You may have heard of the term zero-based budgeting. The basic thesis is to look at your business through the eyes of a start up. If you were starting today from scratch, what would you spend money on? Costs creep on over time and before you know it your business is totally misaligned. Costs and sales are out of step. This is a moment in time where you have to stand back and say I’m changing our approach. I’m making this a 5% or a 10% or a 15% net profit to sales business. I know I can sell say $10m this year. I know I can make 60% gross margin of $6m on that sales figure and therefore to make 10% net of $1m, I can only AFFORD $5m of overheads. That moment of conviction changes everything. It drives you to find cost savings everywhere. It acts like a catalyst to drive a root and branch review of all costs. It demands you ask the question, if I was starting this business tomorrow from scratch what could I do without? This does not necessarily mean cutting heads but it will definitely mean cutting costs that do very little to facilitate sales.
Zero –based Roles
But let’s take this thinking into the organizational structure of your business. When was the last time you reviewed the skillsets of your staff relative to what is needed to execute next year’s plan? It’s not just costs that creep on over time. It’s also familiarity. The loyal servant dilemma. Great people, but the skills needed in for example, digital marketing, has dramatically changed. You have say 25, 35, 105 members of staff, all with different roles and different seniority that have been recruited over say 10 years. Each hire in isolation made sense at the time. However markets, customer needs and competitive positioning can change overnight. The connected world we live in today is more complex than ever. Technology allows all the players on the field to succeed not just the big guys. In fact often we treat the big guys as the favorite when in fact it’s the small guy with the better weapon, skill, technology, drive! (Please read Malcolm Gladwell’s latest book David and Goliath.)
But to grasp success in this new world requires a constant recalibration of the roles your company needs to execute and the roles that have become redundant. It’s really tough for a CEO to take a dispassionate view of his or her team and reconcile that with the execution team that is required for success. It’s not about letting people go. It’s more about matching the team with the new requirements. It’s about working smarter not harder. You need to consider moving people, transforming their roles, re-training them. You need to consider innovative solutions to missing roles. e.g. outsourcing instead of hiring, or new part-time roles instead of full time roles, or partnerships. The big boys do it all the time – Salesforce just announced a “breakthrough” in cloud computing–a pact to jointly develop what they called the Salesforce H-P Superpod.
More than ever you need to look at your gang of people as a resource, to achieve clearly defined strategic goals. The narrower the goals the better. Of course it’s easier just to trade, to turn the handle, to turn up each day and try your best. The mental energy required to adopt zero-based roles, to revisit every role in the company and ask some key questions, is significant. But unless you take on that challenge, you will never unlock the full potential of your team.
I’m currently scaling three businesses as their COO: Edge Velocity, HR Knowledge and ADMET. Drop me a line with your thoughts at email@example.com