Time to invest or decrease costs?

The economy operates in a cyclical manner, which includes expansion, peak, contraction, and trough stages. These cycles can vary in magnitude and duration, but generally follow a consistent pattern. Economic indicators such as inflation charts, layoff announcements, and contraction indicators flood newspapers during times of contraction. The field of economics is a complex, multivariable equation that requires consideration of various factors such as pandemic and post-pandemic stimulus, interest rates, supply chain crises, and even war.

In our daily jobs, we can observe the direct effects of these economic cycles as companies seek to reduce costs to improve operating margins and become leaner. At the same time, they must also search for new revenue streams to drive growth or offset losses they may be experiencing.

The engine of the markets is driven by growth, which is why funds tend to follow this trend. Companies that demonstrate consistent growth tend to have easier access to funds compared to those with stagnant or declining growth (although there may be several factors that contribute to this, which should be carefully analysed).

However, achieving corporate growth does not happen suddenly or by chance. It requires a thoughtful strategy that supports the necessary efforts, which in turn requires investment.

Market value (stock price) is directly tied to growth, in addition to other metrics. However, as we witnessed during the .com crash in 2000, companies can be overvalued, and hyper-growth does not always equate to profitability. This is especially true in the Software as a Service (SaaS) model, where companies focus on growth and pivot later into profitability. Many companies across various sectors are attempting to replicate the subscription business model due to its predictable, recurring revenue streams.

However, for this to be successful, customer retention is crucial. Let’s illustrate this with an example:? In warm locations, people seek to cool down by swimming in a pool. Before enjoying this refreshing activity, the pool must be filled with water. Everyone can enjoy the water, but there is work to consider: maintenance. The water can evaporate due to high temperatures, but it may also be lost due to leaks. This analogy highlights the need to optimise profitability in a company. On one hand, companies must continue to grow by acquiring new customers, but they should not overlook the importance of providing value to existing customers. This is particularly essential in a subscription business, as customer retention is the key driver of recurring revenue. Therefore the balance between repairing leakages and filling the pull, or look after retention and getting new customers.

Nowadays, company leaders face the challenge of balancing the need for growth with the imperative to improve profitability. While cost reduction is one possible strategy to achieve this, investment in key areas may also be necessary to achieve long-term goals. Therefore, it's not a matter of choosing one approach over the other, but rather finding a balance between the two. On the one hand, we should prioritise goals (it might happen that we have to do more with less), so automation and streamline will support this cost reduction part. The customer experience is more important than ever, not only will help to get these new brand new customers (that will lead to growth goals), but also will make reduce customer attrition (improving recurrent revenue rates and improve profitability)?

The term "customer experience" is often misused, similar to other buzzwords like "digital transformation" and "innovation". However, if executed properly, it can yield significant benefits. Companies are no longer just competing with those in their geographical proximity or sector. The competition is now broad and expectations are set by organisations in different sectors, many of which have set high standards for customer experience. Therefore, it is essential for companies to prioritise and invest in delivering exceptional customer experiences to remain competitive.

So, if there is one area of focus that can help to achieve top line goals and where organisations should invest is Customer experience. It’s true that the scope is very broad, that on the other hand is the beauty of it. Although there are different definitions (HBR 2007 article ) of what customer experience (CX) is, I’d rather focus on what it’s important and provide some insights.

Customers and employees are the two biggest assets that any company has. For that reason, it is crucial to prioritise the customer and employee experience (CX and EX) to achieve top and bottom line benefits. Although there are differences between CX and EX, I believe that EX should be included as part of the CX strategy, speaking in broad terms.

A company is essentially a group of people working towards a common goal, or should be. Hence, when we interact with a company, we are essentially interacting with people, either directly or through various channels. However, with the need to reduce costs and provide personalisation at scale, many companies have resorted to automation. As a result, we often receive generic emails that lack personalisation. We interact with machines, not human beings (chatbots, emails, websites,..)

It is important to strike a balance between personal touch and automation to avoid disconnecting with customers. While automation can improve efficiency, it is crucial to ensure that it does not come at the expense of personalised interactions. By prioritising CX and EX and finding the right balance between automation and personalisation, companies can build stronger relationships with their customers and employees

Often, we tend to dive straight into technical discussions surrounding platforms, solutions, integrations, and, more recently, generative AI. However, it is crucial to understand the problem we are trying to solve before applying technology to serve the defined purpose. While automation can help reduce costs, scale fast, and reduce timelines, it should not create distance between the company and its customers.

