How to Transform on a shrinking budget?

Shrinking budgets - The ripple effects of the pandemic

This year has certainly turned into an awakening for a lot of companies. The pandemic has made many executives realize how fragile their businesses are, how little resiliency they have when cut off from customers. Companies that didn't have a solid digital foundation have suffered much more than others, and some companies build around digital business models have actually managed to thrive despite the pandemic.

There is now a much stronger acceptance than 12 months ago that you cannot continue business as usual, that you need to transform! But globally the economy has been badly hit, and many businesses are already now running bare bones.

While some hope the economy will rebound in 2021, I seriously doubt that budget will remain the same. When there is uncertainty in revenues, the first thing you do is typically to cut your costs, and that means shrinking budgets for 2021!

Key Changes in Mindset

Despite the shrinking budgets, I believe that now executives have deeper understanding that change is needed, and that they need to take action, they are ready to change their mindset. It important to be aware of the limited resources and maybe the limited capabilities that companies have right now. So the first mindset change need to be the following:

"We don't have budget for this, but I will make sure we find it!"

In the startup world we would talk about the hustling mindset, and that is a definitely a mindset change needed in corporates and smaller businesses. You could say this is about intra-preneurship, but I prefer to stay away from that word.

Securing budget is not everything though. You need to make sure that the money is not wasted, but how can you do that when we live in such uncertain times? Investing in innovation might sound like a risky and lengthy process with very uncertain outcomes... Another mindset change is needed:

"Embrace lean startup principles, learn through experimentation and apply agile development to speed up the innovation process"

The good thing with applying lean startup principles, is that you constantly seek validation. Whether it is about the problem, the solution or the business model, all our views tend to the be flawed because our positive bias toward the hypotheses we used to come up with a solution and a business model. The biggest challenge startups face (and corporates struggle to admit) is that they develop solutions far too early without fully understanding the problem they are trying to solve. The earlier you focus on experimentation and validation, the earlier you can understand how to best spend your money. Applying a lean startup mindset can help de-risk most of your innovation projects.

Last but not least executives need to rethink the way they invest in these new opportunities. Forgot about business cases! Business cases only work when you fully understand and control all the parameters of your business case. This is certainly not the case when looking at innovation! Most of your initial assumptions for a business case are built on hypotheses... and most of these are probably wrong.

"Executives need to think like startup investors. The money they invest needs to be based on the maturity of the startup and the outcomes they can achieve at that stage"

Thinking like a startup investor forces you to look at innovations from a new perspective. Typically, investors look at key ingredients for success: the market opportunity, the team and the traction. In early stages they look at lead indicators that are all related to growth potential, to growth multiples, long before the startup is able to generate any revenues. In a corporate language this could be translated to capabilities, business opportunity and market validation. Looking at these dimensions early on seriously de-risks the investment.

How can you free up money for your transformation?

To get buy-in from management, and since budgets are shrinking, it important to show how you can get started without additional or with only little external cash injections, that means showing where you can save money first! Get agreement that a share of the savings will be reinvested in innovation and transformation.

Start with Operations and Processes

Performing a quick audit of your businesses operations and your processes will typically allow you to uncover inefficiencies and wasted money. Money wastage should be a quick win for you and some of the fixes are not even complicated. When it comes to processes, there might be opportunities for automation that could achieve major cost savings. Doing a few pilots projects on key process where you implement RPA (Robotic Process Automation) could allow you to achieve savings in a short period of time and could allow you to rapidly free-up capital. These pilots could also be used to have your first success stories on digital transformation.

Review and renegotiate contracts, supplier agreements

Areas that are sometimes overlooked are contracts and outdated agreements, which means that you might not optimize your costs of you might even be paying above market rate for some of these services. Reviewing your supply chains, having a performance driven procurement and a legal team that optimizes contracts, could all work in your favor to achieve major cost savings that could be ear-marked for innovation and digital transformation.

Review partnership business models

Moving from CAPEX investment models to alternative business models (like revenue share), can help reduce some of your spendings.

Over-dimensioned - IT Software License Pools

It is known that corporates buy software licenses in larger pools to get better discounts, and that is fine when you are growing but you can easily end-up paying far more than what you are actually using. Cancelling any unused subscriptions is a critical clean-up activity to do that could again be used an re-invested in innovation.

Outsource non-core functions

A big part of the operational costs of a company are related to payroll. Some business functions might not be core to your business and could be outsourced to specialists at a fraction of the cost. Moving to on-demand workforce, and as-a-service business model can help in building a more agile organization, but can also help in reducing costs.

Take control of core functions

Large companies have a tendency to rely too much on external consultants especially for strategic initiatives, often failing to develop in-house capabilities to take over the project and creating a further dependency toward expensive consulting firms. Focusing more on coaching and knowledge transfer can help reduce capability gaps while keeping running costs in control.

Anchoring early success - Driving culture change

As you manage to get the initial support and as you manage to free up funds to drive digital transformation and innovation, it is equally important that the first initiatives you invest in are successful. This is important in order to drive a positive cultural change in the company, and make sure the stakeholders stay on board.

Typically when identifying your innovation portfolio you want to make sure that you identify possible quick wins that could help you rally more people around the transformation. Quicks wins are areas where you can have rapid impact, where you have the skills and capabilities to rapidly implement a solution that drive results in the near term. One such example could be around process and process automation.

In the long run you want to get enough support so that you can start tackling the real objective of the transformation and that is an innovation and even possible disruption in your current business model.

Innovation as a Fuel for continuous transformation

More and more transformation projects are expected to execute on almost flat budgets. How can you do that? The only way to achieve that is by rapidly developing new revenues or by continuously optimizing existing operations and freeing up more money for innovation. In either case you can consider that it is the initial phases of the transformation itself that have to fuel the future phases of the transformation.

Do you manage to get the needed support to transform? Do you get the funding you need? Do you want to learn more?

Let's have an introduction and we can tell you more about how we can help your business! email us at [email protected]