Businesses are often under pressure to reduce costs while simultaneously improving both customer experience and overall performance. It’s a tricky balance to achieve but it is possible if leaders think longer term and can win buy-in from their people.
Wasil Haroon, Relationship Manager at Criticaleye, says: “Leaders should review the cost base across the whole of the business. However, before making any knee-jerk decisions about where to make cuts, they should first understand and assess the real drivers of growth in the business over the short, medium and longer term.”
This isn’t always the easiest thing to do, especially in a turnaround situation where the priority is more one of survival. It’s something that Neil Griffiths, a Board Mentor at Criticaleye, is familiar with after his experiences as COO of Punch Taverns.
“Many companies in a turnaround situation can often only focus on what they can do immediately and in the short term,” says Neil, who is now Non-executive Director of City Pub Group.
“We had to reduce costs and increase operational efficiencies and realised this was going to be a long road to recovery. So, we also focused on both what could we do immediately and what we could do for long-term sustainable recovery.”
The turnaround journey was significant. The senior leadership team cut costs and discarded projects that weren’t aligned to the recovery. They also set achievable KPIs, focused on retaining talent and worked hard to bring the workforce with them.
“We created a campaign mentality, which is important for any change programme to ensure people can really understand, get behind and visualise the end goal.
“In these situations you really can’t over communicate. We regularly got the whole team together, either in person or on a conference call, and would talk to them about what was happening; why we needed to refinance; and what the strategy was. We kept repeating the key actions that everyone could influence and so help us return to growth.”
Neil adds that aligning bonuses with the business goals and then – in view of the turnaround situation – undertaking to pay them once achieved was also important.
Marija Simovic, Managing Director of Alvarez & Marsal, agrees that incentivisation can be a powerful tool when significant changes to an organisation are introduced, citing an example of a bank that had gone through a cost-cutting programme and subsequently returned to growth.
“Instead of running individual programmes, they had a continuous improvement scheme. Each employee and their department had KPIs to improve efficiency or reduce costs. In order to receive a share of a bonus, individuals and departments had to deliver an improvement or a saving. This created a continuous improvement environment and a culture that continues today.”
Marija adds that the results exceeded company expectations and that the new culture became embedded as a result of continuous communication and celebrating success.
Neil agrees that communication and reward are essential for a struggling business to move forward. “Fatigue can easily set in with longer-term projects, so it’s imperative to keep updating people on progress throughout a project, recognising success and milestones achieved,” he says. “You also remind them of where they’ve come from. At Punch Taverns we regularly showed the team what progress we’d made and after 18 months we’d returned to growth.
“We had 95 percent staff retention in that period, and I think a lot of that was down to being open with our communication, gaining buy-in by having a strong, clearly-communicated, achievable plan and ensuring individuals were rewarded for success.”
A key step to achieving performance improvement is having systems and analytics that allow you to see what’s really happening in the business. It’s an area of focus for Stuart Owens, UK Finance Director at Europcar Mobility Group, which has expanded rapidly through acquisitions. He says: “Getting quality data even at country level is a real challenge due to a lack of data governance and clear Group guidance.”
Stuart has been responsible for introducing a new Enterprise Performance Management system to reduce costs and improve business performance, but he admits there were barriers to overcome.
“Firstly, the current Excel solution is effectively free. Secondly, you’ve got to invest first before you get a saving. Our Group is under intense pressure on margin, and so they’re expecting immediate payback from any investment. Trying to convince them that we needed to spend money first and that the benefits would follow was tough.”
Stuart is confident there will be a ‘one-year payback’. He adds: “The new system removes a huge amount of the manual labour needed to upload and model information. What we would have needed three systems to do five years ago we can now do with one.”
Improving performance and long-term cost reduction may need investment upfront, but if it’s carried out in line with the business strategy, you have a much better chance of success. Once leaders have come up with a plan, they should demonstrate strong and confident leadership to bring their people along with them.
David Hobbs, Senior Editor, Criticaleye
Next week's Community Update will explore the results of our CFO Research 2020.