbrock, Jürgen Klaus / Deil, Thomas (2004): Erfolgs-
potentiale im strategischen Einkauf, in: Horst, Bruno /Söhn-
chen, Wolfgang (Eds.): Wertschöpfung und Supply Chain
– Festschrift für Prof. Dr. Heinz Tempel. Shaker Verlag
Held, Stephan / Kijak-Koselnik, Olha / Uhlenbroch, Rene (2009): Strategisches kostenmanagement. Anwendungs-
stand bei den 500 umsatzstärksten deutschen Unterneh-
men. In: Beiträge zur Umweltwirtschaft und zum Control-
ling Nr. 35, Universität Duisburg-Essen
Monden, Yasuhiro (1999): Wege zur Kostensenkung.
Verlag Vahlen,
O.N. (2005): Wertsteigerung im Einkauf – Studie zur
Erschließung von Potentialen in nicht-traditionellen Be-
schaffungsfeldern. Studie von Deloitte, Universität der
Bundeswehr München und dem Bundesverband Material-
wirtschaft, Einkauf und Logistik e.V.
Rosenstein, Roman A. (2008): Den Gemeinkosten auf
der Spur, in: Swiss Engineering STZ Oktober 2008, S. 36–37
Schwarz, Walter (1983): Die Gemeinkostenwertana-
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Versteeg, Andre (1999): Revolution im Einkauf. Campus
Verlag
27
Table of figures
Fig. 1: Results of Expert Interviews
Fig. 2: Index Sustainability
Fig. 3: Index Innovativeness
Fig. 4: Planning of Overhead Costs
Fig. 5: Most Important Types of Overhead Costs
Fig. 6: Most Important Types of Overhead Costs
by Countries
Fig. 7: Organisation Procurement
Fig. 8: Organisation Procurement by Sustainability
of Companies
Fig. 9: Use of Procurement-Tools
Fig. 10: Use of Procurement-Tools by Countries
Fig. 11: Satisfaction with Results by Use of
Various Procurement-Tools
Fig. 12: Implementation of Cost Reduction Process
Fig. 13: Implementation of Cost Reduction Process
by Country
Fig. 14: No Cost Reduction Process Planned
Fig. 15: Reason for Introducing Cost Reduction Process
Fig. 16: Reason for Introducing Cost Reduction Process
by Sustainability
Fig. 17: Groups Involved in the Cost Reduction Process
Fig. 18: Success of Process
Fig. 19: Success of Process by Sustainability
Fig. 20: Effect of Quality and Service-Level
Fig. 21: Effect of Quality and Service-Level
by Sustainability
Fig. 22: Importance of Employers
Fig. 23: Importance of Employers by Sustainability
Fig. 24: Barriers Introducing a Cost Reduction Process
Fig. 25: Barriers Introducing a Cost Reduction Process
by Sustainability
Fig. 26: Important Steps for Successful Cost
Reduction Process
Fig. 27: Usage of Achieved Savings
Fig. 28: Usage of Achieved Savings by Sustainability
Fig. 29: Usage of Achieved Savings by Country
Fig. 30: Process Satisfaction by Country and
Sustainability and Innovativeness
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