Scale, agility, innovation and speed to market will all be increasingly important as the market is reshaped and efficiency becomes the key determinant of a winning strategy. Clearly, the first job is to survive.
Before companies can look to the future, they need to survive, and the number one action for survival is cost reduction. Of course, most, if not all, companies have been doing this — but the enduring nature of the slump means that multiple rounds of cost-cutting are likely to be necessary. Prudent companies will be reshaping their businesses so that they can continue to operate profitably when the world economy is slow.
As this uncertain environment develops, to effect better performance, there are three key areas on which to focus to survive:
1. Salesforce Effectiveness. It is essential to understand the nature of the customer decision-making process. Who are the decision-makers and who are the influencers? Increasingly, producers are centralizing global procurement contracts and yet the final purchase decision can still often be made at a local or regional level. What are their key purchasing criteria and how can you best differentiate yourself against other suppliers? In order to truly understand how to win, it is necessary to conduct a robust data-mapping exercise. The salesforce then needs to be organized to align with different customer segments, then clear targets, training, incentives and tracking metrics need to be developed to ensure profitable, market-leading performance.
2. Supply Chain Efficiency. Consolidating spend and building stronger relationships with the right suppliers are both required to ensure costs
and service levels are best in class. It is critical to engage all relevant functions that impact materials sourcing in order to optimize bottom line performance. We have seen up to 30% supply chain savings achieved through product re-engineering, enhanced procurement strategies and organizational changes.
3. Operations Optimization. In the era of high growth, operational efficiency, although important, was never the key priority. Now, there is an opportunity (necessity) to streamline the business and put it on a more sustainable footing. To do this, companies should increase their understanding of the operational key performance indicators for their entire value chain.
The cost reduction starting point for most companies is staff, and we have observed a number of companies having to reduce both frontline staff and also overheads, which need to be rightsized for the current environment. However, an even more difficult round of cost reduction is likely to be required. Cutting deeper brings risk and requires a thorough capability analysis if critical skills are to be retained for the future. A structured approach enables the right decisions to be made by helping organizations to understand what their most important capabilities are, the scale they need to retain, how to retain that scale and how this can be delivered in practice.
In the first instance, two fundamental questions should be addressed:
• What is the core capability that provides our competitive advantage?
• What capabilities do we need to retain to exploit the recovery?
Armed with the answers, companies should build scenarios, assessing what capabilities are required at different points in the recovery cycle. Having done this, they should find ways to retain the staff who possess vital skills. This might require the introduction of flexible contracts or the transfer of the most valuable staff to other parts of the company until business recovers.
Having addressed their cost base, companies should introduce targeted operational performance improvement programs. This will ensure that the business can operate in a lowerrevenue environment, win market share and deliver the healthy profitability needed as both a protection against predators and an asset for pursuing growth through M&A. Strategic partnerships, joint ventures, and mergers and acquisitions will all prove useful tools on this journey.
While companies may be moving in these directions, many are still not acting fast enough to ensure they are in the best shape to win in what will remain a highly competitive marketplace for the foreseeable future. Highly effective program management capabilities are also required to deliver the benefits identified.
Scale, agility, innovation and speed to market will all be increasingly important as the market is reshaped and efficiency becomes the key determinant of a winning strategy. Clearly, the first job is to survive. But, in our view, winning competitors should do far more than this — to improve and prosper by rebasing their operational performance and reconfiguring their business model. If they do this, they will become leaner, fitter and better adapted to the new post-slump environment — and they will be in a prime position to exploit the recovery and take market share.