Expense-Side Strategies for Competitive Advantage and Long-Term Growth

On April 4th, New York City Mayor Adams announced 4% budget cuts to be applied to all city departments in the face of declining tax revenues and a weakening economy. Now this is a governmental body with political needs and risks, so a 4% reduction evens the pain across all of the departments, but is it a strategic way to reduce expenses?

Having helped many clients and brands, governmental bodies, and non-profits through both good economic times and downturns, we have seen, and participated in, expense reduction strategies that lessen the pain in the short term. However, we recommend to our clients, that when going through this process, they should take a more holistic, strategic approach that ensures the longer-term resiliency and success of the organization. As a brand marketing agency, we keep clients focused on brand-value protection and enhancement in every decision. Short-sighted decisions could risk compromising the brand, losing customers’ trust, and opening the door to competition. Following are three high-level strategies to guide your decision-making.

Know where your business produces the most brand value and profit creation. Amazon just announced a second round of cuts to its workforce and business units. The first round of cuts focused on low or no-profit areas of its business. The second round is now hitting profitable business units. Amazon is strategically assessing how to implement those cost reductions. Amazon is also delaying more discretionary investments, like the construction of their new headquarters, in order to protect their core brand value and profit creation in key business lines.

Lesson: All organizations should consider a similar strategic approach. Know where your brand value and profits are coming from today, which are trending upward, and which promise the most long-term, competitive value. Prioritize and act accordingly.

During economic expansions, organizations tend to invest in organizational development and spread investments across a number of business units and departments. Investments have grown rapidly in areas like technology, compliance and security. These investments were all well-intentioned. But, are they being measured accurately for contributions to productivity in each area? In the McKinsey podcast, Preparing for and Managing Through a Downturn, Senior Partner Sven Smit reminds us that you want to keep improving productivity and invest against it to produce the same outcomes with less effort.

Lesson: Make sure your team gets a thorough handle on the productivity contributions of all business units and underlying technologies. Look for redundancies in technology investments and find which ones have the greatest potential to improve staff usage and productivity. Eliminate the losers and renegotiate existing contracts with the best productivity-enhancing tools to achieve additional costs savings over time.

In times of economic expansion, middle management layers in the core business lines tend to expand. Corporate support staff that serve the business units also tend to expand. Unfortunately, there is a perception that cutting customer-facing and support staff is easy and reversable after the economy improves. Higher-salaried, mid-level managers have bosses that will protect them to the end. But this tendency to undervalue and under-support customer-facing staff is disastrous. A 2022 Harvard Business Review Study examined the impact of customer-facing staff and established a clear and substantial link between customer-facing employees with increased revenue and profits.

Lesson: Make sure your customer-facing employees are trained, equipped and supported so they can be the best brand ambassadors for your customers. A customer-facing employee directly impacts customers’ perception of the brand, both positively and negatively. Make sure you are equipping customer-facing staff who can help customers make better decisions, facilitate transactions, or solve problems.

As pointed out by a 2019 Boston Consulting Group Study, the stakes are high in downturns. In one study, 14% of companies improved their growth and margin in downturns while 44% declined in both. They then recommended ten strategies for taking advantage of a downturn. We recommend that you take a proactive, strategic approach in any economic environment. But make sure you know where your brand value is and protect it and nurture it for long-term competitive advantage.

Gain a competitive edge with our Recession or No Recession series.

In our next Insight Tuesday, my partner Kevin D. Kuchinski, will Examine Revenue-Enhancing Strategies for Competitive Advantage and Long-Term Growth.
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