Many of Canada's businesses have a potentially long and winding road to follow in recovering from the COVID-19 pandemic. Some of their progress will depend on factors including consumer behaviour, national policy decisions and the introduction and supply of vaccines, with Health Canada's authorization of a vaccine in December providing some good news.1 While we have some control over a few of these factors, many we don't.

Every business leader we've spoken to since the onset of COVID-19 is exploring ways to manage costs, identify efficiencies, and protect themselves from negative impacts. For some, that also means investing in different business models to thrive in a post-pandemic world.

While cost management should always be top of mind, recent events have brought these programs into sharp focus. It is crucial that organizations take the necessary steps to understand where opportunities lie, and the most effective way to prioritize them.

Surges and shifts

A few industries have enjoyed a surge in business as a result of the pandemic, including online retailers, telemedicine providers, and logistics and delivery companies. This can cause its own problems, with overwhelming demand forcing some companies to hire more staff while temporarily pausing the onboarding of new customers. These companies will need to ensure they do not take on too much cost, especially fixed costs, in order to fuel this rapid growth.

Other industries are challenged with a permanent shift in their business models, including store-focused retailers, higher education, energy, hotels, restaurants, entertainment venues and airlines, with some executives predicting it will take at least three years to recover.2 The amount of change these industries face and the degree of cost optimization necessary as they move towards recovery will be higher than most.

Optimizing across functions

Effective cost optimization should combine expertise from across an organization, including the finance, supply chain, IT, HR, operations and customer functions, in order to deliver integrated solutions rather than siloed views.

Whether an organization is looking to ensure stability or outperform its competitors, it will require the right mix of intelligent cost-reduction, investment in key assets and development of new business opportunities.

A cost optimization program is typically organized into three phases, as follows:

  • Diagnose and realize quick wins (6 to 8 weeks): focus on a few simple ways to cut costs, prioritizing ones that will deliver results quickly.
  • Implement medium-term solutions (9 to 25 weeks): widen program to look at more complex solutions including new ways of working, technology and automation.
  • Longer-term transformation (beyond 26 weeks): broaden scope to major changes including modernizing procurement, introducing new or enhanced distribution channels, and improving customer interactions.

If executed in the right order, companies can benefit from rapid short-term savings at the start and then use these savings to fund investment or make more complex, strategic changes in the future.

The first step requires analysis of which customers, geographies, products or services are profitable, including the ways in which consumers have shifted to digital channels during the pandemic, as well as which processes are the most inefficient or error-prone.

Following that, companies can benefit from increasing their use of automation, which can improve processes, reduce error and increase efficiency thereby allowing employees to focus on adding more value.

Changing structures and strategy

Longer term, companies can look at more structural and strategic initiatives that are required to support new business models, hopefully funding these partly through savings achieved earlier. These can include re-organizing work and investing in new capabilities especially in the area of data and analytics and automation. In addition, designing for the workplace of the future with work-from-anywhere models are likely to be top of mind.

It is often during challenging economic times that leaders are under pressure to cut costs, which sometimes come at a significant price to the business in the long-term. Each company will have its own priorities and opportunities for cost optimization. That is why it is so important that they take appropriate measures to identify and pull the right operational levers.

KPMG can help companies undertake cost optimization programs with a carefully considered, strategic approach. COVID-19 has undoubtedly been a crisis, but it provides us with opportunities to analyze the present and invest in future growth – and, hopefully, come out stronger on the other side.

For more information on how you can optimize your cost strategy, read our related insights.