Transformation, not cost-out: the customer-centric way to drive efficiency

by Abhik Sengupta

A  familiar tale
It is a well-known scenario – an external shock (for example regulatory, customer or competitor action) makes a company confront reality. A new CEO takes over or an existing CEO is reborn. The company finally acknowledges the magnitude of its challenges and resets its financial trajectory to what was suspected but never confirmed. The new CEO stands in front of shareholders, staff and the financial press announcing a “transformation” program.

There is a common pattern to these transformation programs and an inevitable conclusion. The plan usually consists of two parts – an aggressive cost-out agenda and an aspirational growth strategy. The cost-out is done first and is the only part that the market truly believes. Consultants are often engaged to guide a “paint by numbers” top-down restructure based on shadowy and ill-defined industry benchmarks. Analysts and commentators laud the courage of management and the share price enjoys a short-term bounce.

The challenge with this approach is that the aspirational growth strategy is often too far in the future and so poorly defined, that only few within the organisation understand it, let alone believe in its feasibility or relevance to them. The immediacy of the cost-out agenda means that there is no time to implement and embed the enablers that will allow people to work more efficiently.

More importantly, there is often little consideration of the complex interconnection between formal and informal structures, along with the enabling capabilities  needed to sustain current performance and drive future growth. Current management may benefit from the immediate financial afterglow, however the real consequences will be borne by future generations of leaders, employees and shareholders.

A different plotline

We are not naïve idealists. There will always be downturns in the market that necessitate some short-term cost reduction. Fortunately, there is a different way to drive efficiency, without breaking the organisation or compromising the capacity for growth. As is often the case, it starts with the customer. More specifically, it involves working back from the ideal experience you are trying to create for your most valuable customers. This allows you to prioritise the capabilities that customers truly value, respect the interrelationships between different parts of the business, and get sustainable efficiencies from those operations that aren’t critical.

The whole story

Implementing this method of cost reduction involves a six step process that is easy to articulate, but challenging to implement. However, if you can perform these steps with a rigorous and disciplined approach, you will find a way to deliver enduring growth.

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Identify the potential value in your customer base – segment your customers based on their potential value along with strategic attractiveness. This is the starting point for gaining insight into where future growth will come from once the efficiency phase is over.

Understand the moments that matter to your high value customers – map the journeys for your highest value customer segments and identify the “moments that matter” ie. the stages that they care about the most that drives their behaviour. By talking to your customers to find out what they value, you can  ensure the ideal customer experience is maintained.

Prioritise the capabilities required to deliver on those moments that matter – define the ideal experience at the moments that matter and map your current organisational capabilities against this; taking into consideration people, process and technology. This will provide a view of where your capability gaps lie, and where you need to prioritise your focus to deliver that experience.

Illustration: Prioritising capabilities based on cost and customer experience
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Drive efficiency from capabilities that are not valued – within the moments that matter, identify the capabilities that are not directly adding any value and look towards the most expensive functions for efficiencies. These are the parts of the organisation which can be made leaner without impacting customer experience and sentiment.

Implement productivity enablers – when headcount is reduced, the remaining employees need to be supported with the right enablers to assist with delivering on customer expectations. Investment in new channels, process automation and consistent ways of working will ensure the cost reduction is sustainable and employee experience doesn’t become collateral damage.

Start the growth agenda at the same time – build the business case for investment in the priority capabilities as the starting point for the growth phase of the transformation. Cost reduction initiatives are bruising for employee morale. Starting the growth phase early will help build the belief that there is a pathway to a better future state.

Happily ever after (key takeaways)
Every organisation goes through phases where they need to cut costs. By working back from the customer, you can protect the parts of the business that contribute to employee and customer success, and set up for growth initiatives in the future. That is what distinguishes a true transformation from a short-term cost reduction exercise.

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