Most companies took the immediate steps needed to survive in the early months of the pandemic to protect the business and ensure continuity. Now, they face a more difficult challenge: creating a cost and cash strategy that will serve for a new normal of increased margin pressures and the need for greater resilience and agility as market dynamics shift.
We see five big themes for retooling cost and increasing productivity.
Automation and digitalization
This lever gives companies the ability to fundamentally retool the organization and transform the cost bar. Companies use automation, analytics, and big data to improve efficiency and make faster decisions, enhancing employee performance and the customer experience.
One of the leading engineering, procurement, and construction (EPC) companies in India has mobilized more than 40 use cases across technical and support functions to unlock over 25% of employee productivity. In HR, for example, it introduced AI-led chatbots for screening candidates and handling routine queries. This is expected to be half the effort required to hire new employees.
Similarly, a leading Indian auto player is redesigning its entire customer journey for sales and service episodes by leveraging the power of digital. Customers will have a rich and immersive showroom experience from the comfort of their homes. Similarly, on the service side, customers will be able to get their vehicle serviced at a click of a button, without visiting a workshop.
Simplicity
The need for simplicity is not new, but it is particularly relevant today, as the lingering pandemic forces a new level of focus on the most important parts of the business. In a well-known vicious cycle, business and product complexity beget process complexity, which in turn begets organizational complexity. The EPC Company mentioned earlier has swiftly simplified more than 25 processes across HR, IT, and F&A to increase agility.
New ways of working
Companies are quickly changing their operating models to reflect the new realities, in which telecommuting and virtual meetings will be widely used long after the pandemic ends. These companies are streamlining their organizational structure, processes, and talent while embedding tools to increase flexibility.
HDFC Bank now plans to move a significant number of its non-customer-facing personnel to work from home, a shift that will help the company better address changing consumer preferences and take advantage of service operations.
Operational resilience
The pandemic caught companies across industries off guard, with global supply chain disruptions highlighting the importance of balancing lean supply chains and operational resilience to weather future shocks. Many are now building processes that lower the total cost of ownership and improve their ability to respond to rapid changes.
Visibility and accountability
Shortcomings in cost and cash visibility also surfaced during the crisis. It has become critical to maintain and embed changes while also improving control, decision rights, and end-to-end visibility to enhance cost and cash accountability. Companies are changing what information is available and where decisions are made as they make real accountability a core component of their retooled cost structures.
These five big cost-retooling themes can affect all elements of a company’s cost base and cash position. Companies should prioritize the themes into one to three bold, focused moves, picking the elements of cost and cash where retooling can have the biggest impact. That means, for example, that after considering the likely impact of the themes on customers, competitors, and the company itself, leaders may choose a bold move around new ways of working supported by automation and digitalization. They would look across all functions and business units to find key opportunities to retool the cost base.
How would the companies do it?
Zero-based thinking
The clean-sheet approach has helped companies, across many businesses, cycles radically reform cost structures and fully redesign their businesses to support their strategy. Now, as they retool for the future, a zero-based methodology can help identify the substantial and sustainable changes required for the post–Covid-19 world. It will allow companies to shape their strategy and investment posture in an industry and market context, differentially investing to become “best in cost” for low-value-added capabilities and “best in class” for capabilities that can give them a competitive advantage.
Agility
Companies deliver their cost transformations more efficiently and effectively by adopting agile principles. That means promoting test-and-learn approaches; instilling line-owned, line-led delivery; and taking other steps to improve flexibility. Companies that outpace competitors will spread agile principles throughout the organization, even to the parts that must remain bureaucratic. Agility is a proven way to deliver results, and zero-based redesign ensures those results are bold and sustained. Combined, they keep a cost-conscious culture alive, preventing cost from creeping back in. It’s a one-two punch that will define the winners in the pandemic recovery and beyond.
Views expressed are personal. Simon Henderson and Gaurav Nayyar are Partners; Dishi Jain is a Senior Manager at Bain & Company.