Cut costs right and you can drive big value to the bottom line. So have at it. Whittle away at your current operations. Squeeze another drop of blood from the stone.
But, as the old saw says, you can’t save your way to growth. At least not top line growth. The key? Craft something new, something valuable you hadn’t seen before.
Combine your strategies to build top line revenue growth while you carve into today’s operations. Whittle away your current ops, segregate your channels, segment your markets.
In an earlier post I introduced 9 types of strategy framed in this matrix. Use different strategies in the three market conditions, stratified by the level of the organization.
The middle tier addresses Operations strategies. As depicted by red arrows below, at this level your considerations range from honing internal operations versus external relationships. How will you optimize your channel to create new, deeper, stronger and longer customer relationships. And what will you need to know about those customers to reach them best?
Consider each strategy in turn. Just remember the challenge is not “either/or”. The challenge is “and”. How do I combine all three strategies for the optimal result?
On the left, focus internally – how can we work smarter? On the right, how can we serve customers better? And in between – how can we connect the two so our customers can easily reach us and our products and services and feel confident that we have served them well?
Clean up your act
First, look at your current operations. Cut costs, streamline and simplify your processes. Your company might have a Total Quality team who review operations, maybe conducting kaizen events to trim fat or redesign a process.
One of our clients, a major medical manufacturer, has driven huge profit increases through diligent process simplification. Applying the lean methods pioneered by Toyota, their “enterprise excellence” team – a roving band of engineers – consistently yield more value to the bottom line than the executive team could hope to achieve through organic top line growth or acquisition. They’re recognized as best in their industry sector and it’s a marvel to behold.
When they find they can’t squeeze out another 30-50% of time or labor or resource costs, they move to the next process. And as they come back around they somehow do it all over again. And finally, when they really can’t dredge up another big savings, they wipe the slate clean and redesign from scratch. Incredibly they cut costs in half again, but now in a longer term investment strategy as part of a rolling 3-year rollout cycle.
This internal activity requires a strategy. Where will you focus? How will you discover savings? Who will implement? How will you measure? What returns should it produce? What will it cost?
As shown here, you can push past the simplification exercise to reduce costs. Consider a total redesign. Might you eliminate a process or a function? What would happen if you spun that process out and “rented” it back as a service – effectively outsourcing the function?
Any large or long-established organization who fails to address this most fundamental operating strategy to increase efficiencies misses out on one of the most important strategies in their arsenal. Huge miss. Don’t let it be you.
Know thy customer
On the right side of this spectrum sits your customer. More accurately, your mass of customers – that complex ever-morphing mob of faceless wallets who pay our way.
Who are they? What do they want? No I mean what do they really want? What do they need (which often differs), and why do they need it? How do they want it? At what price does it beat the best alternative (which includes doing nothing)?
What service would bind them with an undying appreciation and affection for us?
Shake hands with your market. Dive into the mosh pit (if that’s still a thing). Know your customers by face and name. Drill deeper. Take longer. KNOW your customer.
Apply four tests to your segmentation strategy. Does it produce a comprehensive model to cover the terrain? Does it address all the buying categories and all the influencers exhaustively? Can you pinpoint critical differences among them? And how do you know it’s accurate?
Start by segmenting into rough personas – just as an approximation – like a bubble diagram. Now crush big data analytics against your segmentation model. Drive down to a deep understanding of real people. Build up user personas into profiles you can model, populated with real people. Delve into their tweets and snaps and instas and chats.
Finally, get personal with a small indicative sample using ethnographic research methods. Observe behaviors. You’ll know you know your customer when their behaviors reveal the needs they don’t even know they have.
Want to be on the good side of your ancient auntie when she makes out her will? Suffer through her vacation photos. She might surprise you.
Now you know yourself. And you know your customer. Time to hook up.
Connect your company to customers through an effective Channel Strategy. My former business partner, the estimable Julian Dent wrote the book on this subject. Julian advises the world’s top companies and distributors to manage their channels with strategic intent.
Watch how the real professionals play this game. Leaders like Cisco and Nike and PepsiCo rely on channel partners as their “customer who serve their customers”. They manage their channels as scrupulously as they do their internal operations.
Even Amazon – despite serving as their own web-based storefront – relies on linking wholesalers to customers by pulling trucks up to warehouses. UPS, DHS and other delivery partners around the world link the chain in their channel strategy. Amazon ties fulfillment to their efficiency strategy to relentlessly drive costs out of the system.
Keep in mind that it’s far easier to ensure the customer experience when you own the retail channel, as Apple stores demonstrate. How do you ensure happy customers when you have to rely on a channel partner
For example, when you visit a chain restaurant, you experience a channel partner. The franchisee performs the retail function as a channel partner of the host company.
Check out the franchise arrangements for McDonalds or Subway. Just like your local cinema chain or possibly even your hospital emergency room – they’re all “franchise channel partners” serving you on behalf of their “supplier”, the headquarters entity. The franchise serves as your vending machine with a human face.
Companies thrive or die depending on how their channel delights or disappoints. Critical factors to test: quality of the experience (from the consumer/buyer perspective); ease of access; speed of transaction; incremental cost to serve. On this last point, retailers like Wal-Mart shudder that Amazon Prime continues to attract millions of new customers, even while their subscription delivery model loses piles of money.
Product makers like Procter & Gamble and Johnson & Johnson pay enormous attention to formulate an effective channel strategy and manage those relationships jealously. Expect no short cuts to deliver the best experience at the best price. She who has the better strategy builds the better channel, delivers the better experience and wins the market.
No Weak Links
Your operations strategies link you to your customer. Their experience is only as good as your weakest link.
Don’t let operations get flabby. Don’t let channels get lazy. And don’t let customers become strangers.