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Five Strategies to shift from a Cost Cutting to a Business Growth mindset through Operational Excellence – Business Operations

Five Strategies to shift from a Cost Cutting to a Business Growth mindset through Operational Excellence – Business Operations


Do more with less is a common refrain in any margin focused organization. But this management guidance should come with a big “Handle with Care” sticker. In the enthusiasm to meet cost cutting targets, sometimes organizations forget the “doing more” part and only focus on the “with less” part. By the time, the realization sets in that the growth engine has stalled, it is too late. And most likely, you are left with an organizational culture where “fear” rules supreme and “fun” is a word that belongs outside the work-place. Result – Bottom line improves in the short-term but starts declining after reaching a threshold. With stagnant or diminishing top-line, no amount of cost cutting can help improve profits dramatically after a certain point.

High performance is multi-dimensional – putting the entire organization’s focus on just costs is counter-productive. While margin improvement is crucial, good solid revenue growth is even more important to build a sustainable, profitable business. And these two goals should not be in conflict with each other. With some discipline and mindset changes enforced in day-to-day business operations, one can successfully do the balancing act so that the organization does not lose its focus on growing revenues while keeping a tight control on costs.

The entire business framework that you work in can be used to influence changes in the right direction. Here are five strategies that I have seen business leaders use successfully to shift the organization to a revenue growth mindset in no particular order:

Strategy 1: Budgeting – Put your money where growth is The key to building a high-performance and growth focused culture is to make sure you consider “‘what“ and “how“ you will get to your destination – the clear guidelines of what you need to do now to reach where you want to be in a specific timeline. And, what better place to define this than in your annual business budget. For example what are the core competencies that you need to develop in the current year so that the growth for the next two-three years are secured? What investments of the previous year have not achieved desired results and needs a change in strategy? What partners and channels needed to be cultivated in current year to be able to stay competitive in the market? While a lot of attention is given on the cost items to achieve the top line for the current year, not much attention is given to the few investments that are needed to accelerate the growth for the longer term. Budgeting is a great tool to ensure that the organization is well prepared and aligned for growth.

Strategy 2: Granularity of Growth – Identify the Growth Drivers –  Research shows that having multiple avenues to growth pays off during good times and bad.  In the book – Granularity of Growth (Wiley, April 2008), the authors identified that increased market-share is seldom a driver of growth. They contend, instead, that growth is driven by where a company chooses to compete: which market segments it participates in and how much merger-and-acquisition activity it pursues in these markets. The key is to focus on granularity, to breakdown big-picture strategy into its smallest relevant components. To uncover pockets of opportunity, executives need to dig down to deeper levels of their businesses and organizations. And of course, get the execution plan in place for the opportunities identified.

Strategy 3: Clarion Call – Aligning the Organization to the Vision – It is critical that every employee knows and understands the vision of the organization and the strategy for growth. Re-orienting people is not an easy job but it can be done if the leadership can clearly articulate the problem statement behind the vision and the urgent changes that are needed to get everyone on the board. The idea here is to get people really involved and committed to growth – logic and reason have their place, but in initiatives like this the emotions of people have to be tapped. Hence the need for a clarion call (en.wiktionary.org/wiki/clarion_call – Appeal, urgent call to action).  And also the need for a re-organization too – to move your best people (sales, operations, delivery) from low growth or stagnant business areas to high growth areas to leverage your talent and shake off the inertia.

Strategy 4: Platform for Ideas – Make Innovation more than a buzz word Innovation is the Petri dish for exponential growth. But without a specific team accountable for innovation (which could be new product ideas, new business models, new markets, new acquisitions or new competencies) the focus on exponential growth is lost in the day-to-day block and tackle for meeting the short-term business targets. One person in the senior leadership should have the mandate to lead this team and the authority to champion and approve initiatives that are separate from the company’s core business and to execute on these initiatives. This provides an ecosystem of a structure, time and resources for a “start-up” within the larger organization to help move beyond the comfort zone and also future-proof the business against risks to existing business.

Strategy 5: Metrics and Rewards –Targets breed Performance – Coming to my favorite topic, setting metrics and commensurate rewards is an important lever to quickly drive and arrive at the behavior needed to go beyond just incremental growth.  For example – setting a target of 5% revenue growth year on year with a slightly higher target for profits is quite acceptable but this can be achieved by a little more push on existing services or products. There is no compelling need to look for completely new sources of revenue or new business models. What is needed here is BHAGs (Big Hairy Audacious Goals), metrics that can be used to track and measure not only the results but the investments, resources and behaviors that are needed to achieve the goals and of course, equally Big rewards to excite and enthuse the teams to think differently, get out of their comfort zone and act like entrepreneurs.

Profitable double-digit growth can become a possibility and not just a fluke. By thinking proactively and building growth into day-to-day business operations, the cost cutting trap can be avoided. A growth oriented mindset can indeed become part of the organization culture when the management plans and puts in place the systems to ensure that growth opportunities are identified and pursued as diligently as costs are controlled.

