growth in challenging times costs

GROWTH IN CHALLENGING TIMES COST COMPETITIVENESS

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SEYMOUR SLOAN IDEAS THAT MATTER

Competing for growth Cost competitiveness – a tool for driving growth

Customer

reach

Operational

agility

Stakeholder

confidence

The markets you are in determine

your opportunity

Your growth is

determined by your

ability to respond

Your value and ability to fund growth is

determined by the confidence of your

stakeholders

Your profitability is determined

by your pricing and the

competitiveness of your cost

base

The new

normal

Cost of

variation

Cost

Competitiveness




Cost competitiveness in the new economy

► Growth is back in fashion but competition for organic growth has increased

► Becoming more cost competitive in sales and distribution, and in production, are two of the top

five factors that companies expect to be most critical in the future

► For the past two years, reducing cost has been a constant focus of management around the world

and has dominated thinking in this area

► Profitable growth is, however, now the ultimate goal for many, but this requires focus on all cost

and revenue drivers

► Companies need to adopt a holistic approach to cost that covers both the organization and wider

supply chain

► Action is needed in four areas:

► Pricing

► Costs

► Cash

► Capital




Where do you rank?

Challenges

61% expect to be able to increase their price

only by inflation amount or less, but a

number of factors are driving up costs further

Pricing is a critical skill and becoming more

complex – do you understand where most

value is created for your clients

Discretionary spending has already been

heavily cut – have you made changes to

processes to deliver strategic reductions

An holistic approach to costing is required

but must extend outside the organization to

suppliers

Over the past two years many contracts

have become much tighter – can you loosen

these constraints

54% of respondents intend to fund their

growth through their cash reserves – how

much working capital is still tied up in your

business

Leading

performers

are

Acting to preserve capital Cash reserves

Private equity investment

Passing on the pressure

Seeking better commercial conditions, discounts and promotions

Sustaining cost reduction

Increasing staff productivity through better process, tools and training

Focusing on most profitable customers and products

Use better promotion, sales and distribution technology to cut cost of sales

Informing pricing

Implemented new pricing strategy

Strategic Responses




13 15

19

27

12

6 5

1 0

2

5

14

29 31

9

4 3

1

Increased by morethan 20%

11%-20% increase 6%-10% increase 1%-5% increase No change 1%-5% decline 6%-10% decline 11%-20% decline Declined by morethan 20%

Over the next two years how do you expect prices for your company’s products or services to change?

High performers Low performers

Pricing: top performers price strategically

The majority of leading performers intend to increase prices to boost

margins

While many are aiming only for inflationary rises, nearly half intend to push

further

For some businesses, significant changes are required to successfully

deliver price increases without reducing competitiveness

Understanding the competitive market is key to this but it is also critical to

have a full understanding of how value is created

Developing sales force skills and marketing strategies are relevant but so

also is ensuring that full information on costs is available to the pricing

decision-maker

Client questions:

1. Do you understand your true

comparative position?

2. Do you understand what drives

your customers’ value

assessment?

3. Do you strategically manage

price?

4. What are your governance

processes?

5. How do you measure/model

results?

Percent of respondents




Costs: top performers take a broad view

Techniques for delivering sustainable competitive cost reduction vary by

sector

Staff productivity is, however, key for 55% of top performers

Prioritizing business segments and focusing on the most profitable

customers and products are also key to nearly half of leading businesses

Tactical options such as head count reduction and trimming discretionary

spend are on the agenda for one third of leading businesses

Techniques around sales and distribution, and promotion are also

prioritized

Client questions:

1. Is cost reduction an ongoing

strategic priority?

2. Do you have a process to

measure and monitor progress?

3. Do you benchmark internally or

externally?

55

45 39

34 31 30 36

31

41

26 22

38

Increasing staff productivitythrough better process, tools

and training

Focusing on most profitablecustomers and products

Adjusting headcount tomarket demand

Using better promotion,sales and distribution

technology to cut cost ofsales

Seeking better commercialconditions, discounts and

promotions

Implementing sharedservices

Which techniques is your company employing to cut costs?






48 48

37 33

31 29

39

31

22 26 25 26

Added additionalproducts to meet

different market needs

Made internal supportfunctions more efficient

and responsive

Improved/broadenedworkforce skills

Made externalpartnerships more

efficient

Reduced fixed costs Improved supply chainto better cope withsudden changes inlevels of demand

Which of the following actions has your company taken to increase its flexibility?


Cash: top performers see the full value chain

Maximizing cash across the full value chain should be considered – fixed

costs are only one part

Nearly half of leading companies focus on improving support function

efficiencies

Investment in up-skilling the workforce is also seen as a key tool to

increase flexibility

Leading businesses see external sections of the value chain as

fundamental to competitiveness – both through partnerships and the

supply chain

Client questions:

1. Do you have a process to

monitor working capital?

2. Do you measure the impact of

changes on working capital?

3. Are you measuring working

capital across your entire supply

chain?





61

34 32

28

18 14

52

38 33

15 11

20

Cash reserves Debt Equity release Private equityinvestment

Sale of non-coreassets

Bond issue

How is your company’s growth strategy to be financed?


