If we are headed into a new period of economic slowdown, then all businesses must brace for further blows to the top line. Sales and marketing efforts will need to be scaled back in favour of further reductions in operating costs.
For some firms, that may mean more painful cuts in staff levels, but as we’ve regularly written here at Productivity Spectator, staff cuts are a temporary fix. Given the nature of the current economic turmoil, most companies are likely still in ‘wait and see’ mode and will feel uncomfortable shedding staff until they are sure of the fallout from the crisis in Europe.
That means the pressure will be on sales and marketing and revenue growth will be challenging for most. We are already seeing in the food sector that the major grocers are putting pressure on suppliers to absorb any cost increases by reducing their margins. This is a substantial change from recent history, when costs would be passed down to consumers. If your business is not already feeling this pressure, it may happen soon.
This is the kind of pressure that Orica faced before the recent mining boom. In the early 2000s, Orica’s mining services division was looking at margins of below five per cent, as it struggled to pass on costs to major mineral companies. The company's response to this challenge was to demand productivity improvements in every department in the company. Watch Robert Gottliebsen’s interview with recently departed CEO Graeme Liebelt to see how Orica has institutionalised productivity throughout the company, even down to requiring productivity improvements as line items in departmental forecasts.
Liebelt explains how Orica's focus on productivity has helped the sales process. He says they’ve used their deep research into the efficiency gains from using explosives to improve their relationship with major customers like Rio and BHP Billiton. Now the bigger miners share their data with Orica and ask them to develop improvements to the process of mineral extraction. Liebelt believes that relationships between customers and suppliers will increasingly rely on such collaborative partnerships.
There are clearly tough times ahead for all Australian companies and perhaps for Orica too if some of the major mining investment takes a hit. For manufacturers and retailers, that process has already begun. It will be a wild ride.
