Connecting the classroom to the "real world"
Cutting Costs & Growing Stronger: Strategy is the Key
One of my favorites sites lately is the one for strategy+business magazine. Today they posted a rather lengthy piece called Cut Costs, Grow Stronger that relates to so many parts of our class that it really is impossible to capture them all here. The main theme of this article as I see it, is to reinforce the idea that cutting costs simply for the sake of cutting costs is not a good idea. Rather, cost cutting should be a action driven by other factors that pushes us to refocus the company’s strategy while looking for opportunities to save costs.
Dramatic cost cutting gives you a chance to refine or even reformulate your company’s overall strategy. After all, you’re never just cutting costs. You’re making a decision that something is no longer strategically relevant, and that other things are essential to keep. Yes, you may have to lose some product lines and activities, and perhaps some of your employees and customers. You also, however, have the opportunity to help your company grow stronger in the process.
It is important to keep corporate strategy central to all decisions including cost cutting initiatives or there is risk that a company will become weaker by cutting the “wrong” costs.
Another reason to keep strategy in mind is that it helps to focus company personnel on their company’s unique capabilities as opposed to playing follow-the-leader trying to emulate competitors. Trying to do what the competition does can mean lost focus in areas in which a company excels at the very time they need that focus to remain competitive. Seldom do two competitors even in the same industry compete in the same way — that is the core of differentiation strategy: finding things that you do better than everyone else and emphasizing that differentiation to the marketplace.
The best definition of capabilities, in our view, reflects this essential quality: Capabilities are the interconnected people, knowledge, systems, tools, and processes that establish a company’s right to win in a given industry or business. The right to win, in turn, is a clear path to sustained profitability, higher market share, or both, supported by the critical set of capabilities that will make a difference in that market.
It might seem that companies in the same sectors would need the same capabilities to win in the market, but that is rarely the case. Apple and Dell both compete in the computer market, but their capability sets are completely different. Apple’s success depends on continued product and service innovation combined with a deep understanding of the way in which people interact with technology; Dell’s success depends on rapid delivery, low-priced customization, and high-quality customer service.
There are many great examples in this very relevant article. Check it out when you have time and refer back to it as we cover different concepts in class. I believe that doing so will make it easier to identify with and understand the material that comes from the textbook and our in-class discussions. Articles like this are why I maintain this blog…I hope that you find this one particularly helpful.
Note that the links reference below may require registration to access. In my opinion it is well worth doing so.
Cut Costs, Grow Stronger. To reduce expenses for the long term and lead the way to recovery, start by taking a strategic view of your capabilities. Shumeet Banerji, Paul Leinwand, and Cesare R. Mainardi. strategy+business. Autumn 2009.
