Cost vs. Growth?
The 2008 downturn caused most businesses to look closely at their models. For many a focus on sales had been the way to ensure success, ‘look after the top line and the bottom line will look after itself’ was the mantra. However, as opportunities to grow sales dwindled the focus shifted to cost control.
Organizations cut staff and expenses, and in many cases it could be said that addressing these inefficiencies was long overdue. Some used the prevailing climate as an excuse to ‘right size’ their businesses. The offshoring consultancies did well and web-based business was explored to replace expensive people costs. And the low-growth economy continued…
Prices were increased and suppliers squeezed. Raw material costs then fell to enable some disguise of profit protection, but price rises then became harder to justify. Now what? Many businesses were revealed to have a short term, one dimensional strategy. It worked when the wind was fair, but what was being done to protect against the downturn? And now we’ve survived, how do we climb back to success?
What does this all tell us about running a business? A strong business has a clear purpose and a strong strategy. One that focuses on the fundamental reason for its being, that guides it in good times and bad. Starbucks’ purpose is “to be a place to meet, work, relax and enjoy”, Hilton Hotels: “to be hospitable”. Being clear of purpose enables a business to focus and measure how well it is focusing on that purpose. If the ensuing strategy interprets how the company can better deliver against that purpose then success is far more likely.
In most successful organizations the purpose is consistent. However, the strategy evolves. As the world changes and customer needs change the way that these needs are met must change too. An organization must therefore have a clear, visible strategy that the team buys into and is aligned behind. The strategy must be executed by everyone: the CEO cannot do it alone, everyone has a stake in its success. It must also be reviewed regularly. There is no point in spending millions on a strategy that is a work of art that sits in a drawer somewhere.
As opposed to the work of art, your strategy must change. If it doesn’t then it will be left behind and with it your organization. The most effective organizations will review strategy at least quarterly and if a disruptive event occurs, at that point. The strategy will focus the whole organization behind the few things that MUST occur for you to achieve your purpose.
So, if you were rocked by 2008 and focused (often appropriately) on cost management, and are now wondering how to continue profit growth, then you could do a lot worse than revisiting your strategy. And while you are at it, think about how you will use it differently from now on to equip yourself better for the next disruptive event.