A new, mid-cycle Deloitte Global Cost and Enterprise Transformation Survey, "Save-to-Thrive: Enterprise transformation and performance improvement strategies during the COVID-19 pandemic," finds organizations that invest in key capabilities today to navigate a post COVID-19 business environment can position themselves to thrive in the "Next Normal."

The survey also found that expectations for positive revenue growth have declined significantly since the 2019 edition of the study, and two-thirds of respondents expect at least one more wave of COVID-19 relapses to occur. As a result, 2 in 3 companies globally (66%) now expect to pursue cost reduction over the next 12 months, compared to 38% before the pandemic. In addition, the percentage of respondents pursuing cost reduction targets greater than 10% increased by 61% (25 percentage points) compared to pre-COVID-19 levels.

This special report, conducted between June and July 2020, aims to understand the short- and long-term impacts of the COVID-19 crisis on global cost management, performance improvement practices and transformation trends. Survey results include responses from 1,089 global executives from 14 countries in the U.S., Latin America, Europeand Asia Pacific regions that have direct involvement in their companies' cost management and enterprise transformation efforts.

Shifting cost management strategy from "Save-to-Transform"

Deloitte's 2019 Global Cost Survey, conducted prior to the COVID-19 pandemic, found that the prevailing mindset for strategic cost management and enterprise transformation was "Save-to-Transform." In this approach, businesses evolve through infrastructure investments in digital technologies. In turn, these technologies can deliver dramatic improvements in competitiveness, performance and operating efficiency.

In response to the pandemic, the mid-cycle 2020 Global Cost and Enterprise Transformation Survey shows that organizations are evolving into a "Save-to-Thrive" mindset, in which they are accelerating strategic transformation actions specifically in response to challenges posed by COVID-19 to make shifts to their operating models, products and services and customer engagement capabilities.

"The Save-to-Thrive framework will be essential to success in the Next Normal as companies rely on technology and digital enablement — with a renewed emphasis on talent — to improve their plans for strategic cost transformation and overall enterprise performance improvement," said Omar Aguilar, principal and global strategic cost transformation leader, Deloitte Consulting LLP. "Companies that react quickly and invest in technology and digital capabilities as they pursue the strategic levers of cost, growth, liquidity and talent will be best-positioned to succeed."

Business challenges in a COVID-19 world

As countries responded to the pandemic by implementing restrictions such as stay-at-home orders and mandatory shutdowns, organizations began to experience demand-driven financial impacts. According to the study, the top external challenge reported globally is a drop in consumer demand (74%), followed by a related shift in consumer behavior (67%). Cybersecurity vulnerabilities (65%) and supply chain challenges (65%) were also reported by survey respondents as top issues impacting their organizations.

In addition, industry-specific impacts are posing challenges — though they vary significantly by sector. A decline in revenue is expected by 61% of transportation sector and 60% of hospitality sector respondents, many of whose operations have been significantly curtailed by consumer demand and public health measures. On the positive side, revenue growth is expected by 63% in the medical technology sector followed closely by telecom (58%), pharmaceuticals (58%) and software and information technology services (57%).

Finally, inability to adjust cost structure to meet demand is the top internal challenge globally and across all regions. Inability to meet employee safeguards and satisfy increased demand round out the top three internal challenges globally.

Coping with COVID-19: respond, recover, thrive

In Deloitte's view, current actions to address the COVID-19 crisis can be divided into three major stages: "respond" (immediate actions to respond to the crisis), "recover" (stabilize operations), and "thrive" (defined strategy with structural changes to thrive). These stages culminate into a long-term operating environment we call the "Next Normal," which represents new business conditions established as a result of the societal, commercial and technological changes caused by public and private reactions to COVID-19.

Today, survey respondents report that they are mostly in the "recover" phase as they respond to the immediate crisis and turn to recovery actions. The study also shows, as organizations move through these phases, that expectations for revenue growth, although down from pre-COVID-19 levels, remain somewhat positive in the respond stage (55%) and "recover" stage (58%). In the "thrive" stage, the vast majority of companies globally (74%) and in all regions have a positive outlook for revenue growth, with only 24% globally expecting flat or declining revenue.

Lastly, automation has emerged as the top transformation action with about 2 in 3 companies expecting to pursue automation in all three stages of the respond-recover-thrive framework.

Succeeding in the Next Normal: New business conditions after COVID-19

When mapping out strategies to respond, recover and thrive, organizations should have informed insights about the future business environment. The 2020 Cost and Transformation Survey reports several trends that are shaping the Next Normal, including:

• Revenue sources will be fundamentally different: According to the survey, the fastest growing revenue sources will be: digital channels; new products and services; and domestic operations.

• IT infrastructure, remote work, and digital channels will be the top operating model priorities: The survey reports the top priorities as: enhance IT infrastructure (78%); enable remote work (76%); and enable pre-sale, sale and post-sale activities through digital channels (72%).

• Top product strategies for the Next Normal focus on innovation, health and safety measures and customization: Globally, the top product strategies include: adjust, redesign or innovate your product/service offering to expand to adjacent and/or new markets (74%); leverage new health and safety measures by redesigning your current product/service offering (73%); and customize products or services to meet new customer and/or government requirements (74%).

• Next Normal customer engagement strategies will be driven by digital channels and flexible customer experiences: Globally, the most popular strategy for customer engagement will be to shift most transactions to digital channels (75%).

• Cybersecurity and cloud will be the key technologies: Respondents report the most relevant technologies in the Next Normal will be cybersecurity solutions (80%) and cloud computing (80%).

"Our 2020 Global Cost and Enterprise Transformation survey shows how organizations that strategically pursue cost reduction in the wake of COVID-19, while concurrently reimagining the enterprise and transforming work and business models, can be more successful in the Next Normal," said Sam Balaji, Deloitte global consulting leader. "Investing in critical technology capabilities such as cloud and digital can increase business agility, improve competitiveness and better prepare organizations to persevere, and position them well for the post-COVID environment."

For more insights from Deloitte's 2020 Global Cost and Enterprise Transformation report, view the full study.