Fit for growth
Cost optimisation clears the way for investment and healthy growth
The Dutch economy is back on the way up. Yet many organisations are still facing sluggish growth and, as a result of an increasingly complex world, are uncertain about their future. Companies can achieve greater growth by cutting costs in a strategic way. Marco Kesteloo, partner at Strategy&, explains the Fit for Growth approach.
Developments on the economic, social and political front are making the world a more complicated place. Expectations of consumers, investors and shareholders are one factor, as well as increasing competition, the regulatory burden and ongoing digitisation. "If companies fail to manage this increasing complexity effectively, their costs will increase, whereas bringing costs down is vital to ensure the healthy growth of a company", says Kesteloo, partner at Strategy&, part of the PwC network.
Conscious cost-cutting and investment
"But you don't bring down costs by simply slashing budgets equally across the board", Kesteloo continues. "You have to make conscious choices about where exactly to cut costs, what to invest in, and what you can do in a smarter and different way. It's about achieving sustainable growth and not about making one-off savings in order to survive. Cutting costs the wrong way can make a company weaker and that is disastrous in these times."
New competitors
To indicate the speed at which the changes to which organisations have to respond are taking place, Kesteloo takes the competition from new digital players as an example. "These companies have different business models and cost structures and can become fearsome competitors for existing companies in a very short time. Take the Dutch supermarket landscape. It has taken over thirty years to form but the online supermarket Picnic has developed into a new competitor in less than two years. Also, the announced acquisition of Whole Foods by Amazon is a signal to the establishment that the competition with digital players is also taking place in traditional channels. This tendency requires existing companies to be adaptable and agile."
Good and bad costs
Fit for Growth achieves this agility by making companies permanently "lean and mean". This method distinguishes between good and bad costs and takes an organisation's strategy as a starting point. Kesteloo goes on: "It's about ensuring that an organisation invests in what makes it distinctive in the market and cuts costs in areas that are not in line with its strategy. That's the key to sustainable growth and success. Benchmarks are not of much use in this case, as each organisation's strategy is different."
Structural causes
In the search for ways of cutting costs according to the Fit for Growth method, no departments or sections of an organisation are spared. "The message has to be: we are all in the same boat", says Kesteloo. "It is also important to always keep looking forward and not to dwell on looking for the guilty parties responsible for errors made in the past. However, you do have to investigate structural causes of excessive costs, as you learn from this as an organisation."
New digital opportunities
It is true that digital developments disrupt existing business models but they also open the door to new opportunities. "Just like new digital players, existing organisations can use digital solutions to work more efficiently and cut costs. In addition, existing organisations can – and must – develop new capabilities based on digital tools. By doing so, they can set themselves apart in the market and increase their sales. However, the key to success is to ensure that this is anchored in their strategy and their processes."
People and communication
The Fit for Growth approach is about "hard numbers" but also, more importantly, about people and communication. "We look both at the decisions that have to be taken and at the system of standards on which they are based, because if you understand the business culture you are in a better position to implement the cost savings."
Good communication is vital
"A CEO must show clear commitment to implementing a new cost strategy and ensure that managers are willing to promote and carry through the change programme. Change in any organisation demands a lot of capacity and energy from people. Good communication is therefore vital because it's the only way to get everyone on board. Showing a couple of 'quick wins' at the start can help in this process."
Lasting change
It is important that Fit for Growth results in lasting change. Yet organisations often cut costs, only to have them return after a period of time. According to Kesteloo, "'Staying on the diet' requires a lot of discipline and focus. Yet it is necessary because cutting costs clears the way for investment and growth."
What is Fit for Growth?
Fit for Growth: A Guide to Strategic Cost Cutting, Restructuring, and Renewal is the new management book by Strategy&, part of the PwC network. Using thirty different practical examples, the book explains how organisations can grow through strategic cost cutting. Organisations can do this by deploying available resources for the things that they are good at and that make them unique. They can then cut costs in everything else. This smart cost strategy is not a crash diet that will weaken an organisation but a new lifestyle focusing on healthy growth. Fit for Growth helps companies to make choices in line with their business strategy and shows how change can penetrate their DNA.
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