Last week I talked about ways to generate increased cash flow by focusing on “quick wins.” You would be surprised how much value I helped some very large companies create based on those simple concepts. Here we’ll dive deeper into the details of the Respond phase.
Two objectives for accumulating cash are to maintain and/or enable our businesses in the Response phase, and to deploy capabilities for growth and profitability in Regenerate. In the Respond phase many companies are reducing investment in Growth but will resume once they enter the Regenerate phase (how to grow might look different.) Before diving into more detail let’s recap the objective of each phase:
React: exit from crisis mode; create a plan for moving forward
Respond: fund investment; update the plan for moving forward
Regenerate: (re)deploy your organization’s capabilities focused on growth and profitability (e.g. play offense)
“Must Haves” and Innovation
While cutting out low value-added expenses may be a “quick win” this year; innovation within your operating model could result in significant value creation every year. Must-have value propositions are often related to differentiating capabilities, the things that uniquely define you within your market. Customer engagement, product management and marketing are differentiating capabilities for most companies; maintenance is not (unless you are a maintenance company.) That doesn’t mean maintenance is not important – it is. It does not often differentiate you in the eyes of your customers. These differentiating capabilities are often the target for investment in innovation. There are 3 must-have value propositions:
Dramatically increase revenue
Radically reduce costs
Enable a previously unavailable strategic capability
The model illustrates the ability to fund investment in innovation by re-purposing spend from two categories, Business as Usual and Growth. Why those two? Business as Usual spend is not attached to differentiating capabilities and is usually a target for re-purposing to higher value spend. As I mentioned earlier, many companies are postponing investment in Growth now until they understand what the new normal looks like. Don’t have great ideas for innovation? Put the money in your pocket until you do.
Examples of prime targets for must-have innovation: customer relationship management, product management, billing, workforce scheduling, capacity/utilization management and technology-enabled service management. The key is to reduce Business as Usual spend without impairing your ability to deliver, and then re-purpose the cash to invest in capabilities that supports the regeneration of your business – PPP funding or not. Reducing spend on costs nobody cares about, and then investing that in serving customers more profitably. Shouldn’t we be doing this anyway?
Update: COVID-Related Loans
The SBA has new funding for both PPP and EIDL programs, although as of Tuesday the EIDL application portal was still closed. New guidelines on PPP forgiveness are expected to be released any day, and if they are like the interim rules already published, we can expect changes that we will need to incorporate in our financial planning. As always, please let me know if either I or my partners at BKM Sowan Horan can assist.