Growing profitability in a recession

Date: 2-16-201

ADOPT A ZERO-BASED BUDGETING APPROACH

Many of the organisations that have not only survived but actually thrived during the current challenging economic times have adopted a zero-based budgeting approach. 

This means that they have seriously reflected upon costs of running the business and have introduced austerity measures and negotiated with suppliers to obtain the best deals and “cut back” where necessary to minimise their cost-base.

By reducing costs and focusing upon how to best serve the needs of their existing and potential client base these organisations have maximised profitability.  Quite a number of the businesses we work with have reported increased profitability despite a general squeeze in the marketplace because of the approaches that they have adopted.

It’s important to mention a couple of things that have traditionally been cut from the bottom-line of organisations during a recession that have not featured significantly this time round.  For example, traditionally the two areas of cost-spend reduction that were immediately removed from the budget were marketing and training.  The organisations that have truly thrived during these challenging times have certainly evaluated the return on investment of both marketing and training and have sought to become more cost-effective in relation to these areas.

DON’T GET LEFT BEHIND – INVEST IN MARKETING AND TRAINING

The organisations that have distinguished themselves have, in some cases, increased their marketing budgets but have reapportioned their spend to reflect a maximum return on investment and areas of increased spend have primarily focused upon enhancing information and communication technology (ICT) and web 2.0 strategies to improve brand awareness and their capability to communicate with existing and potential clients.  They have evaluated effectiveness in terms of attracting new customers and increasing spend from existing clients.

Our team have found that the organisations that have thrived have not necessarily reduced their training budget.  Let us qualify this.  The word “training” seems to have disappeared from the mindset of those organisations that have been particularly successful. 

Instead of focusing upon “training for training’s sake” they now focus upon the alignment of learning and development specifically with the achievement of business objectives.  Ergo “training for training’s sake” has been eradicated in favour of a focus on maximising the knowledge, skills and behaviours that people across all levels of the business need in order for them to directly contribute to business growth and development.

 

Even organisations that are particularly cost conscious have spent time, effort and resources developing the capabilities of their people in order to directly influence the bottom-line. 

Here are some examples of what they’ve done: 

  • Incurring external costs only when absolutely necessary to bring in experts to enhance internal knowledge and capability.
  • Coaching at all levels is encouraged with more experienced members of the workforce sharing their knowledge with less experienced colleagues and continually building capability.
  • Mentoring is evident; taking a long-term view and developing the capabilities of key people to meet the future anticipated needs of the business.
  • Delegation is managed with a view to supporting the workforce to expand the scope of their capabilities and widen their roles.
  • Experiential learning (or learning by doing) is recognized as a particularly powerful and cost-effective method of developing the capabilities of individuals across all levels.
  • Those organisations that have demonstrated particular effectiveness have clear systems and processes of evaluating the return on investment of all learning and development.  They maximise the use of line managers to evaluate what’s working particularly well and what needs to be improved, refined and developed to move to the next stage of organisational growth and development.
  • The organisations that have really achieved control of their finances have worked with their suppliers and customers to maximise cash flow.  They have engaged their staff in “improvement projects” designed to introduce austerity measures and reduce costs across all areas of the business.

 INCREASED TURNOVER + REDUCED COSTS = PROFIT MAXIMIZATION

What suggestions do you have to help a business to grow profitabiltiy despite the recession?