Proxima’s research shows that labour costs are now less than 13% of revenues (based on the available data from FTSE350 companies). Even in the past three years, that figure has declined from nearly 16%. But why?
As Guy Strafford points out during this live webinar discussion, it’s actually simple. “Over the last 25 years the cost base of large organisations has been externalised,” he says.
“Henry Ford used to own rubber plantations, mines, steel furnaces and glass works – now car manufacturers are assemblers of components made by suppliers. This is as true for costs that are core to a business as it is for non-core costs – almost every organisation uses external marketing agencies, security firms, logistics providers, consultants and so on.”
This shift means organisations ought to be able to achieve much more significant savings from addressing the larger, and growing, slice of outgoings – the procured goods and services.
A 1% reduction in labour, on average, will boost EBITDA by just 0.8%. But a 1% fall in non-labour costs yields a 3.6% rise.
Yet headcount reduction is traditionally seen as the best way to tackle cost. This raises a number of questions:
- Are businesses ensuring that their non-labour cost base is being effectively managed?
- If not, why not?
- And what are the potential benefits of making that investment?
The challenge for finance leaders is finding and employing innovative means of protecting enterprise value – not just cutting costs.
Register for this 45 minute presentation to:
- Learn how to put cost management at the centre of your company's affairs
- Hear how you can demonstrate how profitability can be improved and sustained through cost optimisation
- Discover how to take the lead in showing shareholders the benefits of a deeper and more innovative cost management approach