You can’t save your way to transformation – or can you? We think you can – but only if you want to end up closer to the corporate graveyard, or become one of the growing list of analogue dinosaurs who saved their way to the bottom, only to discover there was nothing left beyond a better ratio of spend to revenue, mediocre talent (because the best people moved on) and an arctic realization that the obsession with cutting costs was, on its own, a flawed and fatal strategy.
We realize the opening comments might come across as being a little blunt and provocative, but we’re not living in a world of ‘motherhood and apple pie’, and a singular focus on cost efficiency happens more often than you might imagine. We’re not suggesting you don’t do it, far from it, but business efficiency needs to be balanced with the other enablers of growth:- managing risk, agility and making money through innovation.
As business leaders you’re likely getting squeezed, as are your respective business empires. Cut costs by all means on areas of replication and duplication, drive automation, and reign in spending (but be careful not to starve the edge). However, do not cut back on innovation, because if you do, someone else who you may never have heard of will be investing and will disrupt you! We bet large hotel chains had never heard of Airbnb until they started to feel the pain. Now play out how you think that movie ends while munching on your digital popcorn! Levels of investment on innovation will clearly vary depending on what type of innovation it is – incremental, adjacent, disruptive – as will the mindsets, expectations and incentives. We’ll say more about this in a later blog, so one sentence on it isn’t intended to underplay the importance of this in any way.
The billion dollar question: how do I get ahead of this vs falling behind? It starts with leadership having the right level of digital literacy and fluency. In other words, how plugged into the market moving shifts are you? How is digital reshaping whole industries, changing customer expectations, or creating new societal norms? How does this play into macro-economic and environmental changes?
This level of digital literacy and fluency becomes crucially important as you determine what shifts (new markets, business models, customer segments) you want to go after, and where you eventually decide to place your big growth bets. Bets that are bold, compelling, disruptive and that enlist and engage the employees and partners that are a part of it.
The key characteristic of these bets is DIFFERENTIATION. We see many businesses attain parity on product quality and level of service with their sector competitors. This is underscored by a the quote from Lewis Carrol’s book ‘Through the Looking Glass’ where the Red Queen says, “It takes all the running you can do to stay in the same place”. Consider that for a second. If everyone is in the same place where’s the differentiation? If there is none it becomes a play on price which is a slippery ‘race to the bottom’ slope in terms of growth and shareholder value. There’s a big difference between innovation and emulation which is why you can’t cut costs on innovation unless you want your new BFF to be Blockbuster :-(.
None of this stuff is easy. If it was we’d all have nailed it ages ago. Change is hard by its nature and there’s often a natural gravitation back to the perceived safety zone of ‘what we used to do’ or the illusion of ‘business as usual’. The reality is that ‘business as usual’ has changed for the CEO, and it’s now one based fundamentally on constancy of change and necessity of innovation – opportunity or threat, depending on how you respond!
So, as you align and agree on the direction and plan for the future avoid the temptation to save your way to the bottom. It’s a balancing act and one that needs as much focus on growth, including defending the core business which will likely fund the new initiatives, as it does on cost saving. As you think about those growth vectors and place those bets be aware that at some point in their incubation there will need to be a grown-up conversation around priorities and incremental investments. We so often see cool new incubation ideas that remain just that – they never reach their potential impact because the investments aren’t made and priority continues to be focused on the core business. While that’s a safe and steady approach do you really think the market will give you credit for eecking out a few extra points on the core vs executing on your growth strategies?
Ultimately, to get market ‘credit’ those growth areas need to be material and we don’t just mean rapid QoQ growth statistics on a revenue number that makes little to no material difference. We mean impact well into double digits of the overall business – to get there takes investment and reprioritization. This of course means conversations at the leadership level on shifting resource and dollars away from the core business which often leads to the, “but I can’t afford to do that!” challenge - to which we respond, “You can’t afford not to do that!”, because if you don’t the strategy you may be following is more akin to an exit strategy.
Please chime in on the discussion and let us know your thoughts and opinions. Are there are other aspects of change you’d like to hear us share some observations on in upcoming blogs/vlogs?
Andrew and Jim
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