Is business booming? Then it’s time to start pruning

Is your business booming? Are your sales and profits hitting and beating targets? Are you succeeding in growing market share? If so, you will face a huge temptation to pour all your management focus into driving even more growth. Yet the paradox is that this is absolutely the right time to prune your organisation by lowering your operating costs, ensuring that you are as lean as possible and adapting and reorganising your business model. Why? Well, here are three very good reasons.

  1. You can be proactive and systematic. Lowering costs when you are in a position of strength allows you to plan your actions, treat your people well and minimise disruption to the business. If you wait until there are serious problems you are likely to make indiscriminate layoffs and cause huge disturbance to the organisation.
  2. You can also more easily replace your most unproductive people. It is easier to attract new talent to replace the weakest members of your team when you are on the up. If you wait until you are in decline, it is far less likely that talented people will be attracted to you. Marks and Spencer have recently reported that they have replaced several of the top team that have driven their turnaround with even more capable managers to spearhead the next phase of growth.

  3. You are better able to deal with economic downturns. McKinsey, the consulting firm, recently studied the performance of 1,300 companies as they emerged from the recession of 2001. They found that a critical success factor of the companies that gained or maintained their leadership positions had been their ability to control operating costs going into the recession. Future economic downturns will happen. Whilst you can’t control when they happen or how serious they will be, you can organise your business to better manage your performance through the downturn.
  4. You will create a more flexible, adaptive organisation. All successful strategies erode. Winning strategies can eventually fail due to changes in consumer tastes (McDonalds), competitors copying your offer (The Gap) or new technologies making you obsolete (terrestrial TV companies, such as ITV).

As the speed of change increases, the winning companies are those which are truly customer-focused and which are best able to adapt to the new realities. During the late 1990s, as the internet revolution began to spread, Jack Welch stated that there would be a new GE way, called DYB.com, where DYB stood for “Destroy Your Business”! Welch wanted his managers to radically change their businesses before the new competition did it for them.

The bottom line

I can’t put it any better than Arie de Geus in his book The Living Company. De Geus notes that all rose gardeners need to prune their garden to drive future growth. By pruning hard the gardener has a chance of spectacular growth, but also the risk that the flower dies from a late frost or other disease. Tolerant pruning, on the other hand, won’t give the gardener the biggest blooms but gives a much better chance of roses every year.

As de Geus writes, “Tolerant pruning achieves two ends: (1) It makes it easier to cope with unexpected environmental changes. (2) It leads to a continuous restructuring of the plant that allows the rose to be stronger in the long run.”

What ‘pruning’ are you doing that will help drive the future growth and success of your business?

 

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