Master thesis
MSc International Financial Management
Large Enterprise and the Implementation of Cost Management Processes
By
Kasper Redwer Hoekstra
Abstract
This study investigates the Cost Management methods implemented amongst seven large firms, and the effect of antecedents on the adoption and success of Cost Management processes. The study’s findings show that the investigated firms primarily implement strategic, pro-active Cost Management measures, and only in some cases firms resort to operational, re-active Cost Management measures.
Furthermore, the findings also confirm that the distinguished antecedents have an effect on both the adoption and the success of Cost Management methods.
Keywords: Cost management · success · adoption · antecedents · Author: Kasper Redwer Hoekstra
Mail: kasper_hoekstra@hotmail.com Phone: +31615963360
Student number: S2043246 Place and date: 18-06-2015 Supervisor: Dr. W. Westerman Assessor: Dr. H. Vrolijk
Table of content
Table of content ... 2
1. Introduction ... 4
2. Theoretical framework... 5
2.1. Definition of cost management and large enterprises ... 5
2.2. Cost management amongst large enterprises ... 6
2.3. CM methods ... 7
2.4. Adoption of CM methods ... 8
2.5. Success of CM methods ... 8
2.6. Antecedents ... 9
2.6.1. External environmental factors ... 9
2.6.2. Technological factors ... 9
2.6.3. Organizational factors ... 10
2.6.4. Individual characteristics ... 11
2.7. Summary ... 11
3. Methodology... 11
3.1. Case study design ... 11
3.2. Sample and data collection ... 12
3.3. Method of analysis ... 14
4. The CM methods used, and the adoption and success of CM within the cases described ... 14
4.1. Company Alpha ... 14
4.2. Company Beta... 15
4.3. Company Gamma ... 16
4.4. Company Delta ... 17
4.5. Company Epsilon ... 18
4.6. Company Zèta ... 19
4.7. Company Eta... 20
5. Results of the case studies ... 21
5.1. The CM methods implemented within the firms ... 21
5.1.1. The CM methods ... 21
5.1.2. The cost field focus ... 23
5.1.3. The outcomes of CM ... 23
5.1.4. The targets of CM ... 23
5.1.5. Cost elements affected by large cost cuts ... 24
5.2. The effect of antecedents on the adoption of CM ... 26
5.2.1. Competition ... 26
5.2.2. IT quality ... 26
5.2.3. Centralization ... 27
5.3. The effect of antecedents on the success of CM ... 27
5.3.1. CM information used for decision making ... 28
5.3.2. Assessment of managers based on their CM performance ... 28
5.3.3. Financial ratios ... 28
5.4. The effect of antecedents on both the adoption and the success of CM ... 29
5.4.1. Internationalization ... 29
5.4.2. Economic climate ... 30
5.4.3. Uncertainty ... 30
5.4.4. Externals ... 30
5.4.5. Importance ... 31
5.4.6. Motivation ... 31
5.4.7. Opinion... 31
6. Concluding section ... 32
6.1. Conclusion ... 32
6.2. Recommendations and further research ... 34
6.3. Research limitations ... 35
7. References ... 36
Appendices ... 40
APPENDIX A Expense reduction analysts (ERA) ... 40
APPENDIX B DuPont scheme by Bragg (2010) Eq.(1) ... 41
APPENDIX C CM methods ... 42
APPENDIX D Qualitative or quantitative research, and why? ... 44
APPENDIX E Case research ... 45
APPENDIX F Motives for using the case study method ... 46
APPENDIX G Email used to send to firm representatives ... 47
APPENDIX H.1. Interview questions linked to authors ... 48
APPENDIX H.2. Questions used for interviews ... 48
APPENDIX I Case study protocol template Brereton et al. 2008 ... 50
APPENDIX J Quality measures for case study research ... 51
APPENDIX K Comparison of conceptual models ... 53
List of tables Table 1………..…...25
Table 2………..……..….27
Table 3……….29
Table 4………..…………..….32
1. Introduction
Battered by a weakened economy, firms and enterprises begin to realize that the “old” way of earning revenue is becoming obsolete (Garvey, Ross & Nakajima, 2012). The business areas that used to provide significant revenue growth have lost their ability to be as competitive as before. Furthermore, increased globalization of the economy has further enlarged the number of competitors, and firms need to cope with shrinking margins as a result (Heiß, 2004). In order for firms to maintain their market share and to ensure their survival, other business areas have to be explored: one area that is gaining interest among firms is the area of cost management (CM).
CM helps companies strategize how to deal with the increase of cost pressures, and consequently it increases operational performance while contributing to future organizational performance (Kaplan &
Cooper, 1998, p. 3). Any reduction in costs goes straight into profits (Bragg, 2010). Previous studies have defined CM as the strategy of influencing costs and sales in a deliberate way so that the efficiency of the firm can be increased sustainably (Hardt 2002, p. 9; Franz and Kajüter 2002, p. 10; Friedl 2009, p. 2).
There are many ways that are commonly used for conducting a CM process in a firm. The measures taken are usually short-term solutions which have a top-down approach in nature. One downside to this approach is it does not tackle the source of the costs (Heiß, 2004). These measures are also known as re- active CM (Günther & Gäbler, 2013). On the other hand, there are some leading institutions who use non- traditional methods in CM to manage costs in a more sustainable way using an approach called Continuous Expense Management, which in the past was primarily executed using single occurring cost-cutting programs (Garvey et al., 2012). Günther and Gäbler (2013) categorize these measures as pro-active CM.
Previous studies shows that the cost reduction programs initiated among large enterprises (LEs) have increased significantly due to the economic collapse in 2008 and the spread of globalization (Carr, Lawler
& Reny, 2012). However, it can be said that researchers are divided in opinion regarding firms running and planning their own cost reduction processes. A misunderstanding of the proper use of CM within a firm can distort the competitiveness of the firm significantly (Hegde & Nagarajan, 1992; Heiß, 2004). Hence, it is crucial to investigate how CM can be used for the benefit of a firm so that it can remain in the market and maintain its market share. For this reason, the main research question of this paper is, how does the implementation of CM processes amongst LEs occur, and how are the adoption and success of these processes being measured?
In this study, the research is conducted in association with a professional consulting firm named Expense Reduction Analysts (ERA) (See APPENDIX A). Established in 1992, ERA is a specialist in cost and purchase management consultancy; it focuses on delivering improved business performance to clients of all sizes in both the private and public sectors.
According to Bragg (2010), firms that have experienced rapid organic growth often arrive at the conclusion that their growth rate itself is the main reason for their overall costs to spiral out of control.
