How To Do More When you Have Less

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1. How to domore whenyou have less 2. Peter Spinneymanagementtoday.com managementtoday.comSPONSORED ROUND TABLEHOW TO DOMORE WHENYOU HAVE LESSCost-cutting zeal, although admirable in itself, risks stunting growth. Our panelexplores how a strategic approach to managing expenditure pays dividends byallowing space for expansion and investment, while still trimming off the flabIan Wylie Whats the relationship between growth and costmanagement in your organisations?Rachel Parr At Save the Children, we have ambitions togrow, but the charity sector is under challenge. Theres lessfree cash around. The models of peoples giving are chang-ing.I spent over 20 years at GSK, where we were producingdrugs and saving lives, but with a unified profit motive. Itsnot the same in this sector, which hasnt been as disciplinedas it might be in terms of the way it spends and the way itlooks at KPIs and the benefits of each project. So wereimplementing a system that allows us to be much clearerabout what we spend.Charles BadenFuller Im involved in a research project thatlooks at business models for the future. Companies tend tobecome imprisoned by thinking of how they can get betterwithin their current business model. They can get terriblyfocused on reducing costs within that set of constraints,when their competitors are moving on and looking at dif-ferentbusiness models.Chris Allison Most people think cost management is aboutcost cutting or cost reduction. And our recent survey withMT suggests that while 70% of organisations are focusedon cost management, most of the work theyre doing is onthe cost reduction side. Cost management requires in-houseresources youve got to have the software tools tobe able to monitor what youre doing effectively. And thenyouve got to have a process that gives that managementinformation to the decision-makers. But another survey,by KPMG, reckoned that 95% of cost reduction exercisesare short term and those costs will flood back into thosebusinesses. So our focus is creating a professional costmanagement model that has strategic rules apart from justthe cost reduction aspect.Maggie Frost I view my role more as cost management thancost reduction. Having worked in a privately owned agen-cyfor eight years, Ive gained the intuition and ability tomake judgements that come from learning how to survive.But often its me, the FD, whos the one saying, I think weshould spend this. I care more about that money being wellspent in order for us to grow. And I think thats what busi-nessesshould be focusing on.Stephen Ibbotson The two things that feature very highlyin our recent survey of members are business performanceand cost management. I established my career with Avon,as the UK and European finance director and latterly cor-poratecontroller in New York. Its a customer-focusedorganisation, very sales and marketing driven. Someonehad to help them spend money in the right way, not neces-sarilyspend less. You can use cost management to improveperformance. Certainly that was my experience at Avon. Itwas often very helpful to spend more money on sales andmarketing because the returns were much more.Ian Wylie How will the economic environment of the next18 months determine cost management strategies?Oliver Hogan We have turned from quite bearish to quitebullish rather suddenly. There has been a serious up-tick inconfidence across the economy, both for businesses andconsumers. Its almost like a start-up type feeling. However,we think the biggest issue for UK business remainsthe super competitiveness of the eastern economies. Wesee the industrialisation of the east as the biggest economicOften its me,the FD, whosthe one saying, Ithink we shouldspend thisMaggie FrostROUNDTABLECharles Baden-Fuller professor of strategy, Cass Business SchoolRachel Parr chief finance and strategicinitiatives director, Save the ChildrenMaggie Frost group finance director, VCCFOliver Hogan director, Centre for Economics and Chris Allison managing director, AuditelBusiness ResearchStephen Ibbotson head of finance andmanagement faculty, ICAEWIan Wyliespecial projects editor, MT 3. The sad fact is that moststart-ups fail because theygot the cost base wrong Chris AllisonTO SEE VIDEOINTERVIEWS OFTHE PARTICIPANTS GO TOmanagementtoday.com/go/auditelmanagementtoday.com managementtoday.comSPONSORED ROUND TABLEevent since the Industrial Revolution. Labour costs inChina will probably eventually reach 50% of what they arein the UK. So in the long term, UK companies still have tobe 50% more competitive to make up for it. And there aresignificant risks to the oil price from turbulence in theMiddle East. With the economy in recovery theres a risk ofinflationary pressures too. So the question for businessesis: if youve taken your cost and labour savings as far as youcan go, what are those other areas where you can reducewhat you spend?Stephen Ibbotson I read recently about a Deloitte study inthe Harvard Business Review that looked at how best toimprove business performance. Their research suggestedtwo key factors. The first is, dont do it cheaply, do it better,which I think is something thats useful for the UK to con-sider,as were never going to compete with China on costand our productivity is pretty poor. And, secondly and pos-siblymore controversially, put revenue generation aheadof cost saving.Ian Wylie What has been the traditional approach to savingand managing costs in the UK?Chris Allison In the boom years of the 1990s, people