Cost structure is the fixed and variable cost of doing business. That’s the difference between making a profit or making a loss. Without profit, it’s hard to invest. Without investment it’s hard to grow. If what you’re doing doesn’t give you a healthy profit, could digital help you re-think your cost structure?
Rogan Hounsell-Roberts was a founder of a successful scale-up; has helped organisations across many sectors achieve success; is a founder of KR5 Consulting; and has a passion for helping ambitious business leaders scale-up and exit.
You start a business and see if it will fly. Then you’re up and running and might not give your cost structure a second thought. Many start time rich and cash poor, with founders using their time to get things moving. In some cases, they’re shocked that a good turnover doesn’t translate to profit: And it’s often the owners that take the brunt!
Business strategy on the right track?
This is part-three of a four-part series “Business strategy on the right track?”. Our series takes a journey, looking at fresh, exciting and new ways of looking at your business using digital. When it’s easy to think it can only work one way, it’s great to have a change of view to see how it might be better.
Part-one introduced the series by asking “What is digital strategy, and can it help me scale?”. We followed with Part-two “Increasing value for your business with digital”. Finally, in part-four, “Digital value chain – breaking the mould” looks at companies that surprise everyone when they come out of left field.
Is there a better way?
Telling your staff that you plan to reduce cost in the business is unlikely to get a heart-warming response. It can make staff feel anxious about uncertainty, and there’s the fear that it will make their job harder, or even worse – no job. But does it have to be that way?
Adapting to new ways of working and taking advantage of technology can be positive for staff and for customers. In “Innovation of technology in Scale-ups”, I talked about how, at the end of the nineteenth century, traditional methods for glass bottle production couldn’t compete with semi-automated processes. More recently glass production has changed yet again with smart machines coordinating with suppliers for accurate and fast customer delivery.
Reinvent old processes
In the HBR article “From Zipcar to the Sharing Economy”, Arun Sundararajan talks about how digital technology can be used to re-invent processes. Zipcar is a traditional rental company with a twist: You can rent by the hour using a smartphone with cars parked around the city. He goes on to say that the big breakthroughs have been from reinventing rather than improving processes.
It’s not only renting cars by the hour that digital technology has made possible. There’s pay as you go computing (AWS, GCP & Azure). All the software as a services (SaaS) providers, Salesforce being one of the biggest. And of course, the internet has transformed the way we shop far beyond what most would have thought possible.
Cutting out the Middleman
The internet has enabled businesses to change their relationship with their customer. In the late 1990s Dell sold PCs online instead of through stores. The cost savings enabled them to expand their product range. If you want to buy a new or used car, then online companies such as Carwow offer an alternative to going to a dealer.
Of course, it’s not only physical goods. Netflix offers a wide selection of movies at your fingertips through digital distribution (remember Blockbuster stores?). We open bank accounts, buy insurance, order takeaways, and buy music without going anywhere.
Automation
Once you’ve fine tuned your business model and processes, automate as much as you can. There are many different ways to automate, for example:
- Matching which could be anything from looking for patterns for sales, to matching bank transactions with your accounts
- Verification such as a login or using a smartphone app
- Process automation which might include workflow, capturing data or some other type of processing.
All these are faster in a digital world. So, changing your cost structure might result in a faster service. As you’d expect, most businesses use automation, it’s nothing new. The challenge is to step back and think about the opportunities.
Finally
Cost structure is key to creating a successful business future. Instead of reducing cost on your current course, it pays to take a fresh look at digital to open up opportunity. That might be to challenge existing ways of working to re-invent old processes. Use the internet for more cost-effective ways to connect with customers or distribute goods and services. Then there are many ways to automate and improve speed of service. We hope that this has been food for thought in thinking about your business in a fresh way. Look out for the next article in this series looking at using digital to break the mould.
At KR5 Consulting, we’re here to help business leaders achieve their vision. Your goal might be to grow & scale, turnaround or exit. Through understanding your business, we uniquely assist you to reach your destination. We help you plan, choose software, build, and deliver your projects. Our purpose is to help you accelerate, increase profits, scale-up, acquire customers and beat the competition.
If you’d like to explore the ideas in this article further or need help and advice, please contact Rogan at rhounsell@kr5consulting.com – to arrange an informal chat.
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