The waves of economic uncertainty continue. Persistent inflation, layoffs, recession fears and recent bank failures have unnerved the market. This has led some companies to ride out the macroeconomic mess in a safe harbor, prioritizing cost transformation initiatives, (more specifically expense reduction), until the storm settles.
While the idea of battening down the hatches seems responsible when there are so many unknowns, not all budget-tightening decisions deliver the value they promise. And often, they come with long-term effects that hinder growth.
Harvard Business Review (HBR) warns companies that one result of across-the-board cost consolidation is the sacrifice of future growth and organizational health. Indeed, nearly half of cost consolidation measures don’t achieve the projected savings for which they were designed. So, organizations abandon long-term digital transformation and growth strategies in exchange for immediate savings that don’t materialize.
The publication reports that just 4 of 10 companies achieve the cost reductions they attempt in the first year. Even fewer - 1 in 10 - maintain the “prudent behaviors” into year three. “The ultimate failure comes from taking their eyes off the future,” the article states. “Just 9% of companies create enough capacity to take on growth and innovation to support their long-term aspirations.”
It’s not that cost transformation doesn’t benefit an organization. Of course, it does. What HBR is saying is not all cost-cutting is the same, and it’s a mistake to treat it like it is. When done with an eye only on the present, cost consolidation decisions can inadvertently rob companies of the future engine they need to compete effectively out of a downturn.
An enterprise’s ability to compete and even lead the market after a downturn rests on precise decision-making about when and where to streamline expenses during challenging times.
No one said cost-cutting decisions are easy, but they can be easier if companies adhere to their north star, which should align with their long-term corporate strategy. HBR urges companies to ask the following question as they ponder their options: Is the potential cost consolidation measure aligned with the organization’s future goals or attached to past performance?
Cost transformation efforts must protect both the company’s ability to innovate and grow and the customer experience. Why? It is difficult to win customer loyalty, and dangerously easy to lose it. Let's face it... customer revenue funds everything else, so if attrition rises and share-of-wallet drops, you have another set of problems that may be harder to solve.
Businesses have become consumerized, and they expect a lot from their customer experience. Enterprise-sized organizations especially are quick to find alternatives when things don't go as planned. 82% of business buyers want the same buying experience in their work as they have in their personal lives. It’s not surprising then that the highest-performing companies are customer-centric. That’s why organizations that brush aside customer experience during cost consolidation do so at their peril.
“Redundancy is often a culprit in organizations. We maintain the same information in multiple places because it is used across the enterprise. And of course, these siloes all need to be maintained.”
Forrester discovered that organizations obsessed with their customers’ success grow almost 2x faster than all other businesses, across every industry. Forrester and other analysts offer a number of recommendations to streamline operations while protecting customer experience.
“Sometimes, the best starts are born during a recession. Ironically, the smartest investment to your out-of-control technology spending is more technology – but better suited for leaping past your competition and growing revenue.” CIO.com
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