Since LEs have presumably experienced these kinds of exceptional growth rates in their lives, this study
will primarily focus on the description of CM processes amongst LEs. The main research question in this study will be investigated using the following sub-questions:
i. What kind of CM methods do large enterprises implement within their firms?
ii. Which antecedents influence the adoption of CM?
iii. Which antecedents influence the success of CM?
The main contribution of this paper will be twofold. First, this paper will provide valuable insight into the core business of ERA. Secondly, this paper will suggest certain points of direction for ERA to focus on in the near future. Regarding the approach for the research conducted, this study uses a qualitative research strategy known as the multiple case study. The selected cases are compared based on the specifications for size, sector and country level, and all these cases are situated in real-life settings. Furthermore, the study’s findings will show that the investigated firms primarily implement strategic, pro-active CM measures, and only in some cases do firms resort to operational, re-active CM measures. Finally, the findings also confirm that the distinguished antecedents have an effect on both the adoption and the success of CM methods.
The remainder of this paper is organized as follows: in the next section the theoretical framework specifies the constructs of the main research question, followed by the methodology of the research in Section 3, which explains how this study is conducted. Section 4 presents the information gathered on each single case, and Section 5 discusses the results of the case analyses. Finally, Section 6 concludes with answering the main research question and its sub-questions along with recommendations for future research and the study’s limitations.
2. Theoretical framework
This section presents a definition of the main construct of this paper, which is CM amongst LEs. In addition, the forthcoming concepts of this construct are elaborated upon. The theories extracted from the literature review are also presented in this section.
2.1. Definition of cost management and large enterprises
The main research subject deals with the significant effects of LEs achieving savings by implementing CM processes, and two constructs can be derived from this subject: Cost Management (CM) and Large
Enterprises (LEs).
As mentioned in the previous section, CM is defined as deliberately influencing costs and sales to sustainably increase the efficiency of the firm (Hardt 2002, p. 9; Franz & Kajüter 2002, p. 10; Friedl 2009, p. 2). According to Günther and Gäbler (2013), this strategy includes cost planning, cost control, and cost monitoring as well as the management of output to optimize the cost-benefit relationship. Both Günther and Gäbler state that the dominant instrumental functions of CM are analysis of cost occurrence, action
planning, and action implementation. However, structural functions of CM such as the creation of a cost culture and personal functions in the form of training in special skills are components of CM that should
not be undermined (Franz & Kajüter 2002, pp. 13; Friedl 2009, p. 47; Himme 2009, pp. 1062).
Furthermore, CM also includes identifying ways of cutting costs, searching for digression effects, and reducing fixed and overhead costs (Hardt 2002, p. 9).
The European Union (EU) defines enterprises to be large when they have one or more of the following qualities: they employ over 250 persons, their annual turnover must exceed 50 million euro, and the total on their annual balance sheet must exceed 43 million euro (The New SME Definition).
2.2. Cost management amongst large enterprises
The debate on expense reduction amongst firms has become more apparent due to the economic collapse in 2008. Carr et al. (2012) state that “the downturn in the global economy has made companies across all industries cut expenses to meet investor expectations” (p.61). Due to the fact that cost reduction is entirely within the company’s control, it is seen as one of the easiest and most guaranteed ways to increase profits in the short term (Bragg, 2010, p. 7). The following example is given by Bragg:
For instance, a company with a net profit margin of 5% has to, like all other companies, work hard to obtain one extra incremental dollar of revenue. The obtainment of extra revenue is of course not within the control of the company itself. Using the same profit margin a cost reduction of one dollar would have required an extra 20 dollar of revenue generated (Bragg, 2010, p. 3).
Bragg (2010) explains his view by using the following formula: 1/Profit Margin = Equivalent Amount of Sales (1). When the 5% profit margin is used from this example, the following outcome is generated:
1/0,05 = 20 (see Appendix B). Bragg also mentions how a company with an extraordinary profitability of 25% would have the choice to reduce its cost by one dollar or to increase revenue by four dollars.
Furthermore, Bragg (2010) claims that CM can also be an important driver of long-term growth if the cost reduction is handled properly. However, if these cuts are not done in a rational manner, they can be the cause of “dysfunctional behavior that can just intensify the economic pressures to become worse” (Carr et al., 2012, p. 61).
In many cases when firms try to reduce their cost base, they use a number of common and short-term cost-cutting measures which are non-permanent; these are also known as re-active CM (Günther & Gäbler, 2013; Franz & Kajüter, 2007). Re-active CM is often initiated based on a sharp decline in earnings. Bragg (2010) states that one of the worst cost reduction methods is the blanket percentage cost reduction method, which entails that the cost reduction measures are imposed throughout the whole company. In this way, everyone will have an equal share in the effects of cost reduction. These measures are often met with a lot of resistance from the employees of the firm (Heiß, 2004). Furthermore, this approach does not tackle the main source of the costs, and as a result the expenses begin to appear again when normal business cycles start to take hold (Garvey et al., 2012; Heiß, 2004).
However, there are also leading institutions who are using more non-traditional approaches. These firms aim to manage costs in a more sustainable way using an approach called Continuous Expense Management (CEM), which in the past was primarily used for single occurring cost-cutting programs
(Garvey et al., 2012). Garvey et al. (2012) defines CEM as a system which maintains a permanent, integrated focus on organizational efficiency and not simply a project-related response to market
conditions. Furthermore, the management of costs should be elevated to the same level of focus as revenue and customer service. The CEM approach described above by Garvey et al. (2012) can be categorized as a form of CM known as pro-active CM (Günther & Gäbler, 2013). Pro-active CM is used continuously before cost problems arise; it is market-oriented, holistic, as well as cross-functionally and cross- hierarchically practiced (Franz & Kajüter 2002, p. 11).
A similar distinction is made between operational and strategic CM, which is based on the difference in time horizon. Like pro-active CM, strategic CM is based on a long-term view where almost all costs can be changed due to variable and manageable structures (Günther & Gäbler, 2013). Cooper and Slagmulder (2003) explain that “the main objective of strategic CM is to reduce costs while simultaneously
strengthening the strategic position of a firm” (p.28). On the other hand, operational CM is linked to re- active CM which consist of more punctual activities.
Diefenbach et al. (2013) support the view that the current economic downturn encourages firms to initiate processes to reduce their costs. They report a significant increase in these processes conducted by firms themselves, who has expressed high levels of satisfaction in relation to the realized cost reduction.
These findings are confirmed by McGowan (1998), who states that CM supports decision processes in a substantial way and who also reports significant improvements in firms.
In addition, research shows that internationalization is said to have an influence on CM within firms.
