A more strategic approach to costs can help you prepare for the next round of expansion.
Becoming fit for growth may seem like an onerous task. As resources move from nonessential to critical capabilities, your company can put more capital into growth strategies. The cost side of your ledger will read less like a list of burdens and more like a register of enabling choices, with a direct link between the money you spend and your prowess in the marketplace. (An excerpt from an article by Denis Caglar, Java Pandrangi & John Pianski @Strategy+Business).
Is your company fit for growth? Many companies today are not. The way they manage costs and deploy their most strategic resources is preventing the expansion they need. But they don’t realize it — at least not yet.
To be sure, many of those companies are in better financial shape today than they’ve been in for a long time. Having implemented cost-cutting and austerity programs during the recession, they have relatively healthy balance sheets and sizable reserves of working capital. They have strengthened their ability to weather downturns and improved their productivity in ways that could potentially last for years. All these restructuring actions were required for survival between 2008 and 2011.
But as they shift their focus from the cost side of the ledger to the revenue side, searching for ways to move beyond cost cutting — entering new markets, commercializing innovative products and services, offering more compelling customer value propositions — these companies are strategically and financially out of shape. They have not made the hard choices involved in channeling investments to the capabilities that are needed most, and deemphasizing or eliminating their other expenses.
How can you tell if your company is fit for growth? Here is a simple, three-question diagnostic:
- Do you have clear priorities, focused on strategic growth, that drive your investments?
- Do your costs line up with those priorities? In other words, do you deploy your resources toward them efficiently and effectively?
- Is your organization set up to enable you to achieve those priorities?
The easiest way to answer these questions is to imagine the opposite.
If you do not have clear growth priorities, there are several warning signs. You have so many initiatives that you can’t remember them all. Your executives go to multiple meetings on unrelated topics every day. Your best people are working on so many programs and projects, they are burning out. Meanwhile, you are underinvesting in some areas — which might include parts of R&D, market development, and customer experience — where you could potentially build a distinctive edge against your competitors.
If your costs are not deployed appropriately, that’s also painfully apparent — especially in the amount you spend on nonessentials. Staffing levels in different parts of the organization are out of sync; for instance, you might have twice as many finance people counting the money as salespeople bringing it in.
If you don’t have a well-designed organization, that is evident as well. You are not nimble enough to move quickly, or aligned enough to work in harmony. Information is not readily available to the people who need it. Incentives (such as bonuses and rankings) motivate people in ways that actually undermine the behaviors needed to achieve the company’s stated growth priorities — for instance, people put internal reports ahead of customer responsiveness. You have “shadow” HR, finance, and IT staffs popping up in places outside your shared-services organization. Since most suggestions are rejected, people become afraid to take calculated risks — and that derails the most innovative growth- or savings-oriented ideas.
These are common symptoms, even among well-run and well-managed companies. Unfortunately, company leaders cannot afford to be complacent about them right now — not if their goals involve expansion and profitable revenue growth.
However, the fact that everyone is struggling also provides a great opportunity for companies that are willing to prepare for growth through a more deliberate, lean, fit-for-purpose operating model. By contrast, across-the-board cost reductions are the corporate equivalent of crash diets — they are ineffective because they do not last, and at worst they can cut into productive muscle. A successful program to become fit for growth contains three main elements:
- Set clear strategic priorities, and invest in the capabilities that allow you to deliver them.
- Optimize your costs, developing lean and deliberate practices that will deploy your resources more appropriately and efficiently.
- Reorganize for growth, establishing a nimble, well-aligned organization that can execute your new strategic priorities.
These elements reinforce one another; when launched together, they provide the wherewithal for growth, even for companies facing today’s macroeconomic challenges.
Sustaining the Gains
When a large company pursues cost management and growth simultaneously, it must act as one unified entity. Avoiding disconnects and misalignments requires effective governance and business management practices. Financial, strategic, and operational planning processes should be treated as leading activities.
Fit-for-growth companies commit to a lean mind-set and are always honing their capabilities and cost structure, so they don’t have to undertake large programs every several years. They reorient themselves for growth as well, adjusting their resource deployment year after year. Most importantly, they do all this with a watchful eye on their unique value proposition and the distinctive capabilities that will allow them to grow.
Full article :
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- Stand Apart with a Strategic Approach to Business Intelligence and Analytics (blogs.sap.com)
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