Cut with a scalpel, not a Chainsaw: Strategic cost management and investment beyond the economic cycle

🟤 Strategy & Leadership

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James Kitney
James Kitney
Chief Strategy and Transformation Catalyst
March 26, 2024

We've all seen the headlines in recent weeks with a number of public and private businesses across New Zealand announcing staff reductions. It's a familiar pattern – economic contraction leads to reduced consumer spending, which then necessitates cuts to operating expenditures. Then, when consumer confidence rebounds, it becomes an all-outscramble to capitalise on the upswing.

This cycle seems logical on the surface. But is it truly optimal? Do we really need an economic downturn for us to focus on cost efficiency? Conversely, do we need economic growth to even consider strategies for expanding market share?

The answer is a resounding no. At Five we believe a far more strategic approach exists: continuous cost optimisation and investment.

Think of it as proactive financial fitness. By continuously optimising operations and making strategic investments, we ensure we're not just surviving the downturns, but thriving throughout the entire economic cycle.

Cutting with a Scalpel, Not a Chainsaw:

Let's be clear: cost-cutting doesn't equate to wielding a budget chainsaw. It's about surgical efficiency. Businesses need to identify and eliminate waste, streamline processes, and ensure talent is in the right place to drive your strategy. This relentless pursuit of efficiency creates a culture of financial strength, a vital shield during uncertain economic times.

Remember that Neon or Audible subscription that you’ve been meaning to cancel for the last 6 months? Out-of-cycle cost management is like cancelling that unused expense - it frees up resources to invest in the future.

Investing When Others Hide:

Downturns can be a breeding ground for opportunity. While competitors huddle in fear, we see fertile ground for strategic investment. Over the last 3 years the world has struggled to find top talent, so imagine a talent pool that’s suddenly filled with theskills you need to grow; an ideal time to think about the capabilities you will need for your next horizon of growth.

Think long-term too. Downturns often present a window for R&D, allowing us to invest in innovation while competition is preoccupied with short-term survival. By the time the sun shines again, we'll be a step ahead, armed with cutting-edge solutions for a hungry consumer.

A recent presentation from NZ investment firm ‘Pie Funds’ highlighted the rapid growth in R&D spend from the Magnificent 7 tech companies both in $ and %age terms. This should be a wakeup call for Kiwi and Aussie businesses who are not currently thinking about investing in the next cycle.

Rapid growth in R&D spend fromthe Magnificent 7 tech companies both in $ and %age terms

The takeaway? By breaking free from the boom-bust cycle mentality, we position ourselves not just to weather the storm, but to prepare for the sun when the economic skies clear.

Here at Five we can assist you in identifying where there are opportunities to surgically optimise your efficiency while also identifying opportunities to invest to take advatange of the next economic cycle.

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March 26, 2024
March 26, 2024

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