The main benefit noted by researchers is the lowering of cost by reaping economies of scale (Richter, 2014). Furthermore, internationalization also affects certain antecedents of CM, namely decentralization, cultural aspects, and spatial distance, which in turn affect the host country’s environment costs, company- specific costs, and information costs (Richter, 2014).
Many firms try to survive in competitive environments, and therefore it may become important to keep certain costs under control, such as overhead costs. At the same time, the firms aim to provide incentives for long-range process improvements to reduce costs in the long-term. However, Hegde and Nagarajan (1992) note that an excessive emphasis on costs or on unsuitable non-financial performance measures may make cost reduction efforts harmful rather than beneficial for the firms themselves. In addition, a
misunderstanding of the proper use of cost management within a firm can distort their competitiveness significantly (Hegde & Nagarajan, 1992; Heiß, 2004). Furthermore, there is also a great share of organizations who claim to have contributed to holding back or even completely blocking the implementation of CM methods (Cobb et al. 1992, p. 15; Chongruksut 2002, p. 143).
2.3. CM methods
This paper will only focus on the CM methods relevant for this study instead of detailing a wide range of CM methods that have already been explored in previous studies. The CM methods included in this paper are methods that have a deliberate influence on the overhead and fixed cost positions, and these methods are activity-based costing (ABC), cost benchmarking, life cycle costing, and target based costing (Günther
& Gäbler, 2013). These are regarded as pro-active and strategic methods (See APPENDIX C).
Furthermore, there are also methods that are regarded to as re-active and operational methods (See APPENDIX C). Some of these methods include zero-based budgeting, value analysis and overhead value analysis (Günther & Gäbler, 2013).
2.4. Adoption of CM methods
The adoption construct is explained in this study by differentiating between three primary steps of adoption, namely consideration, decision and use (Günther & Gäbler, 2013). According to Günther and Gäbler (2013), the consideration-step refers to the phase when a firm considers the adoption of CM, and this step can occur in the past, the present, or even later in the future when the firm plans to consider the adoption of CM. The decision-step comes after the consideration-step, and it is described as the point when a firm has either implemented the method in the past, is currently implementing the method, or has the intention to adopt a cost management method in the future (Günther & Gäbler, 2013). Finally, the use-step is the CM method that the firm is currently using, and it can be classified as one of the pro-active strategic methods or re-active operational methods described in the previous chapter (Günther & Gäbler, 2013).
2.5. Success of CM methods
Success is a factor which can be derived from the main research question. According to Günther and Gäbler (2013), success of CM methods can be measured both directly and indirectly. Direct measurements are the effects that are a direct result from using the CM method, whereas indirect measurements refers to the changes seen from the organizational performance of the firm as an entity (Kajüter 2005; Himme, 2009). Günther and Gäbler (2013) state that measuring direct success by a multidimensional
operationalization is prioritized, and the first respective categorization they use was published by Foster and Swenson (1997), who identified four groups of success indicators. Even though these indicators are based on empirical studies about the success of activity based costing, the indicators can be used for all CM methods in general. The indicators for direct success are listed as follows: (1) using CM information for decision making, (2) measures decided based on CM information, (3) direct and specific financial effects of the adoption of a CM method, and (4) assessments of managers of the performance impact of CM methods.
In addition, CM also has certain structural functions such as the creation of a cost culture, as well as personal functions associated with the training of special skills (Franz & Kajüter 2002; Friedl 2009; Himme 2009). For this reason, Günther and Gäbler (2013) propose for the addition of two more indicators which are based on the structural functions of CM; these indicators are the creation of cost consciousness and the management of products and services offered.
For measuring indirect success, the study by Daschmann (1994) can be used as a reference. In his study, Daschmann indicates that financial ratios—such as return on sales, net income, or growth rate—can be used in relation to the division under investigation or to the firm as an entity.
2.6. Antecedents
In their meta-analysis, Günther & Gäbler (2013) uses the primary studies they investigated to derive a list of antecedents which influence both the success and the adoption of a CM method. Antecedents are defined as independent phenomena of the organization or the environment (Günther & Gäbler, 2013). Using a combination of the classifications as described by Anderson (1995) and Krump (2003), Günther and Gäbler (2013) list these antecedents in four general constructs. These constructs are labeled as external
environmental factors, technological factors, organizational factors and individual characteristics.
2.6.1. External environmental factors
When a firm is involved in increasing competition this will in turn increase the cost pressure, therefore competition is positively associated with the adoption of CM methods (Anderson 1995; Kremin-buch 2007;
Schoute 2009; Himme 2012). Examples of indicators used to measure the level of competition are
perceived competition, a high number of competitors, low market share and short product life cycles (Tani
& Kato 1994; Frey & Gordon 1999; Ax et al. 2008).
An environment that can be classified as being uncertain or dynamic can have a negative effect on long-term decision making (Kajüter 2005). Empirical research shows that due to an uncertain environment, firms are more focused on implementing CM methods; in this way, uncertainty has a positive association with the adoption and success of CM methods (Chrongruksut 2002; Schoute 2009; Himme 2012).
According to Günther and Gäbler (2013), frequent contact to external parties such as consultants, researchers or other firms increases the awareness on innovations. Certain CM methods could be present amongst these innovations, and this condition supports both the adoption and the success of CM methods (Anderson 1995; Malmi 1999; Krump 2003; Brown et al. 2004)
2.6.2. Technological factors
Intransparency stands for high complexity and low flexibility, and a combination of these two aspects leads to an intransparent cost structure amongst firms (Günther & Gäbler, 2013). High flexibility is associated with the adoption of flexible production systems, customer specific products and low set-up times (Günther
& Gäbler, 2013). Measures for the aspect of complexity include both the diversification of products and processes as well as the volume of different products within a firm (Günther & Gäbler, 2013). Günther and Gäbler (2013) state that the complexity is likely to be low when a firm has a high standardization of processes that are of a homogeneous nature. In this way, high complexity combined with low flexibility implies that a firm is intransparent, and this lack of transparency will generate gradual overhead costs and high non-production costs (Krump 2003; Brown et al. 2004; Schoute 2009). These features will have a positive effect on the adoption of CM methods (Horváth & Mayer 1995; Kremin-Buch 2007; Chongruksut, 2002).
IT quality can have a significant influence on the adoption of CM methods (Günther & Gäbler, 2013).
Chongsruksut (2002) states that an IT information system which provides sufficient information reduces the need for a company to implement CM. On the other hand, IT quality can trigger a firm’s awareness in
relation to CM (Krump, 2003). Therefore, Günther and Gäbler (2013) state that IT quality has a positive effect on the adoption of CM. As examples of indicators for IT quality, they state the assessment of respondents for existing IT systems and the existence of respective interfaces (Günther & Gäbler, 2013).
