Survival Depends on Delivering Value, Not Just Cutting Costs

Aug. 10, 2009
Instead of talking to customers and prospects about cost, talk about their business goals.

Conventional wisdom says that, in good times people make bad decisions, and in bad times they make good decisions. However as this recession drags on, I'm not convinced this always -- or even usually -- is the case. This is the environment in which management should prove its worth by focusing on how to position their companies, not for survival, but for growth once the economy turns around -- which, of course, it will.

Good decisions have two components: cutting out inefficiencies and finding new sources of revenue. Here's how to do that.

Remember Your Long-term Goal

Companies are in business to generate long-term sustainable growth. That means profits at year-end are more important than immediate costs, and long-term growth and profitability offset a bad year. Always make decisions based on what positions your company best for the long term.

I'm not suggesting management should be sanguine about operating in the red for a year, or even a quarter. I believe you can make money every month. Long-term planning is the best way to position your company to do that.

Focus on Efficiencies as Well as Costs

Just stripping out costs is the easiest decision, but it ultimately doesn't get you the biggest bang for the buck because it does not position your company for long-term growth. Unfortunately, right now I see many companies using the same playbook: Cut salaries, cut the 401(l) match, close outlets or conduct rolling shutdowns of manufacturing facilities.

Cost-cutting needs to be balanced with the more nuanced approach of cutting out inefficiencies. That means identifying proven efficiencies or streamlining that will better position your company for profitability and growth for the long haul. This is a more sophisticated, complex approach that takes a lot more thought, but in long run it pays off.

Focus on Your Value Proposition

Instead of talking to customers and prospects about cost, talk about their business goals. Put yourself in the customers' shoes and understand what they're trying to accomplish. In our business, for example, we ask: How can we help our customers earn their bonus or get promoted? How can we make them look good consistently over the long term? The reason they're getting the bonus is that they are hitting the objectives the company has set out. That's good for everybody.

If all you offer customers is a lower price, you're going to have a rough time generating reliable long-term growth. There's always a competitor who can undercut your price eventually. Offering long-term value is the only sustainable strategy. At my company, Advanced Technology Services, we explain our value to our customers in terms of their profitability.

Define 'Value' in Terms Everyone on Your Executive Team Understands

I sometimes joke that there are Word people and Excel people -- but it's not funny when failure to comprehend this difference dooms good strategies. I am a Word person, meaning I do not see a plan as a list of numbers. Instead, I draft a narrative of what we're going to do, especially what we are going to do differently, to drive higher margins or profits in the long term.

But I need the support of my company's "number guys," who may focus on the up-front costs. So I take care to translate my narrative into the quantifiable impact that the costs I want to incur today will have on my company's bottom line --and when. I cannot get their support unless I first get their understanding.

Define 'Value' in Terms Your Customers Understand

Your customers have their own versions of Word people and Excel people. Make sure your business proposals, including intended results, and how those will be measured, are clear to both types of people.

My company works mostly with large, sophisticated manufacturers. We've found that a common language is Six Sigma methodology. We use Six Sigma, and most of our customers do, too. There are any number of systems that can serve the same purpose; the key is to make sure that you and the customer or prospect are using the same system as a "language."

The goal is to clarify what you intend to do, how that will result in additional revenue or profits, and to quantify those projections. This gives you an agreed-upon set of metrics for judging success. It also translates the words into quantifiable monetary terms.

Consumer-focused companies have figured this out. Consider the mortgage brokers who are offering plans to protect homebuyers who lose their jobs. Several automakers are taking the same tack, offering to buy back cars or take over payments if customers lose their jobs.

Our customers are large manufacturers, but we still have to find a way to make sure they -- including those Excel people -- understand our value proposition. We've found a simple way to do that: We promise a dollar-amount impact on our customer's bottom line at year-end, or we refund the difference.

Seek New Sources of Revenue

Long-term success is all about generating new business or extending your business offerings in ways you might not have thought about before. This is where I see many companies struggling right now. It's also the area of most opportunity in a down economy.

This really is Business 101: Sell more products or services to current customers, or identify new customers. The roadblock is the mindset that "we serve only Industry X" or "we make only widgets." Why only Industry X? Why only in North America? If you make widgets, why not repair and service them as well? If you already service your own widgets, why not offer to do the same for widgets made by your competitors? Customers who buy widgets from multiple sources may appreciate one-stop-shopping for maintenance and repair.

This has been a successful growth strategy for us. We don't make factory equipment, but we can maintain and repair virtually any maker's equipment. Our expertise in factory-floor technology has allowed us to expand IT services far beyond manufacturing. The key is to be open-minded and quick to capitalize on opportunities.

These are scary times to be sure. Not every company will survive. Those that thrive will do so by offering long-term value to customers, not short-term cost cuts.

Jeff Owens is President of ATS. Advanced Technology Services (ATS) improves the productivity and profitability for many of the world's most respected manufacturers through the managed services of production equipment maintenance, information technology and spare parts repair.

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