South Africa

Details

  • Service: Advisory, Performance & Technology
  • Type: Press release, Survey report
  • Date: 2010/08/12

South African businesses set ambitious targets to improve financial performance 

South African businesses are facing many challenges coming out of the downturn. These include too great a focus on cost avoidance rather than on greater cost efficiency, resistance from employees and cumbersome organisational structures. A further development has been the increasing importance being assumed by business intelligence as a tool to enable decision-making. These are some of the findings of an electronic survey conducted by KPMG. The survey, titled Improving financial performance in 2010 and beyond, was administered across the continent and elicited responses from 157 South African entities, with the remaining responses drawn from Kenya, Swaziland and various other African countries.

The survey found that while businesses had set themselves challenging targets for cost reduction, 83% of respondents achieve less than a quarter of their set targets, with 9% reporting that they have no idea what they have actually achieved. “This can largely be explained through poor implementation and monitoring,” says Therese Cilliers, KPMG Partner in Finance Transformation. “Another potential reason is that companies do not always have their staff on board. So cost-saving initiatives are introduced, but the team doesn’t necessarily buy into the process. I believe there is a both a project management aspect to it and a soft skills dimension to achieving cost reduction.” To address the latter challenge, Cilliers suggests ongoing communication with staff to help them realise that cost reduction is not a once-off event and providing ongoing feedback on the real gains made through the exercise. It is also important to assign individual responsibility for the exercise and eliminate excuses for not achieving targets agreed to, she says.

 

A further significant finding related to revenue enhancement with 93% of respondents listing this as an important strategy to enhance Earnings Before Interest, Tax, Depreciation and Amortisation (EBITDA) over the next two years. When probed on what specific initiatives could be introduced to achieve this, revenue enhancement initiatives featured as a relatively low priority. “One gets the sense that revenue enhancement is a strategic imperative which has not yet been translated into efficient operational actions to realise strategic objectives. This could also be attributed to the intense focus on achieving cost efficiency in the last few months rather than strategically implementing a plan to enhance revenue,” says Cilliers.

 

“It could also be due to the fact that business confidence is simply not there yet to promote growth,” says Tony Vicente, Head of Performance and Technology at KPMG. “There isn’t confidence that we are in a growth cycle yet. While the real priority is about containing costs, there is a reluctance to invest in growth. There comes a point where the axes of cost optimisation and investment in growth meet and a business needs to decide whether it has the confidence to invest in growth, otherwise it will seriously harm the bottom line.”

 

Technology and finance also emerged as significant factors in the survey, with the gathering of business intelligence and business performance reporting emerging as clear priorities. Of respondents surveyed, 80% identified improved business intelligence as critical to their decision-making processes. This is reflected in the finance findings where the majority of respondents cited the need for improved skills in financial analysis, providing useful advice and providing business insight to enhance budgeting and forecasting processes. “Better business intelligence is critical to drive business growth and improve operating efficiencies. The survey tells us that while they have identified the kind of information they require, they have some way to go to implement the necessary reporting tools and infrastructure,” says Cilliers.

 

Vicente adds, “Business intelligence as a scientific solution is really only coming into its own now. While companies were getting the basics right in introducing enterprise resource planning systems, they are now ready to optimise the business intelligence produced by them.”

 

“A key learning from the survey is that businesses need to start preparing for investing in growth. It is not sustainable for a business to perpetually pursue cost efficiencies; balancing cost optimisation with investment in growth is an ongoing exercise and investing in growth now will help us survive the normal business cycles,” concludes Vicente.

 

Access the full survey.

 

Contact

Contact

Therese Cilliers
Partner
Finance Transformation
Tel: +27 11 647 6749
therese.cilliers@kpmg.co.za

 

Tony Vicente
Head of Performance and Technology
Tel: +27 11 647 8294
tony.vicente@kpmg.co.za