Surviving in today’s economy
can be tough, but there are
still ways to keep your company
afloat, says Jim Schuetz.
For one, you can simplify
your business model by determining where you can cut back.
“Companies who are simplifying their business models are
finding improved profits,
improved return on assets and
return cash flow,” says the
Midwest regional managing
director for Deloitte Consulting
LLP, part of Deloitte LLP.
Doing so can also lead to
customer service that is of
higher quality and more reliable, improved career paths for
employees and more flexibility
to deal with changes, says
Schuetz.
The consulting services arm
of the professional services
firm, which employs 3,700
across the firm in Chicago, has
taken steps to make its business model less complicated by
taking a hard look at some of
its customer offerings, trying to
better understand its customer
base and putting segmentation
strategies in place to focus on
the most critical customers.
Smart Business spoke with
Schuetz about how to simplify
your business model.
Don’t wait to attack the issues. For
many companies, an economic
downturn is something you
hope to survive — you hunker
down, dial back on spending,
suspend all your hiring activities
and wait for the uptick in the
economy that says, ‘We’re getting back to business as usual.’
For more and more companies, just surviving through the
lean times in the normal economic cycle isn’t what they’re
after, and they’re positioning
their companies to thrive during
a downturn and to grow their
market share and to be poised
to break through for growth
when the economy rebounds.
If companies attack these
issues in the good times, they’re
attacking these issues on their
terms. Companies that postpone and tackle these issues
during the economic downturn
are doing it along a timeline and
on terms that are dictated to
them given the financial expectations of shareholders.
Look at the various parts of your
company. No. 1 is taking a hard
look at your products. Take a
look at both the finished product portfolio and what that portfolio looks like that’s offered to
the customer as well as the
packaging, components and
raw materials that go into the
finished products.
It’s a hard, challenging look at
that portfolio and the strategic
benefits of those products, the
financial benefits, and starting
to rationalize and get down to a
portfolio that makes economic
sense for the company.
Take a hard look at your supply chain. Simplification efforts,
both on the product and customer side, will go a long way to
simplify a company’s supply
chain operations.
Take a hard look at back-office operations. In general,
companies are looking to standardize and centralize their
back-office operations, to
improve the quality and efficiency of those operations.
Understand your customer base. It’s
important to understand your
customer base and the profitability coming out of that base — to
know what it costs to serve
your customers, to measure the
customer profitability and to,
based on this information, take
actions to improve profits and
strengthen the relationships
with your key customers.
Do a simple analysis, where
you sort [your customers] on a
volume basis, segment them into
your high-volume, medium-volume and low-volume segments,
and understand what percentage of your customers make up
what percentage of your overall
revenue. Similar to that analysis
is studying customer profitability. … It’s understanding what
they bring to the company from
a profitability standpoint.
Set the right tone and focus. This
is a tone that isn’t just set during
down cycles or up cycles, it is a
consistent tone that needs to
ring throughout up and down
economic cycles. You need to
set the right tone, which is all
about setting the right targets
and balance, and making sure
that you are not looking at sales
growth or just focusing on the
income statement and return on
sales or earnings per share.
You’re looking at the overall
performance from a return on
asset standpoint and making sure that you are looking at driving profitable growth that drives
return on assets, that ultimately
drives improvement in shareholder value. Setting the right
tone and balance and making
sure it stays consistent through
economic cycles is critical.
Second is creating that right
vision. It’s creating that right
vision around the front office,
the supply chain and the back
office, establishing the vision in
terms of where you need to be,
and then building the road map
to get you from where you are
today to where you need to be.
The final piece of how you get
there is creating that right focus
and team. It will take clearly
defined initiatives with dedicated teams to make that happen.
Tackling a vision like this in simplified business models is difficult but not impossible to
accomplish in a ‘business as
usual’ environment.
It requires stand-alone initiatives with dedicated teams to go
off and grasp the vision.
Communicate the new model. It’s
sending clear, credible and
heartfelt messages about the
vision and where you’re going,
starting with leadership and
getting leadership on board
and being able to cascade that
down through all levels of the
organization.
The vision needs to be aligned
around top management, it
needs to be supported by top
management and then communicated down through the organization and supported in the way
that the company does business
on a day-to-day basis.
HOW TO REACH: Deloitte Consulting LLP, (312) 486-1000 or www.deloitte.com
