The vast majority of businesses today are missing out on major opportunities to boost profits because of their inattention to cost reduction, according to the results of a global study initiated by KPMG LLP.

The study was conducted by the Economist Intelligence Unit (EIU) on behalf of KPMG International and was based on the replies of 427 senior executives, representing a cross section of industries and large, mid-size and small organizations.

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 did not know what drives costs and profitability at a business unit level. Almost two thirds of companies set themselves cost reduction targets of no more than 3% a year.

Those targeted cost savings are also proving difficult to achieve, with only 8% of respondents actually reaching or exceeding their targets.

Nearly three quarters (74%) 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 (66%) and the need to invest in technology (64%) were identified as the next two biggest factors behind increasing costs.

“These results serve as a timely wakeup call for executives,” said Diane Jeffreys, KPMG’s national service line leader for operations improvement in Canada. “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 (50%), downward price pressure (42%) and a need to fund growth (31%).

“Reducing costs that are built into a company’s business model requires changing embedded culture and practices,” Jeffreys added. “This isn’t something that can be achieved overnight. It requires clear leadership and communication from the board to change practices that will deliver long-term benefits.”

“Although it is hard to excite people about cost management, if approached properly it can fuel innovation that reduces expenses and increases profits,” said Spooner.

To download a copy of the report please go to www.kpmg.ca.