Looking at the international news, it seems that both Europe and North America have been particularly hard hit by the recession – something that I don’t think we are really in touch with. By and large, South Africa appears to be showing only vague symptoms of this recession and I think to date, we have been pretty lucky.
This is not to say that we have been unaffected. I suspect that we are observing certain things in the economy, both generally and at a more granular level in our day to day dealing with both our customers and service providers.
Taking a look closer to home let’s consider the mixed financial results of a couple of organisations lately. One organisation has shown a fair amount of growth in the last quarter while the other has lost market share. The blame of course has been attributed to things like the recession and the regulatory and compliance challenges currently being experienced in that industry.
Surely though both organisations are subject to the same challenges and market forces? Well if Porter is to be believed anyway. This then begs the question – why the difference? In essence, I put to down to two things. Firstly, differentiation on the basis of customer service (yes, yes, my usual gripe!) and secondly a difference in operational efficiencies – directly influencing customer experience and the bottom line.
So, the ‘unlucky’ organisation that now shares less of the market and therefore lower revenues, will need to consider other avenues to still meet EBITDA targets. So of course the natural thing is to change the variable over which they have more influence. Yes, reducing operating expenditure or as many know it, cost cutting. And this is where I think they are making their next mistake.
While I agree it’s important to manage costs (improve efficiencies) you cannot make more money by spending less, much in they same way as you cannot create wealth by distributing existing wealth (now that’s a topic for another column). Yes, your bottom line may look better this month, quarter, or even year, but what happens then? There is only so much you can cut.
Rather than being reactive, look at your expenses when times are good. Sort out your inefficiencies and also understand which are your ‘good‘ costs – the costs that help you make money. Look at your value add expenses rather than engaging in ‘cost saving‘ myopia.