A Climate for Change

WORDS: GAVIN MAXWELL

We have sailed into a storm, the duration and intensity of which is unknown, with the only certainty being that the landscape will be forever altered. The challenges to the domestic economic environment coupled with the tidal wave rocking the global markets requires organisations of all sizes to develop new strategies to manage through the downturn and position themselves to outperform their peers consistently over time.

History repeats itself

Although a softening economic climate is not welcomed, it does, like most challenges, present a series of opportunities. Accenture’s analysis of companies during previous recessions has identified a clear set of management behaviours that allowed some companies to outperform others in their industry for up to a decade. The High

Performance differentiation that these ‘winners’ evidenced during a downturn were:

— Viewed the downturn as an opportunity to improve business performance,

take market share and change their competitive position

— Boldly advanced their strategic position by building differentiating capabilities

and shedding/acquiring assets and businesses

— Made fundamental changes to increase cash flow and to drive sustainable results

— Strategically cut costs to fund growth and to meet or exceed shareholder expectations

The current uncertainty makes cost reduction both more urgent and more difficult, with

a very real risk that knee-jerk reactions to cost cutting may not be enough from a cost perspective and may hamstring the organisation by cutting muscle as well as fat. Instead, organisations need to take a structured approach to identify their cost-cutting opportunities and the resulting returns across their operations. They should then adopt a strategic approach to exploit these opportunities in a planned and coordinated way, while reinvesting the immediate savings in further sustainable cost reductions. Accenture’s experience highlights that adopting a pragmatic and robust approach to reviewing both the tactical and strategic efficiency opportunities will leave organisations better positioned for high performance and can yield cost reduction benefits of up to 20% in some cases.

A balanced approach

To achieve high performance levels, organisations need to strike the right balance between short-term tactical cost reduction such as headcount reductions and procurement spend cuts, and longer term strategic initiatives such as streamlining processes or outsourcing non-core functions (e.g. learning, HR or Finance administration). Organisations that pursue only traditional, tactical measures may limit their ability to respond to changing demands and therefore undermine their competitive advantage.

It is not a question of focusing on tactical or strategic initiatives, it is about defining a programme of initiatives that spans both aspects and delivers tangible benefits. The diagram below (Figure 1) highlights how combining both traditional and differentiated cost tactics can support cost optimisation and deliver high performance efficiencies.

Read more about A Climate for Change in the December | January 2009 issue of WMB, on newsstands now.