What have I missed? What growth strategies have you seen work? How and what have you factored in your plans for next year to enable double-digit growth? I would love to hear back and learn from you.

Picture courtesy : http://www.flickr.com/photos/ytueresburroyyomemonto/2687124044/


Five Metrics that can help Maximize Revenue, Margin and Cash Flow Potential from Existing Business

Five Metrics that can help Maximize Revenue, Margin and Cash Flow Potential from Existing Business

For a business or sales manager, the last week of the quarter is a very stressful time. Push for that last-minute sale, run after the documentation for sales orders and contracts, and make sure that all the steps in the book to bill process happen smoothly – it is a race against time. The scope and degree of these activities may vary from company to company based on the setting of quarterly or annual targets but the end objective is usually the same – maximize the revenue, margin and cash flow potential. Cash is always king and any additional revenue is generally welcome, as long as the bottom line targets are met. But extra revenue, margin and cash flow that can be uncovered and pulled out of existing fixed costs is very valuable because it tends to flow straight through to the bottom line. This is where business operations can play a critical role in identifying sources, plugging gaps and putting in place processes to prevent revenue and cash flow leakage that leads to financial under-performance.

Given the timing, today’s blog post is focused on the metrics and areas that act as indicators to these quarterly business objectives. I have been called a “gold-digger” and a “revenue shark” by my bosses (and I take that as a huge compliment :)) and so here are five of my secret sources that help me uncover hidden treasures and meet the stretched targets specifically in the services business:

Metric #1 – Unbilled Revenue:

What:  Revenue that has been recognized in previous months/quarters but has not been billed to the customer.

Why:  Mainly due to

a)    Lack of confirmation/approval  on milestones in Fixed Price projects from customer on billing

b)    Lack of confirmation/Approval from customer on time sheets in T & M projects

c)    Milestones not in sync with efforts in Fixed price projects – we are burning efforts faster than we bill

Impact: Cash Flow (Collections/DSO) Target


Metric #2 – Unearned Revenue

What: Revenue that has been invoiced to the customer but not earned, accrued or recognized.

Why: Mainly due to

a)      Advance billing in Fixed Price projects based on a milestone such as Contract Sign off/PO received/etc

b)      Lack of Information on man months spent for the revenue in the project

c)       Milestones not in sync with efforts in Fixed Price projects – we are billing the customer faster than we are spending the efforts

d)      Man-months and/or Total project value for the project not updated or re-baselined in case of fixed price projects where revenue is calculated on the basis of percentage completion – we thought we would be spending x no. of man-months at project start but actually need lesser amount of man-months to complete the project OR the total project value has changed (+/- CRs) and man-months has not been updated

Impact: Revenue and Margin Targets

Metric #3 – Deferred or Unrecognized Revenue

What: Revenue for which we have spent efforts (tagged as billable) but has not been recognized or earned in the period in which efforts have been spent.

Why: Mainly due to

a)      Lack of documentation needed as per US GAAP or other accounting guidelines – no signed SOW/contract/PO

b)      Orders received but not reached finance or accounting folks

c)       Project not created/updated in financial systems

d)      Billing inputs not received by Finance in terms of how many man-months spent and where

Impact: Revenue, Margin and Cash Flow Targets

Metrics #4 – Resource Utilization Dips

What: Dips in Percentage of the actual revenue earned by assets against the potential revenue that could have earned.

Why: Mainly due to

a)      Real increase in buffer or bench

b)      “Hidden” resources in fixed price projects

c)       Missed billing for resources in T & M Projects

d)      Incorrect tagging or time tracking of resources

Impact: Revenue, Margin and Cash Flow Targets

Metric #5 – Static Backlog

What: No change in Difference amount (i.e. Backlog) of the Value Booked and the Value Billed/Recognized of an Order over a period of time. A healthy backlog is a good sign but it has to be serviced quickly or the order may get cancelled and the backlog will disappear taking away the revenue potential with it.

Why: Mainly due to

a)      Slow ramp-up of internal resources for T & M projects

b)      Delays in project schedule for fixed price projects due to skill unavailability, etc

c)       Delays in hiring

d)      Gaps in understanding of customer expectations

Impact: Revenue and Margin targets

Some of the terms above may seem purely financial in nature but business operations in service companies must look deeper into these numbers in order to discover and monitor the root causes of the variations. The variations in the above metrics are an indication of broken processes and work flows within the organization maybe due to lack of integrated systems or communication gaps or discipline. Fail to understand the significance of these metrics and you will fail to reap the benefits in the shape of maximized revenue, profits and cash flow that arise from the tracking and root cause corrections of these metrics.

I would love to know and learn from you. What terms or metrics do you use to monitor and improve the performance and efficiency of your organization? Where have you found revenue, margin or cash flow leakages in your work? Which of the above metrics would you want to know more about ?