Other parts of this series:
Last time, we examined how misalignment in the C-suite and between chief executive officers and vice presidents can limit insurers’ ability to grow profitably. Even if insurers can straighten out that wrinkle, a couple other problems can leave their organizations less than fully optimized to create value and generate growth.
In its report, Increasing agility to fuel growth and competitiveness, Accenture details how multiple growth initiatives and inflexible operating models have put companies globally in that position. The report was based on surveys of 700 executives in 13 industries in nine regions around the world, plus interviews of 65 analysts who follow those industries.
Accenture’s research shows that most businesses have too many growth initiatives, which blur management’s focus and lead to competing priorities among executives. As a result, the savings that organizations realize from cutting costs that do not add value are reinvested in a spectrum of growth initiatives. Those savings instead should be reinvested in a more limited number of initiatives that will create the most value, generate growth and improve profitability.
Among the top challenges for companies in determining where to reinvest cost savings, identifying the right areas to invest in ranked first at 21 percent. Fifty-four percent ranked the problem among their top three challenges. Ranking second at 15 percent was having too many concurring growth initiatives to invest in, a problem that 40 percent identified as one of their top three challenges. The lack of analytic insights to make more informed decisions and the unavailability of the right talent tied at 14 percent for the third-biggest challenge for companies.
At the same time, less than one-third of survey respondents currently prioritize the reinvestment of cost savings in alignment with business strategy. So it’s unsurprising that less than half of the survey respondents assess the return on reinvested cost savings through a formal return-on-investment review. To achieve and sustain growth, companies must know where growth is coming from and align their cost-reduction activities and reinvestment of savings to the growth strategy. Without that focus, businesses will not make progress on cost-reduction initiatives and growth priorities.
Another common misalignment problem for companies occurs when their operating models are not in synch with how they want to grow profitably. Most survey respondents agree that their models should enable growth and cost reduction. However, operating models often do not flex for growth. Among survey respondents, only one-fourth say they have a flexible model that can adapt, consistently delivering on strategy and executing activities that drive value for the organization. Additionally, only 31 percent of CEOs and 17 percent of chief financial officers strongly agree their companies’ operating models and strategic growth initiatives are aligned.
To identify the right model that will fuel growth, companies first must decide on which axis they are going to manage their business. For example, one axis is global/local. Does the business want to take a balanced global and local approach to both take advantage of scale while enabling local service and effectiveness? Another axis would be brand/category. Is the business focusing on industry-specific product innovations and growth initiatives to differentiate its brand and get closer to customers?
To learn more about generating growth, download Increasing agility to fuel growth and competitiveness.
Next time: Executives united on the need for digitization.