Time for Postrecession Growth Plans

May 7, 2012

Many firms today aren’t prepared to grow, according to strategy+business, published by global management consulting firm Booz & Company (strategy-business.com). The way these firms manage costs and deploy their most strategic resources is preventing the expansion they need. But they don’t realize it—at least not yet.

Many firms implemented cost-cutting and austerity programs during the recession—actions that were required for survival between 2008 and 2011.

But as they shift focus from the cost side of the ledger to the revenue side, searching for ways to move beyond cost cutting, these companies are strategically and financially out of shape. They haven’t made the hard choices involved in channeling investments to the capabilities that are needed most, while reducing other expenses.

Unfortunately, business leaders can’t afford to be complacent right now — not if their goals involve expansion and revenue growth. Nor can companies wait for better economic conditions to return; the U.S. and global economies will probably be facing macroeconomic headwinds for some time.

Some companies, however, are preparing for growth by adopting a deliberate and lean operating model. They’re streamlining operations by making disciplined choices concerning their capabilities, and they’re improving their efficiency and effectiveness. This is the corporate equivalent of a fitness regimen that focuses on building muscle — developing the capabilities that define a company’s distinction — while cutting fat.

A successful fit-for-growth program requires action in three areas:

• Set clear strategic priorities, and invest in the capabilities that allow you to deliver them.
• Optimize your costs, developing lean and deliberate practices that will deploy your resources more appropriately and efficiently.
• Reorganize for growth, establishing a nimble, well-aligned organization that can execute your new strategic priorities.

These elements reinforce one another; when launched together, they provide the wherewithal for growth, even for companies facing today’s macroeconomic challenges.

Set clear priorities

Capabilities are important to implement strategy. A capability, in this context, is the combination of processes, tools, knowledge, skills, and organization that allows your company to consistently produce results. These capabilities don’t stand alone; they’re part of a mutually reinforcing system that works to give each company its advantage.

Because a company’s most distinctive capabilities are cross-functional and are applied to most products and services, they require attention and investment. Even the largest companies organize around only three to six distinctive capabilities; thus the need to set clear priorities. Working capital is finite, and leaders must marshal their resources according to strategic need, not to corporate politics or past legacy.

Cut costs, carefully

When you focus on priorities, costs aren’t problems, they’re choices. The priorities most worthy of investment align with the growth priorities of your business, helping to build the capabilities that distinguish your company and contribute to its success. These capabilities are steadily funded — their investment levels may even increase — while other categories of expense are seen as necessary but not special.

Fit-for-growth companies are lean and deliberate in spending money. In all their investments, they seek long-term value. This means continually pursuing low-cost ways to run their operations, and taking full advantage of economies of scale. Cost optimization becomes a continuous process, embedded in the daily fabric of business.

When streamlining operations and management practices, executives have a large menu of techniques and analyses to choose from. Some methods may seem familiar, but they take on new meaning in the context of a capabilities-driven growth initiative.

Whichever techniques you choose, depending on your circumstances, the object is the same: to be deliberate in reducing costs, making sure you don’t cut into productive muscle.

Organize for growth

A well-designed organization model is critical to enabling growth in two important ways. First, it makes possible and sustains the cost reductions that are required to invest in differentiating capabilities. It does this, in part, by sharing resources across businesses and functions.

Second, a well-designed organization model can fuel dramatic growth by empowering managers to act like owners of the business. Business-unit managers are given financial and operational targets, along with clear decision rights that spell out what they can and cannot do to reach those targets. They’re given greater control over the resources assigned to them and how they deploy these resources. Business-unit leaders become accountable for results and eligible for incentives such as bonuses and promotions.

Sustain the gains

When a firm pursues cost management and growth, it must act as a unified entity. Avoiding disconnects requires effective governance and business management practices. Financial, strategic, and operational planning processes should be treated as leading activities. They should set clear priorities and plans that involve all parts of the organization in the company’s “way to play” and central capabilities system.

The secret to fitness is to never return to old habits and instead to follow an ethic of continuous improvement. Fit-for-growth companies are always honing their capabilities and cost structure, and they adjust their resource deployment year after year. Most importantly, they do all this with a watchful eye on their unique value proposition and the distinctive capabilities that will allow them to grow.

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