didntlook at their cost base as much as they should have. Lipservice was paid to improving efficiencies. The worldchanged with the 2008 credit crunch. It took someorganisations a year, maybe two to come to grips with howseismic that change was. And often the reaction was aknee-jerk cost reduction exercise, without the rightstrategy in place. And as a result, many of those exerciseshave failed to deliver what companies expected.Stephen Ibbotson When I was at Avon, we went through ade-layering exercise worldwide, taking 2,000 peopleout. But in effect we took out loads of skill and experience.And it definitely affected business performance.Maggie Frost At VCCF were lucky that both the CEO, whois one of the founding partners, and I have worked in smallcompanies where you have to question everything you do.The problem is now were getting to the size where weneed to corporatise. I can see a cost management jugglingact ahead. How do you become more corporate with rulesand regulations yet keep your flexible entrepreneurialenvironment?Thats the big challenge for us.Charles BadenFuller One of the interesting challenges forthe UK in relation to technology and creativity is how youcan invest in new ways of doing things that require lesscapital to do more. You can no longer raise 50m in afunding round. So you have to think about what you cando with a smaller capital base. You can call that cost man-agement doing more with less.Chris Allison Theres another challenge and thats educatingpeople to be cost conscious. If you look at mostentrepreneurial ventures and small business start-ups, thesad fact is that four out of five fail within four years. Andthats because they got the cost base wrong and, quitesimply, they ran out of money. So being cost conscious,managing your start-up strategy and being more effectivein how you deploy your working capital will improve yourchances of survival and growth.Maggie Frost From my experience of working with compa-nies,there is also a question mark over how they price theirproducts or services. It might be that small businesses arefailing because their costs are wrong, but it might be thatthey are not pricing and selling properly. Theres a dangerof seeing the easiest way of improving profitability as cut-tingcosts. When, in actual fact, a more optimistic approachmight be to go out and sell more. The question should be,how can I get more from this client?Charles BadenFuller One question for companies is: canyou shift your costs around? When business conditionschange, maybe because you have a new customer opportu-nitythat youve got to give up, or maybe because customershave disappeared and you have to cut back because reve-nuesor donations are changing and falling, can you shiftyour costs around? In my experience of universities, theydo not know how to move costs around if, say, suddenlypeople dont want to study French but instead want to studyFrench and business. The systems arent flexible enough toallow that shift as the business changes.Rachel Parr I think its really important to have sponsorshipfrom the top complete access and support and that, asFD, you are a great business partner.Maggie Frost Its about imbuing confidence, and also givingpeople the tools and skills they need.Chris Allison Some of the businesses we go into are toxic. Wefind business units that arent speaking to each other at all.And they dont necessarily see or understand the strategicgoals. What are their goals and ambitions as an organisationand how are they going to get there? My business focuses oncost management and the strategies to do that. But, equally,organisations have got to go for growth and that means youdont waste money but at the same time you need a market-ingstrategy that is going to deliver. So professional costmanagement is about being flexible and moving the strategyin keeping with those goals. Thats one of the reasons whywe always suggest that the CEO should get on board, andits been rewarding to see that the CEOs are more involvednow. It falls within the function of the finance director butits got to be a partnership, and youve got to have dialogue.And part of our job when were brought in is to educate peo-pleas to why they should align themselves to the goals oftheir company and, from there, figure out how to managetheir costs more effectively.Stephen Ibbotson When I was in the UK we were very clearas a leadership team with our messages about costs. Wetalked a lot to the employees and the managers throughoutthe organisation and everyone understood what we wereabout so that we would save money. And there were timeswhen the CEO would be the good cop and Id have to bethe bad cop. But I also worked with one MD who got thecost-saving bug at one point around the de-layering exer-ciseI mentioned earlier, and she probably started takingthe cost reduction too far.Ian Wylie Our research among MT readers has suggestedthat the number one cost management challenge for thenext 12 months will be HR. Are we slightly fixated withhead count when it comes to managing costs?Maggie Frost Ive sat in on meetings where the discussionhas been about losing a 20,000 account co-ordinator.That makes no difference to our profit and loss at all. Ireally dont want to waste time in meetings about releasingsomebody on 20k, because thats not the root of the prob-lem.The source of the problem will be elsewhere wearent good enough or selling enough. A CFOs role is to bevisionary as well as caring about the detail.Find Out How AuditelCan Help You Do More With Lesswww.auditel.co.uk