Model behavior in the digital age. Cut the fat, boost the growth

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4 digital, organizations are under unparalleled levels of scrutiny. Everything is transparent. Traceable. So news of unsafe conditions in a factory in Bangladesh no longer stays in Bangladesh. It s played out on the world s digital newsreel. And the effects go straight to the bottom line. Companies that walk the walk of ethical business practices when it concerns people, profit or the planet can use it as a differentiator, following in the footsteps of Ben & Jerry s, The Body Shop, Patagonia and other brands. According to Accenture research, 8 93 percent of CEOs see sustainability as important to future success and a full 80 percent see it as a route to competitive advantage in their industry. Seventy-eight percent of investors see sustainability as a differentiator in determining industry leaders. Unilever 9 CEO Paul Polman noted that Growth at any cost is not viable. And he put his money where his mouth was by launching the Unilever Sustainable Living Plan, which sets out to decouple growth from environmental impact while increasing positive social impact. Since their plan was unveiled in November 2010, Unilever s shares have risen by more than 40 percent. The Sustainable Living Plan is benefiting people, the planet and the company s profit. Model behavior in the digital age So how can companies gain the three A s of agility, adaptability and alignment? They need to alter their current models to cut fat and boost growth. Prepare for new, unexpected, sources of competition driven by digital. And make gains in sustainability. Here s more on each: 4 Cut the fat, boost the growth To become agile, companies need to lower fixed costs by permanently eliminating waste to deliver new products faster, cheaper and better. How? Call it zero-based budgeting. Operations cost take-out. Strategic cost management. Regardless of the terminology used, it s about creating an ownership mindset and a culture of cost control. Critical to instilling this: demonstrating early on in the program how non-working money can be reinvested elsewhere to drive growth and innovation. At the start of any program, companies need to gain unprecedented forensic visibility into their cost base and then, with surgical precision, cut it out. Once initial cost savings are achieved, accountability, governance and financial control mechanisms are established to make sure changes hold. According to Accenture research, the most successful companies achieved 75 percent of their cost reduction goals and sustained them for more than three years. 10 One example of a company that makes cost take-out stick: AB InBev. 11 The world s largest brewer runs a process that sets benchmarks for all of their locations. Each brewery identifies the best practices to become more cost-effective and communicates their performance throughout the company. These practices create and reinforce a set of daily routines relating to continuing improvement in costs and productivity. Place your bets After gaining agility, winning companies can then use savings to fund new areas of growth and innovation. In fact, they re three times more likely to increase shareholder returns. So what are the areas they seed for new growth? The first is in developing powerful

5 innovation capabilities that enable a company to rapidly develop and market new products and services ones that meet the dynamically changing demands of their customers. Putting the customer at the heart of innovation, and redefining customer centricity. The second area involves an M&A capability where companies can identify, acquire and integrate new capability faster than they have before, allowing them to team more effectively. Which ties to the third area: developing the insight and capability to place your bets, partnering with other organizations in new, extended ecosystems to create a winning portfolio. In a digital world no one acts alone. Each organization has different strengths and can complement or supplement those of their collaborative partners. Those that can quickly identify the right partner in the ecosystem, and effectively work together, create an unassailable growth and innovation advantage. Beyond just compliance When companies talk about social responsibility, they often mention their license to operate. By that they mean they ve established trust with local governments, NGOs and society by complying with regulations and establishing health and safety programs that give them tacit permission to do business. Now companies need to pursue a license to grow, using ethical business practices as an integral part of what makes them unique. To go beyond just compliance to create an unassailable competitive barrier in the marketplace. Because in today s complex environment, business sustainability is no longer an or. It s an and. And there are so many and s to be considered: Companies need to balance between customers and shareholders and society and create superior value for all of them. Telstra: Getting Straight A s in Competitiveness Telstra is Australia s largest phone company and boasts a stellar performance on all fronts. Telstra reported a record $2.1 billion profit for the first half of the 2015 financial year, a 21.7 percent increase on a year-on-year basis. 12 So how did they do it? First, the company simplified its business through a productivity program, which included $550 million of expense savings. 13 Savings were reinvested to support growth in the customer base, customer service initiatives and to develop new business. And finally, Telstra introduced a new strategy outlining a clear framework for minimizing and managing the environmental impacts while aiming to create cultural, reputational, commercial and social value. Agile. Adaptive. Aligned. Straight A s for competitiveness. Competitiveness redefined This is not your father s business model. Market forces are re-defining the concept of competitiveness. Technology adoption is marked by a shark fin, not a bell curve. Industries are converging. Competitors becoming partners. While rivals seem to come out of nowhere. Surviving in this highly complex, volatile, ambiguous world means being agile, adaptive and aligned getting the triple A advantage. Gaining in just one or two of the areas might deliver some benefits for your business. But to get ahead and stay there, requires getting all three of them right. And with the speed the market is moving getting them right now. 5

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