PwC Cyprus: Effective use of resources better than simple cost-cutting

Businesses across all industries are being advised to take action to control rising costs in the face of inflation, according to an analysis by PwC Cyprus’ Leonidas Stavropoulos and Nicos Theodoulou.

While cost containment is necessary, the analysis explained, it could also have a negative impact on business operability, which is why companies should also focus on reallocating funds to areas that generate value and give them a competitive advantage.

“However, it should be noted that cost containment could even become destructive, negatively affecting the viability of the business,” the two experts explained.

“That is why costs should not simply be contained, but redistributed in part of the business that creates added value and comparative advantages over the competition,” they added.

The analysis, which is based on a recent report by PwC, titled Striking the Right Balance, examines the risks and opportunities businesses, including telecommunications companies, face as a result of inflation. Three key actions are suggested: reviewing strategic priorities, differentiating the value chain, and focusing on human capital.

Inflationary pressures are expected to affect telecommunications companies in four main ways.

Firstly, telecom companies, which are part of some of the key industries the report examined, are expected to face a decrease in demand for their services as corporate and household budgets come under pressure due to inflation. To mitigate this, providers are focusing on low-cost products and changes in pricing policies.

In addition, inflation is also leading to an increase in wage demands, which is compounded by labour force shortages. Providers need to retain human talent while remaining competitive.

There is also the issue of the inflexibility of capex and long-term contractual obligations. Since capex is increasing due to the deployment of 5G and fibre, leading to higher financing costs. Moreover, long-term supplier contracts, such as submarine cable interconnects and digital upgrades, entail inelastic costs.

What is more, there is also the aspect of ongoing supply chain pressures. Shortages of key raw materials, such as microchips and semiconductors, are causing problems. Telecom companies also face shortages of more common items, such as steel, PVC, and glass used in telecommunications equipment and fibre optics.

To address these challenges, telecom companies need to prioritise and simplify their products, which will help them focus on the most promising revenue streams. They also need to identify new opportunities to create value, such as monetising data.

Re-evaluating the value chain and reviewing costs are other essential steps, as are improving efficiency, accountability, and return on investment.

According to PwC, telcos can waste up to 20 per cent on capex annually, so it’s important to adopt transparent capital planning tools, have strong internal controls, and hold capital project managers accountable with predefined targets (KPIs).

“Re-prioritising and simplifying products helps flexibility and focus on the most promising revenue streams,” the authors explained.

“Creating a tightly defined product catalogue helps sales channels and customer value management teams perform better,” they added.

Telecom companies should also control costs to third parties, provide lower-cost alternatives where possible, and introduce new technologies for greater transparency and flexibility in the procurement system.

Another important factor is training teams to see problems as opportunities to innovate and apply creative thinking. Rewarding creativity and new ideas can provide additional incentives.

Finally, creating agile teams that span the entire spectrum of the organisation can help break down silos between teams and encourage knowledge sharing, which will bring results.

Telecom companies’ management teams are expected to focus on finding solutions to the challenges posed by inflation for the foreseeable future. The high level of uncertainty surrounding inflation means that telecom providers will need to remain flexible and adopt measures to control costs while investing in new opportunities to create value.