COVID-19 is challenging many companies to take quick action to reduce financial losses by sustaining revenue, retaining customers, and drastically reducing costs.
As demonstrated in previous recessions, executives can be tempted to cut from their largest spend categories, often their workforce, to preserve margins. While layoffs are sometimes necessary, they can be harmful to the business, affect morale, and slowdown productivity at a time when companies need to be at peak performance. More importantly, short-term cost reductions could come at the expense of future growth.
Disruptive times can lead to uncertainty, which creates the need for experimentation in the form of operating model changes, operational improvements, and aggressive adjustments to product and service offerings.
Using a crisis cost management analysis to evaluate your business’s operating model and cost structures could help remediate near-term issues and position your company for a quicker recovery. As with any business transformation, emerging successfully requires a strategic roadmap that outlines the priorities to defer, eliminate, or reduce costs.
Below, we explore how this structured approach could help your company uncover competitive advantages and deliver more value at lower costs.
Before starting a crisis cost management analysis, there’s an important consideration related to your customers and staff—loyalty.
When seeking cost reduction opportunities, businesses tend to stop investing in customer-centric projects or reduce support teams without considering the long-term impact on the customer experience.
Empathizing with your customers during this unprecedented time could draw you closer and make your customers feel more valued and supported. Working together can help you learn what they truly value and provide insight into how to invest in an elevated customer experience.
There’s no playbook to navigate a period like the COVID-19 pandemic, but the tone set by your management team and their ability to communicate objectives, targets, and decisions is key to engaging employees.
By gathering input from employees at all levels, they can help you identify and work through solutions. In turn, you’ll solidify their trust in a way that could help build an agile and adaptive culture that helps create a competitive edge.
COVID-19 is forcing everyone to reassess their business strategy, operating model, and cost to serve archetypes.
By combining a risk-reward approach with a zero-based budget methodology, which encourages you to start from zero and justify your budgets each year, you could uncover strategic possibilities that:
Challenging the way your company thinks about its operating model and reimaging its performance could unlock productivity breakthroughs.
A crisis cost management analysis focuses on the six key imperatives to successfully navigate disruption.
Defining your new business strategy during disruption is crucial. Every element where you compete, in terms of geography, product, customer and product segments, and value proposition needs to be validated and adjusted to set the course to a sustainable outcome. Define your strategy with the following actions:
Though it may seem counterintuitive, now may be an appropriate time to pursue talent or distressed assets to position the company for a quicker return with strategic expertise and enhanced capabilities. Steps and methods to adjust your operating models can include the following:
As you identify potential opportunity areas during this period, it’s important to also assess the risk they present. This can be done through the following actions:
With uncertainty ahead, it’s important to envision how implemented strategies could play out. To perform a scenario analysis, your company could consider the following:
Understanding the profitability of your different customers, channels, and markets may uncover costs that could be eliminated immediately. This could be an opportune time to double down on core and profitable products. These analyses can be done through the following:
To implement new business structures and models, you’ll want to make sure employees are aware of what actions and responsibilities are expected of them. Empower your workforce to contribute to solutions ideas through the following actions:
To learn more about how a crisis cost management could help your business navigate COVID-19 disruption and prepare for the future, contact your Moss Adams professional.
For additional insight on assessing your business costs and seeking appropriate capital solutions, read our articles on business recovery plans for short-term needs and recapitalization plans for longer-term needs.