2.6.3. Organizational factors
The next organizational factor which has an expected effect on both the adoption and the success of CM methods is the variable firm size. The size of a firm can be measured by either its net sales, its total assets or the total headcount (Günther & Gäbler, 2013). Generally speaking, large firms are more likely to have implemented CM compared to small firms (Bragg 2010; Günther & Gäbler 2013).
Furthermore, the importance of cost information also has a positive effect on the adoption and success of CM (Günther & Gäbler, 2013). When CM information has a rather low level of importance, resources will be spent on other areas considered more important. The importance level of CM information can be measured using several indicators: (1) the necessity of cost reductions due to financial problems; (2) cost leadership strategies; and (3) the regular use of cost data for important decisions (Cobb et al. 1992; Shields
& Young 1994; Frey & Gordon 1999; Krump 2003).
In addition, firms that are known to be progressive tend to be more willing to adopt CM (Günther &
Gäbler, 2013). According to Günther and Gäbler (2013), the use of modern techniques can reflect the progressiveness of the corporate culture; some examples of these techniques are as just-in-time (JIT), total quality management (TQM), and lean management or high automation. In other words, the use of
innovative techniques generally has a positive effect on the success of CM (Krump 2003; Banker et al.
2008).
Power distance measures the degree of vertical differentiation and the existence of multiple hierarchy levels (Günther & Gäbler, 2013). A high power distance can distort the communication between
management control and the management itself during the adoption of CM; therefore, the expected relationship between power distance and the success of CM is negative (Anderson 1995; Schoute 2009).
Similar to power distance, centralization also has a negative effect on the adoption of CM according to Anderson (1995) and Schoute (2009). When decisions are made only by a few managers, decision-making is considered centralized and the managers are provided with structured and accurate information even without the use of CM (Günther & Gäbler, 2013).
Formalization is defined as a measure of standardization of processes within firms (Günther & Gäbler, 2013). If a firm is highly formalized, the freedom of employees is likely to be restricted and the initiatives taken by them may be reduced; in this way, high formalization is associated with a lower adoption rate of CM (Günther & Gäbler, 2013).
Lastly, the antecedent of motivation refers to the stimulus of employees for cost-conscious behavior, such as behavior through financial incentives such as cost-based compensation (Günther & Gäbler, 2013).
Some examples of indicators for motivation include the setting of cost targets and performance measurement systems (Günther & Gäbler, 2013). According to Günther and Gäbler (2013), firms
sometimes even use the threat of potential lay-offs as a method to motivate employees. Research shows that
increased motivation has a positive effect on the adoption as well as on the success of CM (Shields &
Young 1994; Shields 1995; McGowan & Klammer 1997; Banker et al. 2008).
2.6.4. Individual characteristics
Researchers state that the adoption and success of CM can be driven by the support from various parties, such as the management, trade unions and other promoters (Günther & Gäbler, 2013). If the management of a firm is greatly supportive towards the implementation of CM, there is a positively relation for both the adoption and the success of the CM (McGowan & Klammer 1997; Krump 2003; Brown et al. 2004;
Himme 2012).
An aspect which also has a positive effect on both the adoption and success of CM is the positive opinion of the managers and the employees of a firm (Günther & Gäbler, 2013). When managers and employees believe that CM will provide advantages for them, they inherently support its adoption and they in turn drive the success of the particular CM methods used (Clarks & Mullins 2001; Cohen et al. 2005).
When managers within a firm have the proper knowledge of the existence of CM, they will be aware of their possible advantages, and therefore this variable will have a positive effect on the adoption of CM and will also drive the success of the CM methods applied (McGowan & Klammer 1997; Chongsruksut 2002; Shields & Young 1994).
2.7. Summary
This particular study is primarily based on the previous academic work by Günther and Gäbler (2013) (See APPENDIX K). In their meta-analysis, they make a clear distinction between strategic pro-active CM versus operational re-active CM (See APPENDIX C). Furthermore, the definitions of the success and adoption constructs of CM developed by Günther and Gäbler (2013) are being used in this respect; in addition, the related antecedents they have distinguished are also employed in this study. Moreover, the possible effect of internationalization on CM mentioned by Richter (2014) is also examined in this study.
3. Methodology
The main subject of this research is to investigate the CM processes among LEs. In Section 3.1, a
description is given regarding the design of the case study. Section 3.2 elaborates upon the sample and data collection phase, and Section 3.3 describes the method of analysis.
3.1. Case study design
Empirical research can be conducted following either the qualitative or the quantitative approach, with each approach having its own methods of analysis (See APPENDIX D). Qualitative research can be seen as explorative and diagnostic, and it is defined as describing and discovering certain phenomena in their own
specific context and in their full complexity (De Pelsemacker & Van Kenhove 2010, p. 88). Furthermore, the content of the research is unstructured, and the data collection is kept as flexible as possible.
In this paper, we use a qualitative strategy for several reasons. First of all, it would be very time- consuming to work with a large number of firms. Secondly, the information needed from the firms in our case rather sensitive and confidential; therefore, not every relevant firm is willing to share their information with us. Furthermore, the main research question of this paper is aimed at understanding and describing a perceived phenomena, and there is no particular intention to quantify the results. In addition, an in-depth understanding is needed due to the complex nature of the investigated phenomena, and thus qualitative research is the best option in this case.
One of the most well-known qualitative research methods is the case study (See APPENDIX E).
According to Yin (2003), the term case study is sometimes even used as a synonym for qualitative research.
Other qualitative research strategies are group discussions, interviews and historical research. Cooper and Schindler (2008) state that “the case study is a powerful research methodology that combines individual and (sometimes) group interviews with record analysis and observation” (p. 184). For this reason, we have chosen this qualitative research method for conducting this study—in particular, we used a method known as the multiple-case study where more than one case is being examined.
The cases for this study are carefully selected, and the selection procedure is based on a case study protocol as designed by Brereton, Kitchenham, Budgen and Li (2008) (See APPENDIX I). Furthermore, the number of cases selected is seven because this will increase the robustness and therefore the results will be more compelling (Yin, 2012, p. 146).
Out of the four motives for using the case study method described by Yin (2012), this paper primarily exhibits a descriptive characteristic, and hence the development of theory does not play a significant role (See APPENDIX F). Furthermore, the design of this multiple-case study will be holistic rather than embedded since no secondary unit of analysis is nested in each case.
