corporate virtualization

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© Proxima 2013. All rights reserved. www.proximagroup.co m Corporate Virtualization A global study of cost externalization and its implications on profitability

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The Wall Street Journal, The Sunday Times and Het Financieele Dagblad have all covered our latest research, commenting that cutting labor costs is a tired, Pavlov-reaction in pursuit of short-term cost reductions. Today’s executives need to fundamentally change how they view and manage costs within their business. Follow the link to access the full research report.

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Page 1: Corporate virtualization

© Proxima 2013. All rights reserved. www.proximagroup.com

Corporate Virtualization

A global study of cost externalization and its implications on profitability

Page 2: Corporate virtualization

© Proxima 2013. All rights reserved. www.proximagroup.com

Business has changed

Businesses around the world have been on a journey, whether deliberate or not, of cost externalization

What was once a labor cost, is now a supplier invoice

A significant portion of any business’ revenues are now being spent outside its own organization

Page 3: Corporate virtualization

© Proxima 2013. All rights reserved. www.proximagroup.com

Research aims

Research was conducted by FTI Consulting on behalf of Proxima

The research analyzed financial data for 1,954 organizations for the financial years 2009, 2010 and 2011 to look at how they performed at the macro level

It constitutes only those companies that are listed on US stock exchanges and where labor cost information is available

The research sets out to explore the extent to which ‘externalization’ has occurred globally and explores what it means for the corporation of tomorrow

The consistent finding that is clear from the data is that the cost base of large corporations has been externalized, and to a surprising level. Today labor accounts for only 12.5% of revenues, with non-labor accounting for 69.9%:

Page 4: Corporate virtualization

© Proxima 2013. All rights reserved. www.proximagroup.com

The trend towards corporate virtualization

Even though the business environment today changes with unprecedented speed, perceptions of businesses continue to be rooted in tradition

What businesses often overlook is the much larger network of associated parties that have an increasing bearing on a company’s performance, longevity and reputation

No longer is a company made up of its people, its offices and its factories. It is now a network of people and organizations supported by, and contractually connected to, a web of suppliers

The results uncovered considerable benefits available to those business that take a more proactive, nuanced and strategic approach to handling their vast spend with suppliers

Page 5: Corporate virtualization

© Proxima 2013. All rights reserved. www.proximagroup.com

The action is in external costs

The below data is encouraging – and prompts some important questions. Revenue growth over the period stands at an impressive 31%– while EBITDA grew by 35%. What is surprizing is that during this time, labor costs as a share of revenue have fallen by 8%

This shows that it is not a greater number of staff that have enabled revenue growth – but greater productivity

Page 6: Corporate virtualization

© Proxima 2013. All rights reserved. www.proximagroup.com

Opportunities in action

Put simply, the supply base needs to be harnessed and encouraged to deliver success that individuals and businesses cannot secure on their own

The whole is greater than the sum of all its parts

Page 7: Corporate virtualization

© Proxima 2013. All rights reserved. www.proximagroup.com

To access the full reporton ‘Corporate Virtualization’

About ProximaProxima is an alternative sourcing partner, specializing in aligning our clients’ spend with their corporate objectives.

For more information, contact us at:

[email protected]

Click here to access the study