No Value without Depth
A board directors’ most distressing and disappointing offering was, “We need to cut costs.”
But you need to know the context.
In thousands of board meetings and business exchanges those words offer credible and steady advice when it’s complementary to a strategic direction and supplementary to deeply rooted analysis and alternative advice. We don’t get that often enough. The one I recollect, however, was a voice who didn’t provide any other color, any another recommendation, or any detail on what “cut costs” really means.
He may as well have just mailed it in.
Is this what the six-figure stipend drives? A mouthful of platitudes that can be uttered by a grad student churning out a case study before a deadline?
In another episode, I recall a company trying to gauge its target profitability metrics. I was struck by the CFO’s thoroughness, not because he had most of the figures in his head (an impressive feat in and of itself) but rather because he could contextualize the impact according to a business process.
When he spoke about corporate metrics, departmental investments and priorities, and key drivers to product and service, he was far ahead of many other executives in the room who stared at the sheet of numbers and offered up perceptions that were as impactful as the coffee pot refresh. One attendee chimed, “We have increased shipments year on year. And our customer index is on the rebound.”
So what?! Another reach for the coffee cup, and then someone else got to speak. The clock ticked and the dinner and libations awaited….
The directors on every board, the executives on every leadership team, and the senior managers operating the company should present tactics and opportunities by a scientific, aligned, and thoughtful hunt, like ocean divers sifting away the sand that envelopes a half-buried treasure chest.
Pontificating on past successes, albeit useful as metaphor, better lead to something other than an ostensibly clumsy effort to beat one’s chest. What are the factors and drivers that bring our performance ratios toward our goal. And if we have a performance metric goal, what makes us think we can reach it? By trying harder? Or maybe because the previous executives did it once or twice? Perhaps because our competitors are doing it? Forget that.
If we are to propose impressive feats of delivery and profitability then we better know from where the value is obtained. If we are seeking to cut costs by building fewer bathroom stalls at the new site, or a handful of travel deferments, or a percent or two off the bonus fund, then it’s no wonder we aren’t competitive.
Cost optimization is the net result of painstaking understanding of business processes, resource efficiency and removal of unnecessary bureaucracy. It’s not by a few pennies off the consulting ledger, or a haircut approach to lopping heads.
Clichéd remarks resembling “buy low, sell high” are first cousins to a bored board who are more intent on discussing the restaurant venue and what time they fly home than in guiding the leadership team.
Let’s consider a high touch firm, in a sector that demands a higher investment in customer-facing and intimate support. The development of customer-intimate capabilities is not exempt from the expectations of cost optimization; however, if we’re in a high touch business, then we better understand the means to elevate our customer touch points, especially when we decide to cut certain expenses in our operating model.
It can be done, but it’s by an understanding of how our customer processes operate. How do we maintain a valuable customer interface and empathetic support persona if we are going to curtail certain functions in the company?
These are the discussions and the depth that we executives and directors are expected to engage.
When we use competition as our benchmark, is the deepest observation in the room as empty as this: “Our major competitor is more cost-effective than we are. Told ya we needed to cut costs”?
That’s hardly earth-shattering insight since we can all see that in their public disclosures.
The input factors that go into forecasts must have a taxonomy of action; meaning, what are the means by which we can reduce our cost basis, and all things remaining equal, enhance our profitability?
What are the priority areas?
What is the operating model, geography, brand, partnership style of the competition?
We can find a treasure trove of actionable insight by delving into the specifics of how and why a competitor is ahead.
The CEO and the executives in the room should tout a strategy that can explain and defend investments in those areas where we are not at par.
The corporate strategy is comprised of thousands of contributions that manifest themselves in factors or metrics, representing differentiating performance between your company and the competition. The roll-up might create a balanced scorecard (still a powerful tool), a composite dashboard, a performance indicator set.
Too many board and executive conversations spend less time discussing the major input factors shaping these metrics and whether a specific factor in the set can be moved efficiently, progressed quickly, invested in thoughtfully.
Boldness is the order of the day, and the culture should be one of respect and empathy. Some board members are quiet for fear of saying something perceived as foolish. This is the tragedy of the room. Can we step back and ponder, for a moment, that these folks represent success across a myriad of sectors and capabilities. They have been leaders of companies, advisers of large enterprises, drivers of firm accomplishments. No question is embarrassing. I’ll take rudimentary questions on corporate variation a hundred times over lone utterances that “we must cut costs.” The former seeks understanding and collaboration; the latter might be an accurate assessment but it’s not a search for truth and underlying causation.
Your board of directors sit in their chairs because of their intellectual capacity and their innovation, their pinpoint clarity and sober thoughtfulness. They are divers in the ocean, searching for valuables that were missed by less investigative seamen. The leadership and oversight of executives and directors point the ship toward discovery -- by isolating areas that are problem children and highlighting opportunities that will turn the boat. So focus on the how, when discussing performance improvement.
To lead your ship toward the promised land of sunken treasure and bounty, surface skimming does nothing. Uncover the factors that drive your performance metrics. Determine why some metrics are pulling ahead faster than others.
Identify the inter-dependencies. Thoroughness will win the day because value is found by going deep.