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Head office

Profitability Business Simulations Ltd

Stables 1, Howbery Park, Wallingford,

Oxfordshire,

OX10 8BA

Contact

T +44 (0) 1491 821 900
hello@profitability.com

Date |

Are you cost cutting, or value creating? Maybe you’re neither.

Most businesses naturally cut costs. In the same breath, they will say they need to create long term value.

Often, it’s not clear to your people what the path to success is.

Having a shared understanding of value, and how that word plays out in your business, in precise terms, is critical to your success.

In October 2008, internet sales as a percentage of total retail sales amounted to 5.3%. A decade later the share of internet sales was 18% (1). Since the turn of the new millennium, the UK retail and service sectors have seen a profound impact from the appearance of online competitors in two ways; disruption of the existing retailer model and high street retailers creating more intense competition with each other.

Without the overheads associated with a high street presence, the internet-based retailers have been able to undercut prices and the response of mainstream retailers has been to match or even undercut those prices in order to win back market share.

Many would say that in this "race to the bottom", everyone will lose out - shareholders, management, employees and customers. If all that matters is price, your product has become a commodity. 

To avoid becoming a commodity, these recommendations are common: 

Rather than cut-price, add value. The value in retail comes in many forms whether it is the smiling face of the retail assistant, the opportunity to try the product before buying, or the in-depth knowledge of a technical support team. All this adds value to a transaction and consumers are willing to pay that little bit extra for advice and support.

Don't automatically discount products. All you're doing is conditioning your customers to wait for the discount. Furthermore, what does discounting say about your belief in the products you sell? Have faith in your products and the value you bring with them.

You can't cut your way to growth. The instinctive move by many organisations faced with falling profits is to start cutting costs. There's bound to be some scope for rationalisation, but your most important stakeholders, your customers, will soon notice cuts in your forward-facing services. Once your customer service reputation takes a hit, it becomes a spiral of diminishing services, less profit and more cuts. Cuts are the least effective way of recovering your profits.

Many companies are wrestling with this, but here’s the problem. It’s neither short term cuts, nor longer term value, that will give you the answer. 

In order to make change happen, whatever that change is, people need to experience what the change means for themselves, and make it their own. This factor is absent from most forms of training. People get the concept, but they don’t experience the highs and lows of making the decisions, and seeing the outcomes of their decisions play out in front of them. 

Added to this, it isn’t clear how individual decisions impact the whole. Having a shared understanding of value, and how that word plays out in your business, in precise terms, is critical to your success. 

Sometimes, the conversation should absolutely be about cutting, if that reinforces the strategy. It’s about showing people how their actions can directly contribute to the outcomes your business wants. 

To really stem the so-called race to the bottom, we need to create a common language of ‘value’ in our organisations, and help our people to experience in real terms how their actions contribute directly to the whole. 

1.https://www.ons.gov.uk/businessindustryandtrade/retailindustry/timeseries/j4mc/drsi  (consulted 14/12/2018)

We take time to understand complex problems, 

we work together with you to resolve them.

News

We have a way of thinking about change and we want to tell you all about it. Why not come along to next week’s conference and hear it for yourself?

Driving Change Conference – 12th September 2019

News |

There’s a great deal of evidence to suggest that what people create for themselves, they value more.

What if we didn’t tell our people what to do?

In Tali Short’s book ‘The Influential Mind’, she writes that “‘Govern your surroundings’ would be your brain’s slogan, if it had one. Our biology is set up so that we are driven to be causal agents.”

News |

Recently we have been helping a number of our clients to introduce new ways of working, underpinned by new digital technologies.

Lorry drivers and the technology adoption problem

Traditional models of adoption when it comes to technology in business have focused on the technology itself

News |

Most businesses naturally cut costs. In the same breath, they will say they need to create long term value.

Are you cost cutting, or value creating? Maybe you’re neither.

In October 2008, internet sales as a percentage of total retail sales amounted to 5.3%...

News |

How many ways are there to implement a new technology in your business?

What our designers get up to: a simulation with 532,441 possible outcomes

At Zilliant’s Mindshare conference in Texas we launched an application that precisely models the outcomes of critical business decisions

News |

Stryker’s question to us was: how can we create a sense of shared purpose across our global sales team, in a way that shows them the commercial value in black and white?

We love having a clear problem to solve. Stryker’s global sales team gave us one.

Stryker is a US-based company and world-leader in the design, production and supply of medical devices and equipment such as joint replacement implants, surgical tools, stents and heart valves.

News |

As the reality of Brexit looms ever closer

Brexit might be new, but uncertainty isn’t

As the reality of Brexit looms ever closer, how can we give our people the confidence to navigate through the chaos?

News |

Insight

In Great Britain alone there are some 250,000 secondary school students in one form of Business Education or another.

250,000 opportunities a year to prepare young minds for business

Insight |

When James Cameron, world famous movie director, was starting the revolutionary AVATAR movie project he had t–shirts made up for his crew, with the words:

Hope is not a strategy

Insight |

In the traditional model, your business is the story. In the new model, your people are the story.

You are not the story, your people are

Insight |