India Inc turns to consulting firms to prune costs

Written by MG Arun | Mumbai | Updated: Dec 12 2011, 07:39am hrs
Rattled by high borrowing rates and inflation, policy paralysis and subdued demand growth in key markets, corporate India is seeking more help from business consulting firms to make themselves leaner, fitter and battle-ready. Big consulting firms like KPMG India, Ernst & Young India, PricewaterhouseCoopers India and Accenture say they are getting more enquiries from Indian firms to reduce costs, build sustainable businesses, groom next generation leadership and pre-empt business downcycles. These firms, in turn, are boosting capabilities to service their clients better.

Companies realise that cutting costs can blunt competitiveness, says Sunil Aiyar, associate director at PwC India. They turn to us to build in a cultural element of sustainability. Avoiding costs require innovation, and companies are not shy any more to invest in new ideas, he adds.

In the automotive sector, for instance, firms are looking at multiple variants from the same platform to avoid costs. They also engage more capable vendors and reduce complexity of buying. Making more products locally also helps auto firms in times of currency fluctuation. A tractor maker we worked with saved R120 crore a year just through improving such processes, Aiyar says. That goes straight to the companys bottom line.

Indias business environment today presents a bleak picture. Its GDP growth slowed to 6.9% in the September quarter from 7.7% in June, while industrial growth slowed to to 3.2%.

We continue to expect growth to slow on high rates and rising global uncertainties, Indranil Sen Gupta, India economist at Bank of America Merrill Lynch, wrote in a report on November 30.

The bank has further cut growth to 7% for the fiscal 2012 and 6.8% for 2013. On Friday, the Union government slashed the target for the countrys economic growth rate for the current fiscal to 7.5% from 9% fixed in February.

This has made companies look at both internal and external processes to prune costs. Cost optimisation is high on companies agenda, says Sunny Banerjea, partner and head of the management consulting practice for KPMG in India. One of the major areas of focus for large companies now is procurement, he says. Companies that havent been disciplined before on the procurement front are trying to do so. They are interested in price management and mapping buying behaviour.

Building next generation leadership, and help to transfer managerial power from family to professionals are also priorities. KPMG, for instance, is working with large Indian companies like Larsen & Toubro on leadership engagement programmes. L&T routinely conducts such programmes at its Management Development Institute in Lonawala near Pune.

Companies are looking to put in place leadership teams for long periods, say 10 years, KPMGs Banerjea says. Competitive pressures and an urge to pre-empt business scenarios of the future are making them do so. His comments were not specific to L&T. KPMG is boosting its consulting practice team, adding more people and offering intensive training to new recruits.

Sanjay Dawar, MD, Accenture Management Consulting, said that the levers for high performance remain the same for companies, be it a boom period or bust. Cash remains king, he adds. There is a tendency to manage working capital better, and optimise cash flow.

Other focus areas include changing the ways firms operate, improving techniques through analytics, retaining and developing talent, focusing on the core business and managing the enterprise better. The message would be, dont take your eyes off the basics, says Dawar.

Sunil Chandiramani, advisory practice leader at Ernst & Young India says enquiries on cost reduction comes in various categories. Some clients want to know whether they should incur a particular cost at all, while others would want to rechannelise their cost for a greater yield, he adds. So, there is a mood to view cost reduction more holistically now.

Chandiramani says companies also enquire more on new growth opportunities and plan for the future, in what he calls scenario planning. Clients like to know how they can sustain if a particular market collapses, he adds.

Improving productivity with lower spending is the mantra today, experts say. Businesses today are looking at two avenues for growth in the face of a slowdown, Raju Bhinge, chief executive of Tata Strategic Management Group, the consulting arm of the salt to software Tata Group, told FE in an earlier interaction. First is, to improve their topline without spending too much on new assets. Next come companies that want to know if they can get into other lines of businesses that use the same kind of knowledge.

Companies want to know how they can cut down wastage and become competitive, he added.

Paybacks from these measures will be quicker when it comes to conserving cash, but others are long term activities, says Accentures Dawar. The best time to look at bringing about these changes is the good times, he adds. For companies that are in the top league, nothing significantly changes between a normal and recessionary period.

Stating that the firm is not stepping up hiring just to meet new demand, Dawar said Accenture is equipped to take up new enquiries from clients as they come in. For us, its business as usual, he adds.