There is a big pressure on cost reduction and profit optimization nowadays, but it could lead into wrong decisions. It is a wide-spread believe that the best way to achieve it, is to increase the operating profit in the short run, as it is very visible, measurable and tangible. However, take any decision, without looking further and cross-silos could end up in not desirable consequences (specially talking about customer experience)
Any executive from any company have to take care of the profit of the company, but there is a change in the way this could be measured. The ROI (return on investment) used to be the more common KPI, but what about start thinking on how fast are we as a company to bring up new solutions to the market (Time to market) or the customer expectations?. The ROI is a valid KPI but, in some cases, could be very slow, or it takes so much time to get correct insights or base decisions on. Companies have only one chance to be the first ones bringing new solutions to the market, and this could represent the success of the project. Time to market is key, and should be monitor, control and evaluated properly
Any decision to be taken should be thought from the short, medium and long term impact in the business. There are a lot of examples of companies reducing costs (even shut down) any kind of investment in R&D (research and development). Looking at the P&L, there is a quick and clear results, it means no more cost and more cash-flow. But, if we analyze this decision in the long run we’d get a different result: no improvement in the products, decrease the added value, lower brand value and long temp sales ramp down . It is important to keep a balance between short and long term, as well as financial and customer impact. This is what makes shine brilliant leaders.
There are a lot of very good example to support this words. One of my favorites one about the Irish supermarket chain SuperQuinn. The founder, Feargal Quinn, a Irish seasoned entrepreneur built up the company with a clear goal: provide fresh and quality products to the customers. Now this company is part of a bigger group (Musgrave group), as it was acquired in 2005 and then rebranded as SuperValu. SuperQuinn was one of pioneers offering a vast range of fresh and quality products, a loyalty program with advanced services, an auto-scan/self-service offer and it was known for being one of the best grocery and fruit providers
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After some good moments, some more new competitors came in (such Lidl and others) and the operating profit dropped down. Leadership decided hired new executive, very known to reduce cost and help companies to bring up the company to the first positions in the market. Some analysis and evaluations were taken in his first years, finding a 25% extra cost in the bakery section. This section was one of the big and very innovative bets of the founder. They baked every day super fresh product, ensuring that these bakery products were served to the customer within 24 hours max. The bakery had the oven full steam all the day long, but once end of the day reach, some of these products were not sell (reason of this 25% mentioned above). SuperQuin donated this excessed production to charities and foundations
The new decision that was taken, stored in own fridges these products and serve them to the customers during first part of following day. They would have kept the same promise: sell products within 24 hours since they were baked, but reducing company costs. It sounded like a good idea, but the customer experience was not taken into account. The fresh bread smell or the over full steam ahead all the day long were some of the tactics to get more people into the shops. In fact, more than 90% of their consumers pass by this bakery department. Before this decision, not only the product was excellent, but also the customer experience (such the smell of the fresh bread or the cakes). Who cannot resist the temptation of this?
As desired the cost went down, but as collateral consequence also the sell-out, and not only in the bakery section, but also in the rest. Finally the leadership reacted to this (indirect) feedback, and the executive was fired in order to return to the initial situation (providing the initial and correct customer experience). The product was served fresh and same day it was baked. Reality was, the cost ramped up again to 25%, but sell-outs raised up to35%. All the charities and foundations that SuperQuin worked with were very happy again. This was very know in the community and consumers, so company and brand value jumped to the top. All this because this return to the origin providing an excellence customer experience.
It is clear and try that excel mode can support anything. Any decision has to be data-driven, but not only from the P&L or financial point of view. The customer experience, the brand, customer expectation are key, and should be into the equation. A company without customers does not exist.
The decision to reduce costs, without taking into account the marketing side of the Company was not successful. Hopefully, leadership reacted quick, and having in mind the original goal and vision of the Company, driving the customer experience and the Brand to the top
Customer experience, branding, customer expectation, added value, differentiation and other marketing concepts are not part of the P&L, but it is proven the big impact they have. This is one of the big points to analyze and evaluate during any business transformation or digital transformation initiative. It is very important to have a 360 customer view (through all the areas in the company). At least, from my side, there is take away, P&L and financial figures are very important, but we have to learn how to understand them with our marketing hat on, in order to meet the desire goal.