Executive Briefings

Investing to Become 'Fit for Growth'

Analyst Insight: Cost cutting by itself is not fun for most employees and does not inspire them. But getting lean and cost cutting in some areas to make the company "Fit for Growth" is motivational because the goal is to reallocate resources and invest in capabilities that will help the company win. Once supply chain professionals embrace that the purpose of the cost cutting is smarter investment to become more competitive, they will rally around the cause. - Rodger Howell, Principal, PwC's Strategy&; John Plansky, Principal, PwC's Strategy&

Investing to Become 'Fit for Growth'

In today's rigorous and fluid business climate, companies need to transform how they operate, while creating the capacity to invest in growth. We call this becoming Fit for Growth, and it involves articulating a clear cost agenda, continues with the building of lean and resilient processes, systems, operations and organizational structures, and keeps resources flowing to "good" costs and away from "bad."

Among the very best “good” costs are those around differentiating capabilities. Every company requires a unique combination of capabilities to differentiate itself. When your operations teams have clarity on what these are, it’s easier to blueprint, build and scale them across the enterprise. You can more readily spot where disconnects occur or priorities are misaligned. For a given company, there are only a few capabilities that make that company unique. Other capabilities have become industry norms but aren’t differentiators. Some are basic and can be managed for efficiency.

PwC’s 2015 Global Operations Survey of more than 1,200 operations decision-makers across geographies and industries, found some telling patterns among companies that are engaged in capability building. Among the most strategically aligned companies in the survey, about 15 percent of the survey pool, a few characteristics set them apart. First, they’re far more likely than others to focus on building a few differentiating capabilities to drive a competitive advantage (51 percent vs. 29 percent). They’re also more confident they’ll achieve a broad set of performance objectives: achieving revenue and cost targets, driving strategy, providing a distinctive customer experience, and adapting to change. The survey also ranked the top three areas of capability building:

65 percent are building capabilities around measurements (KPIs) and rewards (incentives) tied to overall business performance. To drive performance and execute the business strategy, these companies are working hard to make sure the metrics they choose to follow align with that strategy. They are also motivating the workforce—through accountability and incentives—to make adjustments based on those metrics.

63 percent are building capabilities to eliminate unproductive complexity. The goal here is to better understand where to streamline operations and take costs out of the system, and where to invest to build differentiating capabilities. For example, investing in a distribution network closer to the customer might create more complexity, but it might be a differentiating capability that fits the business strategy.

61 percent are using technology to build capabilities related to value chain collaboration. Investment in planning systems, lifecycle management and supplier connectivity help to speed the flow of information, spot and control for defects, and create a more differentiated customer experience with faster delivery, quicker pull and better packaging.

The Outlook

Going forward, companies need to balance where to streamline and take costs out of the supply chain, and where to invest and build supply chain capabilities; this will enable them to create a differentiated customer experience and competitive advantage. Getting this balance right will require some difficult trade-offs. To win the support of employees, executives will need to communicate that the company is investing to win in the marketplace and not simply cutting costs.

In today's rigorous and fluid business climate, companies need to transform how they operate, while creating the capacity to invest in growth. We call this becoming Fit for Growth, and it involves articulating a clear cost agenda, continues with the building of lean and resilient processes, systems, operations and organizational structures, and keeps resources flowing to "good" costs and away from "bad."

Among the very best “good” costs are those around differentiating capabilities. Every company requires a unique combination of capabilities to differentiate itself. When your operations teams have clarity on what these are, it’s easier to blueprint, build and scale them across the enterprise. You can more readily spot where disconnects occur or priorities are misaligned. For a given company, there are only a few capabilities that make that company unique. Other capabilities have become industry norms but aren’t differentiators. Some are basic and can be managed for efficiency.

PwC’s 2015 Global Operations Survey of more than 1,200 operations decision-makers across geographies and industries, found some telling patterns among companies that are engaged in capability building. Among the most strategically aligned companies in the survey, about 15 percent of the survey pool, a few characteristics set them apart. First, they’re far more likely than others to focus on building a few differentiating capabilities to drive a competitive advantage (51 percent vs. 29 percent). They’re also more confident they’ll achieve a broad set of performance objectives: achieving revenue and cost targets, driving strategy, providing a distinctive customer experience, and adapting to change. The survey also ranked the top three areas of capability building:

65 percent are building capabilities around measurements (KPIs) and rewards (incentives) tied to overall business performance. To drive performance and execute the business strategy, these companies are working hard to make sure the metrics they choose to follow align with that strategy. They are also motivating the workforce—through accountability and incentives—to make adjustments based on those metrics.

63 percent are building capabilities to eliminate unproductive complexity. The goal here is to better understand where to streamline operations and take costs out of the system, and where to invest to build differentiating capabilities. For example, investing in a distribution network closer to the customer might create more complexity, but it might be a differentiating capability that fits the business strategy.

61 percent are using technology to build capabilities related to value chain collaboration. Investment in planning systems, lifecycle management and supplier connectivity help to speed the flow of information, spot and control for defects, and create a more differentiated customer experience with faster delivery, quicker pull and better packaging.

The Outlook

Going forward, companies need to balance where to streamline and take costs out of the supply chain, and where to invest and build supply chain capabilities; this will enable them to create a differentiated customer experience and competitive advantage. Getting this balance right will require some difficult trade-offs. To win the support of employees, executives will need to communicate that the company is investing to win in the marketplace and not simply cutting costs.

Investing to Become 'Fit for Growth'