3.2. Sample and data collection
The cases which have been selected are adherent to the definition of large enterprises: this definition has been set in the theoretical framework, namely that “enterprises which employ more than 250 persons and which have an annual turnover exceeding 50 million euro, and/or an annual balance sheet total exceeding 43 million euro” (The New SME Definition). Furthermore, the selected cases are compared based on industry and country level specifications, among these cases are international and national firms from both the service industry and the manufacturing industry. To compile a list with candidate enterprises, different sources of information have been consulted; these include the Company Info database, newspaper articles, magazines, annual reports and direct and indirect personal contacts. Once the list with the candidate enterprises had been formulated, the selected firms were contacted.
Some firms were contacted by phoning the general phone number of the firms; after a request for participation was made to the company, and an email with the research setup was sent to someone responsible for CM within the firm (See APPENDIX G). Other firms were contacted by writing or calling
the person who was responsible for CM, which usually resulted in sending the research setup by mail. For firms who refused to participate in the research, a common reason for refusal was the lack of time.
The data collection is based on interviews with the people responsible for CM within the firms along with information from annual reports, company brochures, and newspaper and magazine articles. In order to obtain a fair overview of how CM processes take place in a firm, an open-ended interview setup was chosen, mainly conducted in a face to face setting. Therefore, the interviewee was able to describe the situation in his own choice of words. This even resulted in a visit to Switzerland to meet a CFO of a firm to be able to conduct a face to face interview, instead of an interview conducted by phone.
The questions which the interviewees were asked to answer were all based on the literature explained in the theoretical framework in Section 2 of this paper (See APPENDIX H.1 & H.2). During the interviews, we used a recording device, which was of great value when the gathered information had to be
documented.
After the information was extracted from the interviews this was combined with the other additional documentation received concerning cost management within the firms, and integrated to become one single-case report. The structure of the complete, integrated case reports follow the sequence of the sub- questions. Every case report is structured in the same way in order to increase comparability. Furthermore, due to the large number of variables and sources, the protocol designed by Brereton, Kitchenham, Budgen and Li (2008) is also used as a guideline for collecting case study data (See APPENDIX I).
In order to maintain the presumed quality of our research design, four common tests for doing a case study have been applied: construct validity, internal validity, external validity and reliability tests. Yin (2013) defines construct validity as identifying correct operational measures for the concepts being studied;
this validity is maintained by using triangulation and by providing a chain of evidence (See APPENDIX J).
The second test is internal validity, and it is mainly a concern for explanatory studies; however, we did take it into consideration in this descriptive-oriented study (See APPENDIX J). Yin (2003) defines internal validity as “seeking to establish a causal relationship, whereby certain conditions are believed to lead to other conditions, as distinguished from spurious relationships” (p. 376).
Moreover, the third test explained is external validity, which is defined as the domain to which a study’s findings can be generalized (Yin, 2013, p. 374). The use of multiple cases increases the external validity of this study (See APPENDIX J). The case study protocol by Brereton et al. (2008) mentioned above is also adopted to comply with the reliability criteria for case studies (See APPENDIX J).
In addition, the concept of rival explanations is used (See APPENDIX J). These tests are designed to guard two primary criteria of a case study research—validity and reliability. Cooper and Schindler (2008) define validity as “the extent to which a test measures what we actually wish to measure” (p. 289).
Reliability concerns “the accuracy and precision of a measurement procedure” (p. 289). All the procedures together are essential parts of any data collection, and they help to strengthen a case study’s findings and claims (Yin, 2012).
3.3. Method of analysis
According to Yin (2012), “the analysis of a case study begins by systematically arraying qualitative data (narratives and words) into hierarchical relationships, matrixes, or other arrays” (p. 150). An example of a simple array is the word table, and this table presents the narrative data in cells with multiple rows and columns (Yin, 2012). After arraying the data, several different analytic techniques can then be used, namely pattern matching, cross-case analysis, or a combination of both. We did not use software packages to analyze the large amount of narrative text due to the danger of loss of important information. Common sense was used to reduce the amount of data in a sensible way.
The pattern-matching logic is one of the most desirable techniques used to analyze case study data (Yin, 2013, p. 469). Yin (2013) states that this logic compares an empirically based pattern with a predicted one; if the patterns line up, a positive effect will be seen on the internal validity of the research. The search for rival explanations is also a crucial part of the process of pattern matching (Yin, 2012).
However, due to strict time constraints this study choose to use the cross-case synthesis technique, which applies specifically to the analysis of multiple-case studies. Yin (2013) suggests that one should create word tables in order to create a uniform framework. A proper analysis of these word tables is needed for making cross-case conclusions in relation to the main research question in this paper.
4. The CM methods used, and the adoption and success of CM within the cases described
In the following sections, the data from the interviews is combined with the other additional information gathered concerning cost management processes used by the firms; these are all integrated to become multiple single-case reports. The structure of the complete, integrated case reports follow the sequence of the sub-questions, so it is aimed at the CM methods used and the effects of antecedents on the adoption and the success of CM. Furthermore, only a selected number of questions is discussed in the case reports, these questions are selected based on importance and are aimed at increasing readability.
4.1. Company Alpha
Company Alpha specializes in the retail and logistics of hard-copy books and e-books, the logistics of fashion items and the logistics of healthcare supplies. The interviewee in this case is known as the Chief Financial Officer (CFO) of the firm and has a great deal of experience concerning cost management processes.
The CM methods implemented
Each year, Company Alpha maintains a 5% productivity improvement goal across all divisions of the firm;
this goal has an effect on both direct and indirect costs. To reduce the indirect costs of the firm, Company
Alpha has recently hired a consultancy firm to manage the cost reduction programs specifically related to indirect costs. However, the biggest direct element of expense is employee costs; for managing these costs, the company run an all-year round productivity improvement program which started in 2012. The features of this main goal are embedded in the firm’s strategic planning and also in the firm’s annual plans; in addition, the company also aims to increase flexibility and variability in order to achieve a cost reduction in the direct costs. Furthermore, the CFO mentioned that Company Alpha positions itself between the
strategic and reactive CM processes, which is what the CFO calls “tactical cost management.”
Effect of antecedents on adoption and success of CM
The CFO stated that “a strong competitive environment was a factor that in the past has pushed Company Alpha to pay more attention to its Cost Management, from which we benefit today.” In a dynamic
environment that is customer driven, a firm has to strive for efficiency and innovation in order to maintain its market share. These initiatives can cause the manager to become too occupied for other duties, and Company Alpha may have to outsource certain activities since these activities can be too time consuming and can cause the manager to be distracted from performing his core tasks. However, if the task concerns a simple budgeting issue, managers are expected to extract possible cost reductions themselves.
