OREANDA-NEWS  On 21 November was announced, that E&Y published new research. Research has shown that 90% of C-suite individuals believe that cost reduction is a business priority for their companies in the current market conditions. At the same time, two-thirds of respondents mentioned such performance improvement measures as working capital management and cost management of investment projects.

According to Ernst & Young’s survey Effective cost reduction. Where and how are businesses reducing costs?, although companies believe costs need to be streamlined, extreme measures often do not deliver the expected results even in the short-term perspective. Thirty-seven percent of companies which have implemented cost reduction programs have seen growth of expenses in comparison with revenues in the first year of the program. It is even more difficult to ensure long-term efficiency: only 30% of companies managed to sustain their cost improvements over a three-year period.

Respondents indicated that management will need to focus on aligning the suggested cost reduction measures to companies' strategic goals. Only then can companies enjoy long-term benefits of cost reduction initiatives, they said.

"Rash decisions concerning cost optimization can do more harm than good. This is critical in the context of the global economic downturn. Companies must fight the temptation to adopt quick measures which might jeopardize the company's strategic goals," says Vadim Mikhailov, Head of Advisory at Ernst & Young CIS. "Crises come and go, while strategic priorities are always there."

According to the survey results, executives view the lack of confidence in sustainable development as a key negative consequence of the crisis. This was the opinion of almost half of the survey respondents. Adverse effect of the current economic conditions were also seen on short-term financial indicators, such as revenues and profit (mentioned by 24% and 35% of respondents, respectively).

"Russian companies are now better placed for the crisis than they were ten years ago. At the moment, they have a more developed production base, and their leaders are using their experience from the 1998 crisis," says Vadim Mikhailov. "In addition, the globalization of the economy allows Russian managers to learn from the mistakes of their peers in the West."

"Obviously, a crisis management strategy is about more than cost reduction. We should also keep in mind the risks accompanying crisis management measures," says Ivan Ryutov, Advisory Partner at Ernst & Young CIS. "One of the keys to effective performance in the context of an economic downturn is that the measures undertaken to mitigate its negative consequences need to be consistent with risk management measures."