Capital: top performers prioritize reserves

Costs of capital can impact significantly on bottom line results

Leading businesses are overwhelmingly playing it safe and are using

existing cash reserves to finance growth

Given the low interest rate environment, over one third of top performers

are once again considering leverage

And for ambitious businesses, even private equity partnerships are on the

table

Client questions:

1. How will you fund your growth

plans?

2. How does your cost of capital

compare with your competition?

3. How do you control capital

allocation?

4. How do you measure the use of

and return on capital?

5. How do you maximize

acquisition value?





APPENDIX




Pricing: set strategically and measure effect

Our internal research found that 74% of leading

performers intend to increase prices to boost

margins

Pushing up pricing can obviously improve

margins

But what about the impact on sales volumes?

Pricing – steps to success

1. Price strategy — set principles which reflect

strategic intent of organization or business unit

2. Price implementation and governance — create

suite of controls, checks and methods for

managing price

3. Price maintenance — ongoing maintenance of

pricing architecture to validate effectiveness

4. Price architecture — ongoing development of

pricing instruments to deliver required margin




Costs: implement and sustain cost reduction

Our research survey found that 79% of leading

companies intend to continue reducing costs

Cost reduction can improve margins

But how can this be sustained without impacting on

quality

Costs – steps to success

1. Formal executive sponsorship and commitment

2. Clearly aligned with strategy and key initiatives

3. Program evaluated on fact-based quantification

4. Benchmarking for hypotheses and targets

5. Business cases, reviews and project approvals

6. Formal portfolio management and project

prioritization

7. Projects use standard methods, tools and

deliverables

8. Professionals available and have strong

experience

9. Accountability clearly established

10. Measures are clearly quantifiable

11. Meaningful, regular and integrated benefits

reporting

12. Defined and sustainable structure and ownership

13. Results linked to employee performance

evaluation

14. Reinforcement of cost reduction within culture




Cash: optimizing working capital

Our Capital Confidence survey found that 57% of

companies intend to focus on optimizing cash

flow and liquidity

Enhancing working capital management can free

up cash, reduce funding costs and prompt supply

chain efficiencies

Tactical working capital initiatives can improve

cash and balance sheet presentation in the short

term

Long-term sustainable change requires that

working capital strategy is supported by

appropriate cultural

and structural enablers (KPIs,

incentives, etc.)

But how can this be leveraged without damaging

supplier relations and weakening credit ratings

Cash – steps to success

1. Incentivize management around cash

2. Manage payment terms for customers and

suppliers

3. Improve speed/accuracy of billing and cash

collection

4. Use data on disputes to eradicate the root cause

5. Increase billing frequency

6. Develop an agile demand-led supply chain

7. Build demand management into working capital

chain

8. Monitor financial health of customers and

suppliers

9. Identify key drivers of working capital

consumption

10. Identify, understand and quantify the trade-offs




Cash: optimizing working capital (cont’d)

Potential to free up cash equivalent to 5%+ of turnover on a sustainable, bankable basis

Timely, clear and precise management reporting, including focused KPIs

Clearly aligned targets and incentives, across all functions

Clear roles and responsibilities and ownership of cash

Accurate cash flow forecasting

Tactical Short-term measures to achieve short-term needs

Operational Embedding changes in operational processes and

commercial arrangements to optimize cash

Structural Measures which impact organizational working capital

needs (through market, product, partnering or radical

redesign)

Other cash generation solutions Cash and revenue protection

Protect and enhancement of top line revenue through

―leakage‖ management

Treasury cash management

Tax including transfer pricing

Phasing of capital expenditure

Cross-border cash strategies, including repatriation of cash

Cash leakage and revenue enhancement

Working capital performance improvement

Sustainability

Cash

Impact

Tactical Operational Structural

Culture, visibility and control

Establishing the foundations for sustainable cash flow improvements




Capital: minimize costs and risks

Our research found that 61% of high performers

intend to fund growth through cash reserves and

48% will use some form of debt

Using cash reserves to finance growth is a low-

risk option

But is it the most effective method of providing a

return to investors

Capital – steps to success

1. Measurement — simplify and reset metrics

around cash, working capital and return on

invested capital

2. Review — implement systematic capital

allocation and portfolio reviews

3. Synergies — accelerate synergy release from

acquisitions




TALK

TO US CONTACT:

Terry Chapendama - Director

[email protected]

Read our blog at:

www.seymourthinks.wordpress.com

Follow us on twitter

@seymoursloanuk

Visit us online www.seymoursloan.com

ABOUT Seymour Sloan

We formed the company in order to do

special things for our clients through the

creative use of new technologies and

techniques.

We help companies understand a

complex and ever-changing technology

landscape, along with changing

customer behaviours, developing

strategies and solutions to maximise the

opportunities available. We operate at

the intersection of digital, strategy and

customer, building a track record of

driving customer growth across our

three core industries.

mailto:[email protected]

http://www.seymourthinks.wordpress.com/

http://www.seymoursloan.com/