As The Strategy Guy, I believe that successful businesses in the coming months and years will be the ones that play the percentages and are ready for a marathon.
Today, I want to share three ideas around costs.
More than ever, business owners need to adopt Activity Based Costing (ABC). ABC ensures alignment between our cost base and our value-driven activities. ABC requires us to apportion percentages of our fixed and variable costs to the value-adding aspects of our business that incur them.
Using ABC means some parts of your business may die and other parts will thrive. Ongoing payment for resources, subscriptions, services and supplies must be justified. Costs are incurred for value-driven activities. Costs are switched off when they no longer add to the bottom line.
2. War Chests
It’s never too late to start creating a War Chest for your business. If this pandemic becomes protracted, many bets will be off and cash will be king.
3. R&D Investment
If you can, avoid reducing the percentage of your earnings invested in R&D and innovation.
A marathon runner always drinks and eats a little during a race.
The most profitable businesses in the world invest 10% to 20% of their earnings in R&D. During times of reduced earnings, keep these percentages alive or allocate a higher % to R&D. And of course, make sure you manage this investment well.
Stay tuned for more on marathons and percentages from me next week. I will be sharing more on managing the mix of people, cash and innovation plus covering the critical topic of decision making in times of uncertainty.
About BLOG Author | John Hale – Strategic Futurist Speaker
John Hale is the founder of Hale Consulting Group and author of The Strategy Book. John has worked as an early stage investor and advisor for over twenty-years. He has worked with leaders from Fortune 500 and mid-sized companies to start-ups and public sector organisations. John has been a Visiting and Adjunct Professor teaching strategy, entrepreneurship, project management and ethics at various institutions including Singapore Management University, Bond University and Melbourne Business School.
John’s popular conference talks include:
Future-Proof – Create a strategic mindset
Future Customer – Shift loyalty to your brand
Future Culture – Nurture workforce talent
Digital Futures – Grow digital wings
If you feel it may be time change your strategic approach, contact me at email@example.com, to schedule a free thirty-minute phone call, to help map out your next steps.