As central banks attempt to curb historic inflation to counter the liquidity injections from global governments over the last several years, spurred by goosing economies due to slow downs caused by the COVID-19 pandemic. Interest rates are rapidly rising, markets are cooling, the cost of money is increasing, and employment rolls are beginning to shrink. There’s not a day that goes by that executive leaders across markets, industries, and the globe are trying to game out and rapidly act to stem the impacts of approaching market and demand contraction.

Bottom Line Health

If you’re reading this article, you’re probably already familiar with and thinking about expense management, implementing an expense control tower, and cost control measures ranging from; restructuring, to reducing contractor expenses, limiting travel and other discretionary expenses, the list goes on. This sort of good financial hygiene is exactly what’s needed irrespective of the coming global recession but should be a muscle that all firms exercise regularly to ensure their financial health and ability to not just survive, but rather fuel their ability to thrive. However, if too knee-jerk of a reaction to manage net income and costs without a holistic view of the impact of those changes, it can lead to; poor customer and colleague experiences, hobbled innovation engines (R&D, Product Development, Experience Management, etc.), and an overall deceleration of business agility.

Cost Takeout as a tool not a Destination

Going back to Business (“B”) School fundamentals;  there’s two scarce resources, time and capital. You don’t need to be Peter Drucker to grasp the concept that there’s never enough time and that capital is tough to come by (or comes with significant downside risks like inflation, fraud, deleveraging, etc.). But here’s the thing, time can’t be stopped. Instead businesses need to continually increase their operating velocity and their agility to make the most of the time that they do have. Additionally, capital, if starved, can act as an anchor decreasing the organization's ability to respond to market forces, or its competitors, customers, and colleagues needs.

In the heat of a market or financial crisis, companies absolutely must focus on financial viability. However, they tend to cut roughly equally everywhere without fully considering the strategic trade offs up and down stream. Many firms do so because it seems straightforward, equitable, and easier to navigate through executive and board landscapes. However, especially with human capital reductions, there’s longer-term consequences that quick reductions and cost take-out often come at a price; missing the opportunities that crises can create to improve business systems or to strengthen parts of an organization selectively.

Shifting Operating Paradigms

At Mesh we think there’s a better way. Firms should start cost-cutting initiatives by thinking through whether they could restructure the business to take advantage of current and projected market trends (for instance, by exiting low-profit or low-growth businesses) or to mitigate threats, such as consolidating competitors. An important part of the analysis is to understand a company’s financial posture and the range of potential outcomes under a several different external economic scenarios. Then, within the resulting strategy, take the opportunity to understand which activities drive tangible, material value. For example, in public and nonprofit sectors, mandating clear business outcomes, redefining objectives and key results (OKRs), or focusing on stakeholder (customers, patients, members, colleagues, etc.) experience improvements could make the firm more competitive. Helping it refocus those scarce resources more precisely.

Additionally, organizations should invest in value-creating activities and cut costs in others while meeting clear financial goals over a set time horizon. But, unlike the business strategies that helped firms survive the 2008-2009 financial crisis, today’s markets require a different tact. Employing strategies to redefine the target operating model to leverage modern Agile delivery (product, technology, program management, finance funding, etc.), used in concert with the elastic services and cost models provided by Cloud services and related digital capabilities to underpin modern business operations. The firm’s culture needs to be supportive of taking many calculated small risks, while providing the strategic guardrails and NorthStar to help steer, but never smother an empowered workforce to drive those value-creating activities.

Finally, organizations shouldn’t overlook the substantial benefits that can come simply from identifying key processes and making them more effective. Identifying key or overweight processes to reengineer and automate can have profound effects, while creating an annuity of efficiency.

Making an Impact

At Mesh we’re a pragmatic bunch and we’re eyes wide-open that changing a company’s approach to crisis induced transformation comes at a price. This smarter, strategic, and more surgical approach many times requires tactfully navigating political minefields, redeploying funding of executive pet programs, educating along the way, and sometimes requires frank and candid discussions to help align and refocus executive support.

Yet, intelligent cost take-out doesn’t need to reduce the overall scale of savings that organizations can achieve. But by shifting the focus from managing just the bottom line to current and future strategic needs, leveraging cost take-out opportunities to fund the move to a new operating paradigm and improved resiliency it makes for smarter savings and a healthier firm exiting the crisis.

Whether designing transformational business strategies or leading the charge on digital products to accelerate growth, Mesh Digital, LLC is your partner for change. To unlock the potential of modern business for your firm fueled by Digital Strategies and Technologies, please feel free to reach out at [email protected] or Contact Us at any time to see how we can help your firm with developing Strategy that’s Not So Usual.