The Crisis is Creating a New Kind of Organisation
Covid, the economy, diversity and climate change are shaping the 'Size Zero' Enterprise
This year has thrown up four global issues that none of us can ignore. Combined they provide the most challenging set of headwinds since the second World War. Charting a course through this near perfect storm will, at times, feel like threading a needle in a hurricane.
The metaphors hardly do justice to the wave of change unleashed by:
Covid-19
the economic downturn
the battle for social justice and inequality
the growing requirement for us to do something about climate change - and fast.
The continuing river of technological progress that has swept many of us off our feet has hit the slower flowing waters of the healthcare crisis. And just as in the real world, these metaphorical rivers have created a swirling cauldron of uncertainty and opportunity.
In a violent storm we batten down the hatches, lighten the load, stay mobile and move fast when required. In business we are witnessing the rise of slimmer, smarter businesses that operate in new ways, taking advantage of the plethora of collaborative technologies and a global, digitally available resource base.
These organisations are ‘just big enough’, highly focused on delivering value, and use advanced data analysis to drive insights and innovation. Some of these businesses were start-ups not that long ago and some are long-established organisations, but all share a new mindset and belief that growth does not mean the number of people or physical assets you have in your organisation, but the value you create.
We like to think of these organisations as Size Zero businesses.
Size Zero means operating at maximum efficiency by focusing on where value is created, and being ruthless in removing waste. Doing more, with less if you like.
An example of a Size Zero big business is Amazon who realised from inception that the value of a retail business was not in its stores, but in its ability to manage inventory, not all of it within its own facilities, and built a global retail giant with no physical stores. As a result, Amazon's revenue per employee is around $350,000 as opposed to a store-based operation like Gap which operates at around $100,000 per employee.
Purer technology or digital media organisations have even higher revenues per employee with Netflix top of the leader board at $2.3 million per employee, then Apple at $1.9 million, Facebook at $1.57 million and Alphabet (including Google) at $1.36 million.
It is important to state that a Size Zero business is not about slashing headcount - it is about ensuring you have the optimal and most flexible cost structure for today. It is about structuring for financial sustainability at each stage in the organisations ebb and flow, its ups and downs. It is also about constantly striving for the ideal balance between full time employees, part time talent and tightly integrating best-in-breed partners and suppliers.
Outside resources should be fully embraced. As much as anything because, statistically, the bigger your organisation gets the more average it will become. To counterbalance this unfortunate side effect of growth, new thinking from outside advisors and partners, small and big, can be invaluable. Size Zero organisations strive to be the smartest, the most nimble and the most future proof survivor in the pack.
In the current climate you would utilise such organisational flexibility to drive Covid-safe virtual working, to develop greater diversity through your organisation, better flexing of the cost base to respond to crises and opportunities and more external expertise to respond to the issues of the time.
While many organisations have for years used some combination of in-house work and outsourcing (no computer company makes its own furniture, grows the wheat for bread in the employee cafeteria, or makes waste paper baskets), where should the line be drawn?
The answer is: value. The Size Zero organisation decides which approach, at every stage, costs less, improves quality, drives greater responsiveness, or in some other way increases value for itself, its customers, its brand, or the environment.
Size Zero is not about downsizing, it’s about re-shaping to create more value. Slimmer, smarter, faster - not smaller.
Technology clearly has a huge impact on efficiency and productivity, but few companies invest enough in R&D. The US is ahead of many countries when it comes to R&D investing some 2.7% of GDP. Israel and South Korea top the tables. But with just 1.7% of GDP spent on research, the UK lags behind most of the advanced economies.
One big ticket item not allowed in a Size Zero business is overtly expensive office space which can account for around 10% of the cost line. In most cases, thanks to the pandemic, this property is a burden not an asset. It’s not surprising that over the last few years we have seen such a rapid development in the short term rental and shared workspace business when companies are faced with crippling rents and taxes that add no value to anyone.
In the digital age with cloud computing and ubiquitous (video) communication, location is becoming increasingly irrelevant and success can be measured by those who have moved more aggressively in keeping their employees working from home.
Indeed, home working opens up the opportunity for organisations to tackle all four of the major issues we currently face. Home working is a core strategy for pandemic management, cost reduction and business efficiency, driving workforce diversity (as you can widen your geographic targeting) and reducing your environmental footprint with less business travel and commuting.
Size Zero organisations follow a number of practices including Zero Inefficiency, Zero Passengers, Zero Baggage, Zero Property Costs, Zero Unprofitable Customers, Zero Technophobia, Zero Budgets, Zero Stock, Net Zero, Zero Waste, Zero Dead-Time and Zero Regrets.
In future issues we will explore some of these practices. They help forge a somewhat different approach to doing business. One that is perhaps rooted more in where we are going than where we have come from.
The rules of business, fashioned centuries ago during the industrial revolution, are there to be broken.
The “we’ve always done it like that” culture is being eroded by technology, globalisation and the super-slim, data savvy businesses it has helped create.
Making radical changes to the way your business operates isn't going to happen overnight, but it does start with a commitment to change. A commitment that has become imperative given the forces of the pandemic, the economic crisis, social inequality and climate change.
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