09 July 2020

Creating a more efficient recovery

Feeling the initial impact of COVID-19, businesses may have focused on cutting back to find efficiencies. However, as we move to recovery, how do you ensure efficiency doesn’t come at the cost of your ability to move forward?

“Being more efficient isn’t simply about cutting costs,” says Gareth Anderson, Area Director, HSBC UK, “although many people see that as an obvious solution. If you just focus on cost cutting, you risk losing sight of what’s important. The trick is to find a balance between creating a lean operation, but not one that’s so lean that it can’t cope with disruption or has no capacity to grow.”

Crises encourage, or in some cases force, us to consider the way we do business and how we operate, as survival becomes the overriding concern. Carrying out a rapid review of the different aspects of your business can help identify unnecessary waste and maximise efficiency and it may have led to a number of changes.

Whilst cost-cutting is absolutely an important measure for many businesses to consider, the way to create efficiencies within an organisation is to make sure that it goes hand in hand with investment.

Blending short and long-term efficiency

Some of those changes might have been short-term, for example, reducing fixed costs by negotiating a rent payment holiday, or taking advantage of the Government’s job retention scheme to furlough staff. However, how you approach efficiency in the longer term, can be the difference between creating a leaner, more sustainable business or one that continues to survive not thrive.

“Whilst cost-cutting is absolutely an important measure for many businesses to consider, the way to create efficiencies within an organisation is to make sure that it goes hand in hand with investment,” says Gareth. “Consider the way you invest in digitisation, in your people, in adding value to your supply chain, which can create efficiencies but still enable you to respond to changing circumstances.”

There are three areas Gareth identifies that this can be applied to.

1. Operational efficiency. Thinking about your operations and whether they have the flexibility to respond to changing circumstances and meet shifting demand patterns as we move to recovery has become increasingly important. “Changing fixed to variable costs can be a sensible option, as can reassessing whether your variable costs are generating returns,” says Gareth. “But that needs to go alongside investing in creating efficiencies, otherwise you will create a perception of efficiency, but hamper your ability to grow.”

There are some potential growth opportunities through digitisation and automation, explains Gareth, that don’t have to be costly. “Even moving operations to the cloud can have a big impact on your IT infrastructure and technological capability.” Reviewing your sales model can also help lock in efficiencies. Perhaps you shifted sales online and it proved a viable option. With customer confidence in physical stores unpredictable, maintaining an online channel could be sensible. You may even want to assess whether the overheads of maintaining a physical presence are worthwhile.

2. Financial efficiency. Effective management of your working capital will have been particularly important to see your business through the crisis. However, that doesn’t mean paring it back hard, as Gareth points out. “One of the big challenges as we move to recovery is businesses who have cut their working capital to the bare minimum and now find they have no spare capacity to flex to seize opportunities.”

It’s also worth looking at the financial performance of products and services and managing your cash to ensure you’re optimising returns. Considering new revenue streams and reducing waste can also be useful. Automating processes is one way of reducing waste, simply because machines make fewer errors than people.

You could also look at ways of forecasting demand more effectively (although that can be difficult in uncertain times) and review your supply chain responsiveness.

Another option is to turn your waste into a revenue stream. UK-based coffee supplier, Red Cup, for example, had to pay for its spent grounds to be taken to landfill and was also concerned about the sustainability impact of its waste. After researching the possibilities, they decided to turn them into a compost base, which was then sold through garden centres, turning a cost into income.

3. People efficiency. Thinking about the skills you already possess within your organisation and how to utilise these as well as investing in the skills of your people to help boost their adaptability, can enable you to operate more efficiently and manage capacity in a more agile way. “Those businesses with a more adaptable workforce have been able to flex their response to the crisis and now to the opportunities and challenges of recovery,” says Gareth. “Being able to reskill and redeploy people offers you a more efficient pool of labour to manage uncertainty.”

The message is that businesses should be looking to invest in efficiency, not just make cuts. That will give them the scope to be innovative and creative as they move from crisis to recovery.

The businesses that will emerge stronger from the crisis and are able to maximise opportunities are those that can find that trade-off between being lean and agile. “The message is that businesses should be looking to invest in efficiency, not just make cuts,” says Gareth. “That will give them the scope to be innovative and creative as they move from crisis to recovery.”

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