For measuring performance, Company Alpha uses dashboards which provides a weekly overview and monitors the company to ensure the goals set at the beginning of the year are still maintained. This
technology is put into use with the company’s truck drivers, who are all engaged in a Shell fuel save program which shows the drivers how their driving behavior influences their fuel usage. The managers who participate in this cost culture are all individually assessed based on their CM performance because they all have to comply with the 5% overall cost reduction, and a rolling forecast tool is used for measuring their performance. Every other year, Company Alpha performs a benchmark with international firms to assess if cost levels, productivity and output are up to standard. It can be said that the positive attitude of the CFO of Company Alpha has been of great influence on the firm’s CM.
4.2. Company Beta
Company Beta is a franchise-organization which specializes in the retail business and has a large number of stores across the Netherlands. The interviewee in this case is known as the Chief Financial Officer (CFO) of the firm.
The CM methods implemented
The CFO states that Company Beta has attempted to tackle their CM dilemmas with strategy known as a hybrid experience. On the one hand Company Beta has to evaluate how certain processes can be done more efficiently, but on the other hand Company Beta has to be extremely innovative to keep up with competitors and be able to maintain their market share. With regards to costs, the need to be efficient and the need to be innovative evidently contradict one another. The franchise entrepreneur’s most important cost driver is the purchase of all the inventory needed in the retail business. Therefore, supplier CM is the
most relevant in this regard, and the purchasing department of Company Beta makes sure that they purchase the goods at the best possible prices while maintaining the appropriate level of quality.
Furthermore, Company Beta expects customers to desire a higher level of service in the near future, and for this reason the company plans to set up standardized training for employees so they can provide consumers with a higher level of service when they demand it. Based on the interview, the direct cost can be
distinguished as the cost for retail inventory, and the indirect costs for the entrepreneurs are the labor expenses.
Effect of antecedents on adoption and success of CM
The retail business is currently very dynamic, and maintaining market share remains an important issue, though it is indeed very challenging. The current economic climate also increases uncertainty for firms, and therefore the CFO states that the company should pay significant attention to the management of costs when the economy is in an upturn, because they will thrive better during worse economic times.
The CFO also claimed that “Company Beta is planning on outsourcing its operational activities,” and this creates two main advantages. Firstly, the firm can increase the focus of Company Beta as a brand, namely the innovation and the formula concept of Company Beta. Secondly, such an externally hired firm can create economies of scale because they can focus on specific operational tasks in large numbers. The CFO also wants to nurture a cost culture within Company Beta; however, this culture has not been completely set throughout the firm. In particular, other high ranking employees within the firms have a different view than the CFO regarding the importance of CM. Furthermore, the CFO noted, “The more the cost awareness is knitted in the fabric of the firm, the fewer control measures I have to exercise.” Managers are assessed on whether or not they are able to maintain the hybrid-experience concept, and they each receive a variable bonus up to 5% of their own total year income based on these outcomes.
4.3. Company Gamma
Company Gamma is a healthcare organization which provides care to the elderly as well as special care to those who are mentally challenged. The interviewee is known as the concern controller.
The CM methods implemented
According to the concern controller, Company Gamma makes use of a strong purchase department in their firm. Their main task is to always negotiate with suppliers to get the best possible price for a certain product or service while keeping in mind that the quality of the product or service also need to be up to a certain standard. Furthermore, the firm plans on using dashboards to monitor how many clients are present at a certain location and how many staff members are needed to care for these people. This current situation gives managers the opportunity to anticipate on future drawbacks in revenue, which helps them to manage costs better. The interviewee stated that the largest direct expenses are their personnel expenses, which cover roughly 70% of the total costs. It is worth mentioning that Company Gamma depends on the government for their budget, and the government plans to decrease the company’s budget in 2017. This
also was the primary factor for the firm to cut out the majority of the personnel expenses by firing a number of employees.
Effect of antecedents on adoption and success of CM
In general, the competition among healthcare firms is rather low. This is due to the fact that every healthcare organization gets allocated the same budget from the government, and the healthcare users normally choose the organization that provides the highest quality of care. Healthcare organizations who focus on mentally challenged people have virtually no competition among other firms; however, a noticeable level of competition does exist among certain firms who provide care for elderly people.
Furthermore, Company Gamma is funded by the government, which means the company does not need to be too concerned with the latest economic crisis. However, since the firm needs to follow the rules and regulations enforced by the governments, there is a negative effect on uncertainty. Moreover, the government has currently tightened the budgets given to the healthcare firms, and this has caused CM to play a bigger role in these organizations that promote and nurture cost awareness among employees. One cost-cutting solution use by the company is to outsource labor that can be provided at a lower cost by others, especially when it would cost more for the company to organize these activities themselves. Having CM play a bigger role does supplement the positive view expressed by the controller and the ambitious plans he have regarding the management of costs in the near future. The information gathered on CM is indeed an important factor in making big decisions, and it is also used to assess managers accordingly. The managers are motivated to find a good balance between providing good quality healthcare and providing affordable healthcare. To handle these kinds of situations, a balanced scorecard approach can be very useful according to the controller.
4.4. Company Delta
Company Delta is a multi-site manufacturing firm which produces poultry processing machinery. The interviewee is known as the group sourcing manager of the firm.
The CM methods implemented
At Company Delta, the main focus is on the direct costs of raw material, which is used for producing poultry processing machinery—this cost is also referred to as the cost of manufacturing. As Company Delta is growing, the indirect costs are also becoming quite significant even though these costs only cover a smaller portion of the total spent; in fact, the sourcing manager felt that these indirect costs should also be the focus. In order to keep their main cost driver under control, Company Delta has purchased management teams located in every production unit; for instance, they manage the purchase of raw steel. Furthermore, the sourcing manager stated that the company “should maintain a continuous expense management instead of reacting from the actions of the market, because firms are simply too late in the latter case.” In recent years, the management of the firm also succeeded in significantly lowering the risk of supply of the firm, which they accomplished by dual sourcing. Furthermore, the sourcing manager noted that the company has
incorporated a local for local strategy throughout the firm, meaning that production units should buy the resources they need at local producers as much as possible in order to reduce various costs, such as shipping.
Effect of antecedents on adoption and success of CM
Despite the small number of players in the global market for poultry processing machinery, the industry is still very competitive. Furthermore, since the price of grain determines the amount of machinery that will be bought by the slaughterhouses, it has a great impact on the level of uncertainty which Company Delta has to cope with. Moreover, outsourcing at Company Delta is mainly used for service-related activities, whereas core business activities are rarely outsourced.
