This blog first appeared as Steve Wunker's piece for Branding Strategy Insider
By Steve Wunker
With both inflation and recession fears high, many companies are embarking on cost-reduction initiatives. Moreover, the dislocations of the pandemic have changed many customer needs and buying patterns. So much flux may be unnerving but actually creates opportunity for firms to alter business models in ways that both reduce expenses and keep customers delighted. This is a time to look beyond the typical business reaction and use the uncertainty as an advantage.
Cost-Cutting And Innovation Are Not Diametrically Opposing Forces
For most companies, the first, and most obvious, initiative in conservation is to go through rounds of cost-cutting. While reasonable, making such cuts risks hollowing out core capabilities. In addition, innovation often gets put on hold as companies focus on preservation. But it doesn’t have to be that way. New approaches are needed.
One such approach is Costovation. Costovation, as detailed in the award-winning book by that name, is a customer-centric way to spend less and innovate more. It is a proven approach that deploys the tools and methods of innovation to the cost side of a business. It mobilizes design thinking, radical reconfigurations of approaches, and rapid prototyping to find step-change opportunities in costs that continue to excel on customer needs.
A prime example of Costovation is how Capitec upended assumptions about retail banking. The company removed all cash from branches, and so could do away with security. It configured branches so that tellers could sit alongside customers and look at screens together, in a collaborative manner that enabled cross-sell. It did away with promoting separate accounts, and instead offered a single account for savings, checking, and credit. In doing so, Capitec could charge fees roughly half that of its rivals, and still earn an astonishing 20%+ Return on Equity. By focusing on what their customers really valued, Capitec was able to change traditional banking while stripping away costly overhead. The principles of Costovation created an opportunity to transform an ordinary retail bank, offer low fees, delight customers and increase profits simultaneously.
Costovation brings the tools of innovation to the cost side of the business.
When Is A Company Ripe For Costovation?
To determine if utilizing Costovation methods is right for your business, evaluate your current state and look for some of these seven signals:
Costovation initiative often runs in parallel with other, more typical ways of cost-cutting. They are not inconsistent. In fact, in tandem, they can create greater savings than cost-cutting alone. The process does not require the creation of an entire Costovation group or team. Oftentimes, the sponsor is a general manager who can look across the various functions of a business and find ways to blur traditional boundaries to significant effect, as Capitec did with branch operations, marketing, and product development.
If you have found that your company is showing some of the seven signs above, it is time to begin implementation. Consider, for instance, undertaking a rapid, six-week effort to determine what opportunities exist. It would have four parts:
Cost-cutting is on many strategic agendas for 2023. As you proceed down that road, reserve a bit of energy to find the big moves. Costovation can unlock transformative potential for a business to operate with significantly lower expenses while continuing to keep customer-focus right in the bullseye.
Contributed to Branding Strategy Insider by: Steve Wunker and Jennifer Law. You can find much more on these concepts in their book Costovation.