Setting up your business for growth.

Written by Niti Grover, Business Transformation Manager specialised in commercial acceleration.

Picture this: You’ve just been appointed CEO of an established company. Amazing, congratulations! But this new opportunity comes with a hefty challenge: the board wants you to improve their EBIT by a certain percentage and they want it now. This might seem like an unreasonable request but just like a person needs oxygen to breathe, your company needs positive cash flow to thrive. The fact is right now, the numbers are bleeding red.

Your first instinct might be to grab the cost-cutting knife and start slashing. But wait! Knee-jerk reactions can drive insecurity within the organisation, foster resistance to change, and ultimately, lead your efforts to crumble.

On the flip side, you can’t ignore the financial reality: the company has been borrowing for years to cover expenses. At some point, the banks will say no to more loans, and shareholders will stop investing, putting you at serious risk of running out of money. So, yes, cuts are necessary, but first, let’s understand the root cause of the problem.

Step 1: Understanding the financial health status of the organisation 

Before anything else, you need to gain a good understanding of what is driving the negative profitability. If your business is not doing well financially, there are three ways to find out WHY: 

• First, sit down with your CFO to pinpoint the problem: Is our top line not growing, or are our costs spiralling out of control? If it’s a revenue issue, it might be due to market saturation, poor sales performance, or weak marketing strategies. However, if your revenue is growing but costs are rising even faster, it could indicate inefficiencies in your operations or other areas of the business.
• Dig into the details: analyse revenue streams to understand which products or services are performing well and which are falling behind. Take a look at market trends and competitor performances to see if the issue is internal or whether perhaps the entire industry is facing challenges.
• Break down the expenses by category—labor, materials, overheads, and so on. Identify areas with significant high costs and find out the reasons behind them. This specific understanding will provide you with a clearer picture of the financial health of your organisation.

However, even with all this information, you will still not have the full picture…

Step 2: Avoid becoming the soccer ball

So, exactly where lies the culprit? To find the answer, new CEOs tend to visit the heads of departments and ask them about the status quo. But this is like looking for a needle in a haystack. It is human nature to overestimate our own contributions and underestimate those of others. Thus, the blaming party begins: 

Sales director: “Marketing is positioning our products poorly; of course, no one wants to buy it.”
Marketing director: “The competitors products are far more compelling with much more features and functionalities.”
R&D: “Sales fails to understand the benefits of our product and properly convey them to the customers.”

This finger-pointing exercise only creates confusion, making you, the CEO, feel like a soccer ball being kicked around without ever reaching the goal.

Instead, it’s time to go to Gemba!

Visit the point of impact: tag along your salespeople or listen in on customer complaint calls. Additionally, why not review all the customer complaints logs over the last months?

By immersing yourself in the daily operations in such a way, you gain valuable insights and can identify the root cause more effectively: You might discover that customer complaints stem from shipping delays, instead of product defects – or perhaps that salespeople need better training.

Observe first-hand, and you’ll get closer to that needle in the haystack.

Step 3: Validate with data

Don’t worry, there’s no need to spend hours talking to thousands of customers and employees. After sensing the issues from the ground, the next step is to use data to back up your observations. Here’s how:

• Collect data from various sources, such as sales reports, customer feedback, financial statements, and market research. 
• And analyse the data to identify patterns and correlations. For example, if you notice that the regions with the highest sales discounts also have the lowest profit margins, it could mean they rely too heavily on discounts to drive sales. 

This process won’t just help you to understand the root cause of the problem, but also provides evidence to support your decisions when presenting them to your team and stakeholders!

Step 4: Craft a strategic plan

Now it’s time to collect all your findings and craft a strategic plan: Where exactly will you cut costs, and where will you invest money and time instead? This might involve restructuring certain teams, facilitating training for underperforming departments, or upgrading outdated systems. Here are a few examples of what this two-way street may entail: 

Examples of Cutting Costs

On one hand, identify areas where costs can be reduced. Depending on your data, think of renegotiating supplier contracts for better prices, optimising processes by implementing an ERP system, or, in the worst-case scenario, letting go of people who haven’t been contributing to the growth of your organisation. All the while, ensure that your cost-cutting measures do not compromise quality or customer satisfaction. 

Examples of Investments

On the other hand, identify areas that need investment to drive growth. This could include investments in new solutions to create stickiness with your clients, enhance customer experience to reduce the churn rate or investing in technology to increase productivity of your teams. Prioritise investments that offer a clear return on investment and align with your long-term strategic goals. 

These steps won’t be easy! You will have tough conversations and need to do a lot of convincing. However, with the preparation and research already done, you can be confident that – while making necessary cuts – you are also investing in areas that will drive future growth. 

Step 5: Executing the plan

Whatever your decision may be, it will require some changes. Now the question is: is your organisation ready for change? 

This is where the Six Batteries of Change methodology from LQ comes into play. With this framework, you assess your organisation’s readiness (batteries) across various domains before executing the change plans, such as a clear strategic direction, an infrastructure that supports effective project execution and a healthy culture.

The premise is simple: Are all your ‘batteries’ green – fully charged? Great! Research shows that 95% of transformations that start with a battery scan and sufficiently charged batteries succeed. In the case of red or orange batteries, this simply means foundational work needs to happen before you can successfully execute such a business transformation. 

If this all seems overwhelming, don’t worry…

Ready to take the next step? 

At LQ, we understand that transforming your business isn’t a walk in the park. We’re here to help you navigate these challenging waters. What’s more: Our goal isn’t just steady growth; partnering with us means setting your sights on exponential growth.

Once we’ve charged all your batteries and you find your business fully out of the danger zone, it’s time to accelerate your transformation with our Go for Growth program. This initiative is designed to push your company to new heights by finding optimal growth pathways in a consistent and sustainable way.