The conventional actions for mitigating the impact of a slow-down often tend to have an ‘inward focus’ and include cutting costs and spending in areas found less critical. This can involve diligently going through P&Ls to find pools of savings and starting cost-out initiatives, e.g. squeezing margins in supplier negotiations and aiming for a leaner organisational structure.
These actions are taken for the purpose of cutting costs with as little revenue decline as possible to remain flexible under increasing pressure. And they do make sense – these are the right corrective actions to a certain extent.
However, scaling down sales and marketing budgets can be detrimental to the future financial health of your company. Cutting back on the number of sales people – telling them to ‘work harder and smarter’ while lowering prices to win at least some business are common attempts to survive. But the problem is that they could hurt your business in the long term.
So, the big question is; are there any other ways to prepare commercially for an economic slow-down? Is it possible to grow your way out of an economic slow-down with less risk and uncertainty than by cutting costs to the bone?
For some businesses, the answer could be yes.
BUT HOW TO START?
First of all, you need to apply a more outwardly oriented approach. Look more closely into your markets, and ask yourself: How can we support our customers through the tough times ahead?
Your customers are facing the exact same concerns as yourself in these uncertain times, and there may be hidden business opportunities in taking over parts of your customers’ value chain. You can help them eliminate some of their concerns by offering products as solutions or even solutions as a service.
Such packaged solutions can potentially help reduce your customers’ acquisition costs, fixed capital, operational costs and the related risks. Your customers would consequently be able to free cash, enabling them to be more flexible even when times are tight. And the benefit to your business is added sales from selling solutions rather than just products. On top of that, this modified business model creates a chance to leverage a closer partnership between you and your customers.
WHO IS ALREADY DOING THIS?
Some successful examples can be found in those companies tapping into sharing economies (or more traditional leasing models); one party taking over the asset ownership in the value chain. Companies such as DriveNow with cars, Airbnb with accommodation and WeWork with office space offer innovative solutions with attractive, low one-off costs for the users. Their revenues ex-ceed that of conventional business models thanks to a higher degree of utilisation and the actual premium charged.
A Danish example is Sanistål, who operate within the industry and construction sector. Sanistål have made the transformation from a traditional wholesaler to a value-creating digital partner for their customers – providing solutions, not just products. Sanistål’s CEO Christian B. Lund explains it as follows: “We have a clear strategy aimed at differentiating us from our competitors. We have looked into the challenges our customers are facing, and we saw an opportunity to become a strategic partner delivering value through concepts.”
More specifically, Sanistål has developed a vending system that ensures that tools are available right where needed on the shop floor, thus ensuring consumption control and reducing waste of time. It also makes their customers’ purchasing processes more efficient and optimises both consumption of goods and capital tied up in stock. This transformation has resulted in positive impact on both sides; reducing customers’ costs, incl. keeping and managing stocks, and increased reliable revenue streams for Sanistål based on stable consumption levels and a stronger long-term business partnership. Besides, gaining valuable insights into customers’ operations has opened the door to consultative services.
But this concept also places demands on Sanistål’s organisation. “It is of course critical that you are able to deliver and document the value that your customers are expecting. It is a prerequisite that you understand your customers, and that you have an organisation with the right competences that is able to work together on creating value for your customers across your own value chain,” states Christian B. Lund.
This kind of innovation – from products to solutions and offering solutions as a service – can be found when looking more closely and creatively to find the win-win answers to a problem that both parties face. In other words, focus on the concerns that your customers are facing in the light of a potential economic slow-down. And find out how your company can help eliminate some of those concerns by taking over parts of their value chain through solutions as a service.
A potential and proven approach to innovate your way out of an economic slow-down.
Originally published in Børsen Ledelse.