If we fail to prioritise meaningful engagement with our customers, we may attract new customers, but they are unlikely to stay with us in the long run if there is no further perceived value for them or experience is not as promised. Therefore, it is essential to strike a balance between technology and strategy, with both working towards the same goal.

In essence, we need to avoid getting caught solely in the deep discussions about latest technologies and trends without focus and alignment? on the core issues we are trying to solve. By doing so, we can ensure that our technology and strategy are in alignment and that we can create meaningful engagement with our customers while leveraging the available technology to improve our business.

Because of the corporate mandate, we should look into how to bring growth, and reduce cost, while speeding up customer value realisation. Business goals are clear, and there are different strategies and approaches. Available technology will help in all these cases, albeit, it’s critical to choose the correct one. Generative IA is top of mind for everyone probably, as it delivers the wow effect. Is it the correct technology we should choose? Are we, as an organisation, ready for it??

Let’s consider content creation. It’s an area where organisations spend a lot of resources, money and time. If we are able to reduce the time we spend, the quality/relevance of the material and we do it at a reduced cost, we have what we aimed for. Generative AI provides us this capability to create content (image, text or multi-modal), so for sure it’s something to explore. We should review roles, processes (especially compliance if we operate in a regulated market) and think in an end-to-end scenario (how we put the new generative AI tools to work in our current environment, legal/ethical implications due model bias,..). This area is in a rapid development pace, more than expected. Last week a new breathtaking tool was released, AutoGPT. This is the next phase within the LLM (large language models), using those as foundation, adding additional layers that make GPT3.5 or GPT4 acting as Agents, that can solve complex problems, breaking into simpler tasks. Lots to unpack and test on this area (link to the paper), and lots of use cases to consider. We know that those large models from OpenAI are trained with datasets until sept 2021, as an example of one of the limitations. However, with this new “agent” approach, and thanks to the add-ons, google search is possible, opening new opportunities.?

These are very good examples of using technology to reduce costs, but requires some investment too (new tools, up-skilling teams,..). The recommendation usually is, start with a pilot, test it and scale it fast. If we are successful we can think in new use cases. Should we use the same technology to achieve the rest of the goals? We might, but there are plenty of options. We shouldn’t be blind by the new shiny object and put all our bets on it. It’s a matter to understand what are the capabilities we need and how we can build them the best. Generated content requires different capabilities, than? for example the capability to predict customer churn (what I mentioned before will bring us an optimisation on recurrent revenue and therefore bigger profitability) . Predictive models are very effective in certain scenarios, fundamentally all depends on what data we have, how reliable is this data and external factors (i.e Sport predictions are not reliable due the big amount of external factors even though we’d have huge amounts of historic data and robust models) . Prediction models are not generative AI, but can are under Machine learning models.?

Clustering, another type of machine learning? model, can help us to achieve growth. We can create an ideal customer profile, and create look-a-like audiences (for further advertisement) or identify customers most likely to buy certain types of products or better engagements based on their profile. A different model than generative AI is the anomaly detection (Isolation forecast, SVM or even ANNs) that will help to reduce cost.

Modern technology is built with a composable mindset. Systems and platforms don’t live in isolation, we need them to work together, and this means interoperability capabilities (integration platforms, layers, ...) . Modern stack is based on this principle, that platforms can talk to each other thanks to the open APIs (applications programming interfaces). However the majority of companies have a legacy, and their enterprise systems might not be prepared for this. Nor to be architected around micro-services (smaller working independent units, that can be replaced/fixed, improving time-to-market, business-continuity and decreasing costs). This transition will take some time, budget and resources, but will be critical to maximise the use of data. And one of the big impacts of having platforms interconnected is the need to have a solid data strategy (there are not anymore systems working in silos with their own data, but sharing and exchanging info, connecting the organisation in terms of technology, processes, data and people).

There is a lot to unpack, to evaluate and to align on. Technology is more important than ever, but it should be an enabler for the business, so having a clear vision on what we want to do and why, will ease the definition of “the how”.

Getting back to the original question, should we reduce costs or is it time to invest? Based on my thought, I think it’s definitely time to invest wisely to build new capabilities that will bring us the desired growth and reduce costs making operations more efficient. If you want different results, do not do the same things (Albert Einstein)