COVID-19: rethinking how to manage cost in a time of crisis
The speed with which organisations across the world have been plunged into crisis mode is matched only by the rapid acceleration of the coronavirus spread.
Yet, this crisis is different. It isn’t a financial or economic crisis – it’s health-driven. Reactions to master and survive this therefore need to start with understanding the root causes: availability of employees and customers. Only once this is understood can recovery plans follow classic cost-out logic and focus on cash and liquidity, cost-baseline, supplier and capacity management, and opportunities for future competitive advantage.
While quickfire responses seem a logical reaction, leaders must ensure they avoid the long-term impact drastic cuts can have on innovation, growth and their reputation among customers, employees and the communities they serve.
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We recently spoke with 180 global senior leaders across 10 sectors about their experiences of, and attitudes to, cash and cost optimisation. Their feedback allowed us to identify common barriers and assess how organisations can use an always-on cost optimisation mindset to not just survive, but deliver a long-term competitive advantage – with every sector able to make savings up to an average of 25 per cent.
To reap those benefits and respond to the COVID-19 outbreak fast, we’ve identified six urgent priorities for executives across all sectors and geographies:
Challenge 1: gaining a comprehensive view of both the threats and opportunities
Most companies aren't sufficiently managing the full bandwidth of potential cost-out actions – such as creating liquidity headroom and portfolio review and adjustments. So, they're missing the understanding that comes with a mature, comprehensive diagnostic that enables them to pin-point focus areas against a consistent masterplan.
Challenge 2: selecting and using the right tools to succeed in remote working
Too many organisations are failing to use the full range of digital technologies to best support remote working. Leaders need to accelerate the training and hands-on support for remote workers, focusing on basic communication rather than the wider range of collaboration, process and workflow advantages of new technologies. These ways of working not only safeguard your people but can also drive wider adoption of agile working principles, helping cross-functional teams collaborate on cost-saving initiatives.
Challenge 3: assessing cash-readiness across sectors
We see substantial potential for sectors to better manage cash by improving customer collections, optimising supplier payments and lowering inventory levels. But rather than tackling cost in silos, we recommend ramping up sales and operations planning and cost management into a control centre, supported by a data ‘control tower’ that provides a single source of truth. And we advocate inviting suppliers to work together to understand how to act for short- and long-term benefit.
Challenge 4: understanding the key elements of the cost-out ‘engine’
These are difficult times. But they also offer disproportionate opportunities to effect change, replacing an outdated functional cost-out focus with a new ‘engine’ for end-to-end cost optimisation. We help our clients immediately act against a more comprehensive framework, benchmarking cost-out maturity against the best in the world, identifying and prioritising the improvement levers that really matter now, then injecting proven best-practice and tracking results to assure savings.
Challenge 5: stabilising operations towards the ‘new normal’
Our analysis shows the route to a new normal will vary significantly between sectors and organisations, so understanding your organisation’s ramp-up/ramp-down scenarios is critical. Priority areas include driving a radical improvement in the understanding of supply change risks, appreciating the importance of building in future resilience and agility, and finding new opportunities in the rapidly evolving ecosystems around us.
Challenge 6: raising awareness of future opportunities
Leaders in crisis mode tend to focus on immediate actions only; a crisis management approach rather than a more transformative one. There will undoubtedly be opportunities over the coming months to re-design processes, take advantage of newly learned skills and work patterns, and find innovation within new supply ecosystems. And leaders also have an unprecedented opportunity to demonstrate their compassion, support their people and communities, and look beyond profits to deliver on a wider social purpose.
COVID-19 calls for action, not inertia
In uncertain, fluid times, inertia isn’t an option. Nobody knows how long the current situation will last and precisely what actions governments will take to respond. But one thing is certain - with the wheels of industry slowing, now is not the moment for business leaders to stand still. It’s time for organisations to take the action that will prepare them for tomorrow. This won't just protect your business in uncertain times from a cash and cost perspective – it’ll create the opportunity to carve out a competitive advantage instead of losing market presence.
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