Cost Containment vs. Growth
Most American companies today are focused on reducing costs, and rightly so. For the better part of the past decade we lagged behind other countries in cost and productivity improvement. Other countries in the world had spawned businesses more competitive than ours. They began to compete ever more aggressively, and in our markets. Our customers found foreign products and services often superior to ours. We came to realize that our competitiveness is not a God given right, but something we had to prove in our marketplace every single day.
Many promote our new found commitment to efficiency -- myself included. Through this tremendous emphasis on cost competitiveness we've once again, with a little help in the currency market, become the most competitive nation on earth. I'm proud of this.
However, many corporate leaders today would suggest that this focus on 'cost' is all that is needed, and should be pursued even more vehemently in the future. In fact to add an additional focus area, especially a 'growth' objective, would detract and take away from the company's ability to reach the next level of cost performance needed for its ongoing survival.
It may be somewhat non-intuitive, but it is here that the thought process becomes flawed. Yes, we all do best against singular strategies. It's just that the world is far more complex than this. In fact without a growth or market focus, we'd potentially end up being the most efficient supplier of buggy whips or in a struggling commodity business. In some markets, it is just not worth being the low cost supplier.
In fact, those markets with superior returns are most often new niche markets, into which few competitors have found their way. Many companies pursuing more mature markets will never make their cost of capital -- even if they're the most efficient in their industry, or in the world.
Why do so few companies chase after new growth opportunities today? The 1950's and 60's were go-go decades where growth was king. Then the competitiveness of other countries began to catch-up, their interest in the huge US market increased, and US companies began to have a tougher go of things.
The 1970's and 80's were largely the years of Toyota's, Sony's and Wal-Marts -- the new masters of cost, quality and innovativeness (why are we so quick to forget about 'innovating'?) In this new market paradigm, growth was seen as the bad guy as all of our attention was directed at survival -- survival in a cost and quality world.
Yes, everyone has to focus on costs when they're not competitive. But once this situation is reversed, the larger opportunity is in identifying areas in which to grow. The stock market gives growth companies twice the value of non-growth firms.
We must remember this as we put together our strategies for the new millennium. How to focus on harvesting growth scenarios that not only dramatically increase the shareholder value of the firm, but also extricate us from markets not worthy of our pursuit. In this new business environment, cost control will then determine how much wealth we get to keep.William W. Rutherford is Co-Chairman and Chief Executive Officer of Corporate Economic Research of the Americas (CERx), a business consulting firm which assists clients in substantially accelerating the design and achievement of measurable and sustainable performance improvements. Clients benefit from CERx's involvement through increased shareholder value, industry competitiveness and strategic and operational success in global and local markets
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