The sourcing manager described a certain kind of cost awareness culture which is spreading
throughout the firm. This culture has been nurtured since the day the firm was founded, due to the fact that Company Delta was a family company when it started. In addition, the firm has an Anglo-Saxon way of thinking as conveyed by the current owner, and this mentality has also contributed to the promotion of cost awareness. For instance, purchase managers are evaluated based on the savings they have achieved with the manufacturing resources that Company Delta needs, and in turn the company uses this information to evaluate the expenses of the production and sales units managers. Furthermore, due to the fact that Company Delta is a multi-site manufacturing firm, internationalization plays a significant role. Company Delta strives for global contracting and global availability while maintaining the local for local strategy. On the whole, the sourcing manager is very positive towards the whole concept of CM within the firm;
however he stated that the company needs to adhere to the local for local strategy and he hopes to push for a gain in empowerment of the purchase management teams which should nurture the firm’s cost awareness.
4.5. Company Epsilon
Company Epsilon is a Swiss healthcare organization that specializes in providing healthcare at home for those in need of help; this is also known as outpatient healthcare. The interviewee is known as the Chief Executive Officer (CEO) of the firm.
The CM methods implemented
In the healthcare business in which Company Epsilon operates, the income is determined by the
government, and therefore it is at a given and fixed level. For this reason, CM becomes the primary means for increasing the profitability of the firm. Company Epsilon incorporates multiple CM methods to reduce costs and increase efficiency by putting their main focus on their biggest expense component, which is the area of personnel expenses. The CEO stated that their CM processes focus on managing their staff based on their categories and the particular service they provide:
“We save money by managing the correct mix of staff, meaning that we deploy the right employee for the right task. One should not let a member of the staff with a high salary, who specializes in wound cleaning and administering medication, also do the complete housekeeping for a particular client.”
Furthermore, the CEO stressed the fact that the employees are equipped with the right technological tools and professional knowledge to be able to conduct their job as efficiently as possible, which in turn makes productivity as high as possible. In addition, the sequence in which the staff visits the clients is of importance; for instance, a nurse should not be sent consistently from one end of the town to the other.
Effect of antecedents on adoption and success of CM
The competition Company Epsilon has to cope with is getting stronger every year, and this competition is primarily derived from private outpatient healthcare firms. The CEO also mentioned that the budget cuts of the government are a direct effect of the current downturn of the economic climate. Furthermore, the necessity for a decrease in costs has led Company Epsilon to outsource the cleaning services they provide for clients. Dashboards help the firm to convey the financial situation into every layer of the firm, and it also helps those who feel less comfortable with reading a large quantity of numbers. The result should be that the people working at the base of the organization have the same mindset as the management of the firm so everyone can work in unison.
The CEO stated that Company Epsilon looks at other outpatient healthcare companies in foreign countries to see how they deal with healthcare outcomes and issues, and this strategy is explicitly caused by an increase in cost pressure. This pressure has also resulted in all important decisions being based on CM features: for instance, managers of Company Epsilon are individually assessed based on their own productivity numbers. The CEO concluded that he sometimes would wish that the CM within Company Epsilon would be not as important as it is now, and that there would be more means by which he could help the firm earn more profit.
4.6. Company Zèta
Company Zèta is a German multi-site manufacturing company with set-ups in 16 different countries. They specialize in the branch of sales promotional products, such as price card systems and display products. The interviewee is known as one of the company’s three general managers.
The CM methods used
According to the general manager, CM is needed for controlling the development of the different profit centers and for managing the various processes within the company, such as moving from the purchasing process to the production and the selling processes. However, the shareholder is the founder of Company Zèta, and his current focus is on investments, growth, diversification and internationality. Therefore, CM is not the first concern of the managers. Nonetheless, Company Zèta does make use of a number of CM methods: for instance, if they need to restructure their processes, departments or branches they resort to lean principles and they try to restructure the processes right from the beginning by setting up a greenfield.
Moreover, during the start of the economic crisis, the company opted for laying off a certain number of employees. Furthermore, ABC analyses are used for goods in stock and for strategic plans in sales. Also,
when available, benchmarks are performed with other companies in their branch, and this helps them to set targets for departments or branches that are comparable.
Effect of antecedents on adoption and success of CM
Company Zèta operates within a competitive environment, but this has not had an impact on their cost behavior. The firm is not reliant on business partners, suppliers, customers or branches; this is because the firm does not have any suppliers delivering more than 5% of their goods and none of their customers cover more than 3% of the total turnover. Therefore, the environment is high in uncertainty. Furthermore, the general manager stated that outsourcing can be very helpful regarding the firm’s CM; however, the company is indeed very cautious about having an outsider be responsible for the whole CM process.
Moreover, Company Zèta is considering a wide implementation of dashboards to support their CM processes. The general manager mentioned that “there are several components within the firm which are more important than cost management, but this does not mean that it is considered to be unimportant.”
Moreover, the culture of the firm is to be considered Westfalic, meaning that the firm would generally think twice about investments before actually spending the money. However, the founder of the firm has a somewhat different view because he is very keen on exploiting new innovations which is generally achieved by investing money. The general manager concluded with the remark that cost management is necessary, but controllers must remember that without investments they would never have had anything to control.
4.7. Company Eta
Company Eta isa publishing company which specializes in publishing weekly newspapers, magazines, news websites and books. The interviewee is known as the Chief Financial Officer (CFO) of the firm.
The CM methods used
The CFO explained that the company “primarily has a CM structure that can be regarded as strategic CM, but due to unforeseen situations at times, a firm has to make CM decisions which can be identified as reactive CM, such as unpreventable layoffs.” One of the CM methods used by the firm is a purchase management department, and this department ensures that the price of a product is in good relation to the quality of that particular product. However, the reliability of the suppliers is considered to be nearly as important.
Moreover, regarding the recent reorganization of Company Eta, lean principles are used within certain departments, and this has resulted in more autonomy for the employees. In addition, the rolling forecast is a tool used to see whether or not the firm is still on track regarding the goals established at the start of the year.
Effect of antecedents on adoption and success of CM
The CFO explains that the environment of Company Eta is considered highly competitive, which is primarily caused by the current digitalization and this has an impact on their CM behavior to a great extent.
The digitalization of the firm’s environment has been a trigger for the firm to observe how other foreign media companies cope with the current business-related problems and changes. For example, Company Eta performs benchmarks with a Danish media company regarding their organization structure and the firm’s processes.
Moreover, Company Eta has outsourced a lot of labor for their whole business cycle in order to reduce their total costs; however, the CFO explicitly stated that the components of the core business of the firm will never be outsourced in any way.
Furthermore, due to the recent reorganization at Company Eta, every employee is aware of the current financial situation of the firm, and therefore a high cost awareness is apparent throughout the whole firm. It also became clear that CM has become the single most important concern of the firm at this moment.
