One of the advantages of being a pure-play optimization company is that we get an incredible ring-side view of all the choices that some business leaders make when their business hits an air pocket. The cardinal sin they make is confusing cost transformation with business transformation.
During Happy Days !!!
Every business unless and until threatened by market disruption or by more efficient competition almost always systematically accumulates excess capacity. The excess capacity creation starts with these three easy premises
- Increased attention to customer needs thereby adding service professionals far in excess of current needs - Service Cost
- Increased investment in ancillary and anecdotally proven products - Product Cost
- Increased Marketing Spend to drive market share for existing products as well as the new ones being pursued - Marketing Cost
When the business hits an air pocket, the leadership of the company brings out the magic wand – Cost Transformation.
Cost transformation is Never Business Transformation
The cost transformation effort is based on the cost structure to support the revenue model. There is a very high likelihood of falling into the trap of spreadsheet/percentage-based cutting and probably dictated by forces far removed from the customer. The most prudent and logical approach would be to collect all the relevant data and methodically identify the excess capacity that has been created. Re-calibrate the metrics required to justify the spending. Optimize this excess capacity by using tools like automation. This gives the business leaders an opportunity to do a Root Cause on how the excess got accumulated. Ensure you build institutional knowledge and a framework to look for signs of excess creation. Ensure there is a strong assumption validation phase for excess capacity creation during the next business cycle.
So, Please Optimize, Automate, and Thrive - not just do Cost Transformation.
