Organizations overly cautious on cost reduction.

Almost two-thirds of companies set themselves cost reduction targets of no more than 3% per year, according to a KPMG International sponsored study by the Economist Intelligence Unit (EIU). Even these limited cost savings are proving difficult to achieve, however, with only a disappointing 8% of respondents actually reaching or exceeding their targets.

As profits and revenues rise, companies increasingly lose some of their focus when it comes to controlling costs, according to the 427 senior executives questioned by the EIU. Nearly half of all the companies admitted that they didn't know what drives costs and profitability at a business unit level.

Nearly three quarters predicted that in the next three years, the biggest rise in costs would be salaries and benefits associated with recruiting and retaining top talent. Rising costs of raw materials and the need to invest in technology were identified as the next two biggest factors behind increasing costs.

Commenting on the survey findings, Tim Jones, from KPMG's Global Advisory practice and a partner in the U.K. firm, said: "Executives around the world admit that companies experiencing higher growth place a lower priority on cost control. For these companies, high profits and revenues may be masking an unnecessarily inflated cost base that could leave a company at risk of hostile takeover."

When companies did turn their attention to reducing costs, some of the most frequently cited reasons were a challenging competitive environment, downward price pressure and a need to fund growth.

Despite the pressure to reduce costs and increase stakeholder value, senior executives were unclear as to who was responsible for cost reduction. Only 39% said they believed that all managers across the firm had a responsibility for cost management while only 16% believed that it was the responsibility of everyone across the organization. This demonstrates a lack of accountability at these lower rungs of an organization, which jeopardizes a business' ability to remain competitive.

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