In our last article, we looked into how to establish a growth strategy (Ansoff matrix), which enables a business to attain expansion and increase market growth. We also stated that there were other strategies that can be combined with these strategies to yield a competitive advantage in terms of growth.
One of those strategies that can be combined with a firm’s already established growth strategy is cost optimisation. Therefore, we will look into how firms can achieve accelerated growth using cost optimisation strategies.
What is accelerated growth?
Accelerated growth simply refers to the way a business grows at a rate that is faster than when compared to its competitors in the industry.
Accelerated growth is usually considered when a business is able to achieve significant growth at business level (internally). It is the difference between businesses that have transitioned from small to large enterprises within a short period of time and those that operate with an average growth rate. For example, popular social media companies such as Twitter, Facebook and LinkedIn.
While the aim for every business is to achieve accelerated growth, we must also consider one of the downsides, which is the financial obligation involved. Irrespective of the growth strategy adopted, and common to all, capital is needed to carry out the project. This is why some businesses prefer to remain small, as they cannot afford the financial implication of growing. Hence, cost optimisation strategies come into play.
To many, cost optimisation represents the act of randomly cutting cost to gain more profit, which they consider to be growth. But cost optimisation strategy goes beyond that. It is a deliberate action that involves reducing a business costs and expenditures while creating values to customers without infringing on its promises to them.
In other words, it entails a holistic analysis of activities that constitute cost in a business, which should not be confused with expenses. For instance, activities and cost incurred in purchasing, processing and converting of raw materials to finished goods/services to customers are different from operating expenses, such as salaries, rent, insurance, electricity. This exercise makes it easy to formulate appropriate reduction strategies.
Adopting cost optimisation strategy enhances a business chance to achieve accelerated growth and is also a way of ensuring sustained growth.
Some of the cost optimisation strategies for accelerated and sustained growth include:
Reviewing existing pricing strategies and aligning them with current market dynamics- What this does is to ensure that as a business, while making plans to increase your market share or selling to a new market by creating additional value to customers, you are not doing so at a loss.
Utilising virtual communication and digital offerings to customers - the pandemic brought about some pros that affected the process of doing business, which include working remotely, using social media platforms to reach customers, embracing the use of IT for automation and communication. Many businesses have experienced accelerated growth by cutting expenditures and adopting some of the above listed pros of the pandemic.
Mastering the art of negotiating flexible payment structure with suppliers, especially b2b, which is critical irrespective of the growth strategy a business intends to adopt.
Aligning cost optimisation strategy to a business overall strategy and review from time to time to achieve an efficient performance.
In conclusion, whether a business adopts a single or combined strategy to obtain growth, the most important factor is sustainability. Cost optimisation should be part of a business’ culture and not just a response to economic fluctuation.
All internal stakeholders, departments and sectors of the business must be involved in the process of optimising cost for growth. This is crucial in attaining a competitive advantage.
If your business needs a tailored strategy or combination of strategies to attain accelerated growth, book a free consultation with us at enquiries@ovacgroup.com