There's been a seismic distortion of our financial models during COVID lockdown. Revenues down to nil in some cases and an uprooting of the cost base. Although this has been tough, CEO's have had to reimagine their operating models and with it their cost base. Taking careful consideration over what is critical. It has exposed where they have massively underinvested in the past and where they have failed to challenge, accepting hidden inefficiencies.
In my mind, there's no such thing as fixed costs. I've never subscribed to it. And I hate using the word 'cost' - instead, prefering to use the word 'investment'. You then start to think about 'value' and ROI. Some might say that all costs are variable in the long term. But for some the long term never comes and incremental fixed cost creep is accepted. Let's smash through some of those myths, the cost base and review dynamic ways of reinventing your overheads.
Smash!
Act like a start up. You've got a blank sheet. If you started again what services would you actually need? Which are critical? Do you outsource some activity? Can you retrain people to perform cross functional tasks and build a matrix support centre? Are you paying for a Ferrari 488, when you only need a Fiat 500?
Invest in expertise. No one ever shrank their way to greatness. It's not just about continually cut-cut-cutting costs until you can't breathe. At some point you need to reassess and invest in high quality areas. This might be digital investment to drive efficiencies, it might be turnround expertise to inject energy and pace into your recovery. For example, injecting top end interim expertise into your C-Suite could provide much needed bandwidth, horsepower and innovation. These are people seasoned in turnaround, growth and fighting their way out of crisis. The ROI is quick and demonstrable. You'll recover and grow much quicker.
Dynamic flexing. Homeworking during lockdown has really thrown this up in the air. Real estate experts have never been busier in answering the call for more flexible office space. Don't think of it as office space. Think of it as a tool, an enabler. It should fit your activity - not just occupancy and presenteeism. Ask yourself. When do we work best at home? When do we need to get together? What do we do when we get together? Do we need touchdown space for the C-suite once a week? Is that on- or off-site? Do some teams work from home and some in an office environment? Do we get together in places other than an office? Does it flex during the week? Does it flex across seasons? Is our work desk tasks? Is it meeting space we need? Is it innovation space? Does it all need to be in the same place? How can I use this to inject some energy and pace into our way of working? You can flip that thinking to logistics, people and supply chains to create more agile operating models.
Systematic inventive thinking. Tools for innovative thinking. Take for example, the 'subtraction' principle. Take your 100 people in shared services and challenge yourself, "what if I lost one, what breaks?", "what if I lost two, what breaks?", and so on. This stress tests your model with current processes. Then consider whether quality can improve as well if you take people or processes out. The answers will also point to where you can find efficiencies or digitise tasks. It challenges thinking by asking how you remove activity whilst improving quality at the same time. I challenge you to find 15-20% efficiencies without pushing too hard.
Part-time dynamos. Your directorate are all full time. Do they need to be? Is Friday a quiet for your HR Director? Is your Finance Director only busy weeks 1 and 2? Is your Chief Marketing Officer busy at certain times of the year? And throw the same challenge to everyone below them. This begs the questions do you need full time heads, part time dynamos or indeed interim power for periods at a time. Pay for what you need.
Value chain makers. Challenge your functional expertise to think about how they can create top line revenue or efficiency value in the supply chain and quantify it, rather than just think of themselves as overhead burden. Can they form a shared service? Can they offer consultancy? Can they provide analytics to the whole supply chain seeking value and efficiency? Can the business recover their cost in consultancy or value added services? Can they form powerful collaborations to seek value in the supply chain by combining expertise?
Insource|Outsource flex. Think about the balance between activity, skills, levels of expertise, governance and utilisation needed for any function. By plotting this over time, you can create a model that demonstrates how much resource you really need and how you might be able to flex it between insourced services and outsourced providers. By outsourcing do you improve expertise and only buy what you need when you need it? What's the gap to where you are now? Can you afford to fund that 15-20% inefficiency?
Critical thinking. This subject has hit every CEO and member of their top team square between the eyes during lockdown. Who and what is absolutely necessary? What is critical for us to be able to function? What's nice to have? And as we go through the gears, what do we absolutely need at each level of transition? You need laser like precision and tolerance to be effective.
Digital transformation. Whether it's the likes of video calls, remote working, web based applications, cloud services or networking, this has been an absolute showcase for digital transformation. Now you've got a taste. Go further, what else can you imagine that you could do remotely or automate? Whether it's networks, connectivity, RPA, robotics, 5G, AI, this tech will continue to explonentially enhance collaborative productivity and remove low value tasks and noise. It will massively enhance your quality of service and product offering to your customers. Surely there's value in that.
Transformational analytics. Rethink the activities that your support teams offer you. If we've removed the need for invoice or payroll processing because Bots now do it, can your staff now perform big data or market analytics? Do these people have an eye for detail and trends that's valuable? Can they be retrained to analyse customer behavioural data? Can they offer analytical expertise to lean supply chain experts? Surely this flips the model round so that these people are now hunting opportunity and value. This is about using imagination to seek value and dynamism in your people, your tech and your value chains.
Smash traditional thinking
Surely some of these agile and dynamic approaches offer more opportunity for your financial playbook. This creative way of thinking creates more energy as well as cash.
To fight your way through recovery, you will need to offer new experiences and new products to customers, reshaping the markets you trade in.
Look at your cost base through a new lens. Create new opportunities.
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