The CFO of Company Eta concluded by saying, “It is important to have an explicit understanding of how certain returns within a firm are calculated and what these ratios are composed of business-wise because numbers are never just black and white. Only then will a person be able to make the right decisions concerning the CM of a firm.”
5. Results of the case studies
In the previous chapter, an elaboration is given on the CM methods used within firms; the effects of the antecedents on the adoption and success of the CM methods are also described covering each single case.
In this chapter, the outcomes are systematically presented following the sequence of the sub-questions.
5.1. The CM methods implemented within the firms
Throughout the interviews, it became apparent that there are indeed similarities amongst the features of the CM methods used within the different cases, but there are also numerous deviations. Following the
structure of the sub-questions, this finding on similarities and deviations will be discussed first. In the cases described, the focus was mainly on the following six features of the CM methods used within firms: the CM methods themselves, the categorization of the CM method, the cost field focus, the outcomes of CM, the targets for CM, and the effect of crisis on CM.
5.1.1. The CM methods
In the literature presented, CM is defined as deliberately influencing costs and sales to sustainably increase the efficiency of the firm (Hardt 2002, p. 9; Franzand Kajüter 2002, p. 10; Friedl 2009, p. 2). According to Günther and Gäbler (2013) CM can be categorized into strategic, pro-active CM and operational, re-active
CM. From the interviews, it can be seen that the lion’s share of the firms is focused on strategic, pro-active CM, as confirmed by the following quotes:
“We position ourselves between the strategic and reactive cost management processes, which is what we refer to as tactical cost management. (…) We consult dashboards on a daily basis, run productivity improvement programs and regularly perform benchmarks with foreign firms” (CFO of Company Alpha, interview 1).
“We try to tackle cost management dilemmas with a so-called ‘hybrid experience’ where innovation is combined with efficiency. We maintain a strong purchase department, and we are planning on training employees to meet increased future demands of consumers regarding service” (CFO of Company Beta, interview 2).
“We at Company Gamma make use of a strong purchase department in our firm, and we also want to apply dashboards which map occupancy at a certain location” (Concern Controller of Company Gamma, interview 3).
“Company Delta is primarily reliant on their purchase management teams, and we want to maintain Continuous Expense Management” (Group Sourcing Manager of Company Delta, interview 4).
“We save money by managing the correct mix of staff, meaning to deploy the right employee for the right task. One should not let a member of the staff with a high salary, who specializes in wound cleaning and administering medication, also do the complete housekeeping for a particular client” (CEO of Company Epsilon, interview 5).
“If we need to restructure processes, departments or branches, we resort to lean principles and try to restructure it right from the beginning by setting up a greenfield. Moreover, during the start of the
economic crisis the company opted for the laying off a certain amount of employees. (&) ABC-Analyses are used for goods in stock and for strategic plans in sales. (&) When available, benchmarks are performed with other companies in their branch which help them in setting targets for departments or branches that are comparable” (General Manager of Company Zèta, interview 6).
“Company Eta uses a purchase management department that ensures that the price of a product is in good relation to the quality of that particular product. However, the reliability of the suppliers is
considered to be nearly as important. (&) Regarding the recent reorganization of Company Eta, lean principles are used within certain departments which resulted in more autonomy for the employees” (CFO of Company Eta, interview 7).
It also becomes clear that some firms have adopted CM methods within their firms, and these methods simply cannot be compartmentalized into the categories designed by Günther & Gäbler (2013).
5.1.2. The cost field focus
When analyzing the interview responses, it becomes apparent that four out of seven firms put most of their focus on the firm’s direct and indirect costs regarding the CM methods adopted. However, the three remaining firm focus only on their direct costs, as is illustrated by the following quote:
“Nearly 70% of our variable costs are allocated to specific materials needed for manufacturing. So in order to make as much profit as possible we have to be able to produce the poultry processing machinery as cheap as possible resulting in a primary focus of CM on manufacturing costs” (Group Sourcing Manager of Company Delta, interview 4).
When asked, three out of seven interviewees claim that more time should be spent on managing their indirect costs. Moreover, there is one firm which stands out from the rest when analyzing their distribution of focus for either their direct or indirect costs; this firm is Company Alpha, as shown by the following quote:
“We run all-year round cost reduction programs throughout the whole firm, so both direct and indirect costs are treated the same way. Accordingly, to reduce the indirect costs we hired a consultancy firm, and to tackle the direct costs we strive to increase the flexibility and variability of the firm” (CFO of Company Alpha, interview 1).
5.1.3. The outcomes of CM
For all firms, the outcomes of the CM processes they adopted have been positive. This can be acknowledged by the following quotes:
“The company-wide productivity improvement program we initiated as a firm has resulted in a 5% cost reduction in both direct and indirect costs” (CFO of Company Alpha, interview 1).
However, Company Gamma had to apply a more re-active CM measure in order to absorb the impact of an upcoming budget cut by the government, which they are rather reliant on. On the other hand, Company Delta adopted a strategic measure.
“A thorough analysis of our overhead expenses has led us to decide to decrease the number of employees in their facility support department” (Concern Controller of Company Gamma, interview 3).
“We invested in smartphones for our staff which are used to register the time spend at a client which resulted in a significant decrease in time spend on paperwork” (CEO of Company Epsilon, interview 5).
5.1.4. The targets of CM
The findings concerning the targets which firms have set in relation to CM make it clear that in essence, every firm has either set a numerical CM target or a more abstract one during the financial year.
Accordingly, three out of the seven interviewees state that more time should be spent on the achievement of these goals; this view is illustrated by the quote below:
“The 30% cost reduction goal we had set for our operational expenses at the beginning of this year is probably not (yet) achievable, therefore time and effort spent on CM should be increased in my opinion, apart from the fact that the time frame for this target was too narrow” (CFO of Company Beta, interview 2).
However, the other representatives of the firms claim that the time and effort spend on the targets during the financial year regarding CM are in line.
5.1.5. Cost elements affected by large cost cuts
The responses of the interviewees show similarities concerning the cost elements affected when faced with large cost cuts within the firms. Accordingly, six out of the seven interviewees mentioned lowering employee expenses which inherently results in layoffs, as seen in the following quote:
“We would reduce personnel capacities to save personnel costs because salaries are the most important costs. Furthermore, we would include our suppliers in the processes and reduce costs in the buying process. Last but not least, we would try to reduce costs that are not part of the productive processes” (General Manager of Company Zèta, interview 6).
Table 1 displayed below gives an overview of all the features of the CM methods used amongst the investigated firms.
