Combine your need to manage costs with the need to increase revenue and it’s all too easy to loose grip on one for the sake of achieving the other. To complicate this challenge, digital technologies offer enticing rewards when planned and executed well, but can be a considerable drain on resources when they fail.
A recent Pitcher Partners’ client briefing explored a framework offering practical advice for approaching cost reductions whilst driving revenue, and provided guidance in how digital technology can assist with both.
Business Consulting partner, Dr Richard Shrapnel, observed that in contrast to the typical approach of just reviewing a profit and loss statement to cut expenses, cost reduction needs to be approached with a new paradigm. Businesses should start by identifying the customer value they are trying to deliver and then test the alignment that exists between this and their strategy and cost base.
The better this alignment, the more efficiently the business will operate. In this sense, the goal is to aim for is less cost wastage rather than cost reduction. Because of the impact of digital disruption on every business across all industries, there are two key considerations raised by this approach:
- What impact is technology having in context of our industry
- How has this affected the ways we reach customers and what they expect when we do engage with them
In discussing required digital strategies, Assyl Haidar, Business Consulting Client Director, highlighted the need to first understand the impact of digital is now a ‘whole of business’, internal and external consideration. In fact more than 50% of the value created within the digital economy is estimated to come from productivity and efficiency gains – not marketing.
The degree of consumer uptake even over the short span of the last five to seven years, has also fundamentally changed customer expectations around value, quality and delivery. As a result, every business intending to thrive in this environment needs to behave like either a start-up or a turnaround. The digital strategy underpinning this will be one which again puts the customer value proposition at the centre and identifies how technology can enable new ways of competing.
Some key signs that indicate a business needs to work on its digital maturity:
- Slow to innovate or execute
- Key reporting is not timely
- Focus on ‘how we do things’ instead of understanding what customer wants
- Held back by current IT systems which do not talk to each other very well or rely on access from a physical location
- Attitude of fear, control or abdication when it comes to technology or social media
- Low levels of collaboration and transparency across the business
While some businesses have recognised the need to adapt their product offering to meet changed consumer needs, Business Consulting Client Director Stuart Lindsay stated few have evolved the channels they use to reach their customers. This includes the approach they take with newer channels such as websites or social media.
In addition to understanding customer needs, businesses must also seek to understand what they expect from all channels. It can help to break it up into three specific considerations:
- Information (about a business or its products and services)
- Access to products or services (range, reviews, specific evaluation)
- Payment for products or services
It is really important to map out the different expectations customers will have in each of these areas (Information, Product and Payment) when they are engaging with a business online vs offline. Consideration is also required to distinguish the experience for buyers who are only at the beginning of their journey versus those ready to make a purchase.
Some other important business considerations in the context of growing sales include;
- Are we making it as easy as possible for our customers to buy from us?
- When we say we want to grow sales, do we mean getting new customers, more volume from existing customers or is it about increasing the average transaction value?
The digital strategy employed might include elements of each of these… the important thing is to understand there are multiple ways to achieve the same outcome and each one needs its own prioritised approach.
Growth is driven by understanding why customers are buying. This requires considering the impact of technology on customer behaviour and expectations. Articulate the customer value provided, and test this strategy and cost base against that value by imagining the business starting over.
