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2014 the year of working the profit and loss harder

Proxima
Dec 10, 2013 7:56:00 AM

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Working the profit and loss harder

CFO.com recently published an article around the Eight Top Issues for CFOs in 2014*. The number one consideration was to ‘avoid choking off revenue growth’ or put another way, focus on growth oriented cost management.

The article commented: “Corporate profit margins are close to a 50-year high. Rigorous cost management and a disciplined drive for operational efficiencies helped fuel that profitability. But even as CFOs continue to drive the next iteration of cost take-out, to maximize revenue growth they also need to keep strategic reinvestment in the business on the table.

This is great news for those tasked with managing cost – all the hard work driving down costs, eliminating waste and optimizing budgets has paid off. But with the focus moving from cost reduction to business expansion, how equipped are you to deal with the shift from savings targets to growth targets?

A new report from global business analyst and advisory firm HfS Research (HfS), advises that the constant focus on cost-cutting over recent years, has created an obsession for savings amongst senior executives.  Like drug addicts in the throes of addiction, the only thing that some senior executives seem to want is more and more savings; and they don’t care about where they get them from, or the damage they cause.

HfS_Research
Access the HfS report here


Recessions are good times for business leaders who love to focus on containing costs. Saving money is the name of the game, and executives who achieve this for their organizations become heroes. 

However, times of recovery are markedly different. The onus shifts from cost to value; from defense to attack; from conservative to bold; from tactical to strategic; from efficiency to innovation.  The HfS report advises that business leaders who are obsessed with savings will fail to ride the wave of recovery unless they look beyond rudimentary cost cutting initiatives, and towards new operating models that prioritize value over costs. The report follows-on from Proxima’s research into the trend of Corporate Virtualization – a study investigating how over the last 25 years companies have relied more and more on third party suppliers to operate.  The study shows how it’s a trend that has continued even during the last three years, seemingly unbeknownst to many CEOs and business leaders.

Ultimately, the HfS report validates the need for better management of these third party suppliers and greater buy-in from senior executives around this topic, advising that business leaders need to adjust their perceptions of procurement, moving their ‘lazer-like’ focus from cost savings to instead focus on value for money and collaborative thinking.

Furthermore, the report underscores the need for procurement to behave less “like robots” and think more strategically about value and business objectives, going so far as to outline the measures needed to transform procurement.

The report’s implications are short and simple:

  1. If business is to grow margin and hence profits this will come from improved supplier and employee productivity – both of which are driven directly and indirectly by suppliers in the modern day and age. 
     
  2. It will happen in a very different operating environment where there is less focus on, and potentially support for, cost reduction.  The lid has been on for a while but when the pressure comes off there remains a risk of old habits resurrecting.

The profit and loss account can be worked harder.

The answer is to think more deeply about the benefits of what is being bought rather than how much is bought - in other words how the profit and loss account can be worked harder – and raise our collective game in terms of influencing. 

This is a less favorable time for process, and a better one for engagement and imagination as businesses grapple with the realities of Corporate Virtualization.

We hope you enjoy the HfS Report – please do add your comments or thoughts below.

*CFO.com: Eight Top Issues for CFOs in 2014 
Download Proxima's corporate virtualization research

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