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Expansion vs cost-cutting: What should your business focus on?

Business leaders have some very important decisions to make in the year ahead. Among them: should you look at expanding the business, perhaps even internationally, or instead reduce costs to improve margins?

Here are some key questions to help guide decision making.

Expanding the business

  • Is there a logical route to expand the business? For example, is there customer demand for new stores, products or services?
  • Could expansion simply be a new sales channel, such as a refreshed or expanded ecommerce store?
  • What would be the cost, in dollars and resources, to pursue the opportunity? Is this cost feasible?
  • What tools would the team need to support expansion? A robust supply chain management solution? Multi-currency and language tools to support new markets?

Cutting costs – some considerations:

  • Where could costs be cut and how?
  • Do teams have the necessary data to determine where costs can be cut? For example, could the cost of delivering a product be reduced through streamlining manufacturing or optimising the supply chain process?
  • Would cutting costs result in a negative outcome for any stakeholders? For example, would customers notice that a product or service is of poorer quality?
  • How could cost cutting impact the reputation of the brand and customer loyalty?

ALSO READ – Let’s Talk: Cost cutting in business and what you can do to save

When it comes to cutting costs, some interpret this immediately as reducing headcount. Research shows that alternatives should be considered first, as the short-term savings of reducing headcount can come at the cost of long-term gains. This decision often negatively impacts the business because the lost headcount comes with lost skills, poor engagement, and less innovation.

After considering the above and asking the relevant internal stakeholders to weigh in where necessary, it will become clear where improvements could be made. If a business cannot accelerate growth due to a disruption in their market, or no feasible opportunity exists, they should look to cut costs through improved efficiencies. For example, if consumer spending sentiment is low, it may be an inopportune time to open new stores, but it could be a great chance to optimise ecommerce channels. So how do business leaders implement their plan once they have identified the best course of action?

Putting your plan into place

No matter which course of action, there are a few critical areas that may contribute to the success of business prosperity, including:

  • Data must drive decision-making – without data, leaders are left to rely on gut-led decision making, which is hardly a conducive way to implement sustained change. For instance, real-time data can show which products or services are most popular, what the most favoured delivery options for customers are, where risks are present in the supply chain (such as a shortage of parts for products) and much more. Armed with data, teams can make informed decisions and track the impact of these across time.
  • Use the best tools to support business goals – expanding business operations or cutting costs requires software tools to effectively manage the process. For example, when setting up an ecommerce store, does the current solution provide a simple route to market? Or is a cumbersome, which ultimately may not fit the bill?  Is multi-currency and language support critical for success? Teams that don’t have the right tools for the job will be stuck with an ineffective solution or will become bogged down with manual processes. Cloud-based enterprise resource management (ERP) has emerged as the all-in-one solution for businesses who need the flexibility to accelerate growth and streamline processes, all within a single system.
  • Automate and refine – many businesses are often lumbered with existing processes, no matter how ineffective and inefficient they might be. As leaders look to grow operations or slim down costs, inefficient processes will hamper progress. Using real-time data and a software solution that can be customised to meet the needs of the team and customers will result in streamlined operations that can be effectively scaled as needed.

ALSO READ – Three ways businesses can build resilience

Weighing up whether to prioritise expansion or cost-cutting can be difficult at first. Start by assessing where the most value can be added by identifying what opportunities exist and how this can be implemented with the least disruption. With a goal firmly in mind, business leaders should prioritise the use of real-time data to drive insightful decisions while leveraging the best tools to improve efficiency and support sustained growth.

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Jason Toshack

Jason Toshack

Jason Toshack is the General Manager ANZ at Oracle NetSuite. With extensive experience leading high-performing teams across APAC, Jason brings valuable insights to customers to help their businesses succeed and grow.

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