Rising costs, increasing tax burdens and ongoing geopolitical uncertainty – most recently the conflict in the Middle East – are all contributing to a sustained squeeze on margins. In this environment, the question is no longer simply how to grow. It is more fundamental: where does profit come from when growth is hard to find?
New thinking and new practices
Previously, improved profits might have come from a new product range, growth in overseas markets, another round of cost-cutting or price increases. They may well still be part of the answer, but now, it starts with a change in mindset.
One theme that comes through clearly when we speak to businesses is that doing what has always worked is not enough. We have been here before.
Markets are evolving quickly. Technology is changing how products and services are delivered. Customer expectations are shifting. Relying on historic ways of working will quietly erode margins.
Many businesses have already taken out as much cost as they reasonably can. There is little left to squeeze. The bigger risk now is inertia, or the belief that conditions will improve if they simply hold their course, and delay can make problems harder to fix.
Increasingly, improved profitability is found in how businesses operate rather than simply in what they sell.
That might mean using technology to reduce delivery costs and then reinvesting the time saved into higher-value activities, such as strengthening client relationships, providing more strategic advice or developing new opportunities.
The businesses performing best are not just becoming more efficient; they are becoming more valuable to their customers. By freeing up time in your business operations, you can spend more time with customers, helping them with their challenges. This may be assisting with their own data interpretation.
Making difficult decisions
Business leaders need to be selective, often making difficult decisions. For example, continuing to serve unprofitable customers or maintain underperforming parts of the business ties up time and resources that could be better deployed elsewhere. In some cases, walking away from work can be one of the most profitable decisions a business makes. We have seen clients review their customer lists, especially where they are tight on skilled resources, and either talk with them about increasing prices (accepting they might lose them) or saying they can no longer deliver at that price.
For others, more structural change may be needed. Acquiring complementary businesses, restructuring existing operations or revisiting funding arrangements can all help improve profitability. In a slower-growth environment, buying market share or improving efficiency at scale can be more effective than waiting for organic growth to return.
A wider view
Growth is increasingly unlikely to be restricted to domestic markets. Businesses need to continually assess where they:
• create their product or services;
• source their supplies and raw materials;
• sell their product/services; and
• crystalise their profits
Focus on value, deliver change
Underlying all of this is the need for a conscious shift away from concentrating solely on cost and towards value. In our experience, customers will question what they perceive as high charges for activities that feel commoditised or low-value. But they will pay a premium for quality insight, advice and outcomes that make a tangible difference to their business.
That creates a challenge: if something within your organisation is not contributing to that end value, why is it there? Answering that question is not always straightforward. Business owners are often close to their operations, and it can be difficult to step back and challenge long-established ways of working. In some cases, businesses simply outgrow their existing structures.
This is where our external perspective can be invaluable: not to provide a prescriptive list of actions, but to identify the questions and actions that help business leaders unlock change.
There is no single route to improving profitability. For some, it will mean refining their core business. For others, it may involve more fundamental change or looking beyond the UK. What is consistent, however, is the need to think differently.
When there is uncertainty, the most valuable conversations are not about what to do next, but about how the business works today and where it could work better.
How we can help
If you would like to explore where greater profitability could be unlocked in your business, a conversation with us can provide a fresh, external perspective. Please contact Mike Brewer, Restructuring Senior Manager or Andrew Griggs, Senior Partner and Head of Global:
Call: +44 (0)33 0124 1399
Email: enquiries@krestonreeves.com
Visit: www.krestonreeves.com
