Cost

Organizations need to focus on managing costs as rigorously as they focus on growing revenues.

Companies around the world and across industries are facing increasing challenges. Many are struggling to jump-start flat revenues in a low-growth global economy. Some businesses, especially in mature markets, are fighting off efforts by private equity firms or activist investors to gain control. Others are simply trying to survive and regroup.

In this highly challenging environment, survival of the fittest is the order of the day. Enterprises of all kinds are now realizing that the only way to unleash profitable growth is to be fitter than their competitors — and to do this they need to focus on managing costs as rigorously as they concentrate on growing revenues.

image001

Based on our experience working with companies around the world and the research for our new book Fit for Growth, the surest path to achieving this is to do three things consistently and continuously.

1. Focus on a few differentiating capabilities. Build a clear identity for your company based on the handful of things it does better than any other business. For examples of such differentiating capabilities think about IKEA’s elegant and low-cost design, Starbucks’ ability to create a unique customer experience, Danaher’s approach to continuous improvement or Apple’s deep understanding of how people live and work.

When you know what your company does well and base your strategy on it, this provides your staff with a “lighthouse”: a clearly defined, focused goal that everyone can identify. That in turn directs them all to fulfill the same objectives. In such companies, employees know what drives the company’s strategy and outsiders do too.

2. Align your cost structure to these capabilities. Developing a lean and deliberate cost structure naturally follows from identifying your company’s key capabilities. You need to manage your company’s costs not only tightly but also thoughtfully. Not all costs are bad. Expenses that strengthen your company’s differentiating capabilities are good costs, and they should be adequately resourced.

This process will enable you to determine what capabilities and business segments can be eliminated or scaled back – take out as much of the costs associated with them as possible. You can review where your operations and people are located, and explore opportunities to achieve efficiencies of scale or economies of scope. You can also review and re-engineer business processes to eliminate waste.

3. Organize for growth. In most large organizations, longstanding relationships have developed in an ad hoc fashion between the center, local business units and shared pools of resources that provide group services such as human resources and IT. Redesigning your organizational model — so that your operations, business locations and business processes are aligned with your strategy and support your key capabilities — enables fitness and growth in two ways: by enabling and sustaining cost reductions which can be redeployed as investments in differentiating capabilities; and by creating the right conditions for managers to drive growth.

To be fit in this way means to be prepared as a growth enterprise for whatever macroeconomic, geopolitical or business changes the future might bring. This is not just a matter of innovation prowess, entry into new markets or acquisition savvy. It means having your resources — and your cost structure — aligned to your company’s overall strategy and deployed towards the right businesses, initiatives, and capabilities to execute your growth agenda effectively.

Is your company fit for growth? Take our easy-to-use online Profiler to determine your Fit for Growth* Index score and compare yourself with players from across your industry. The tool will also provide tailored recommendations for preparing your company for growth based on your unique starting point.

Read more about how to cut costs to grow in Fit for Growth: A Guide to Strategic Cost Cutting, Restructuring, and Renewal, by Vinay Couto, Deniz Caglar, and John Plansky (Wiley, 2017).

FFG

* Fit for Growth is a registered service mark of PwC Strategy& LLC in the United States.
© 2017 PwC. PwC refers to the PwC network and/or one or more of its member firms, each of which is a separate legal entity. See www.pwc.com/structure