Tag Archive: series

1. Questions for 2022 Pt. 4: Automation

   March 16, 2022 11:00 am Leave a Comment

   Today we offer the final post in a series focusing on questions for 2022. You can read the previous posts on data literacy, price increases, and expense control here, here, and here.

   This week, we further explore the opportunity to evaluate (or reevaluate) business cases for increased automation in light of the current business environment, and the likely continued knock-on effects of the pandemic.

   What we already know:

   As in previous weeks, let’s take what we know about 2022, and then apply it to the question.

   The current US labor market is unlike any previously experienced in recent memory:

   • A greater than expected death rate has reduced the like-for-like labor pool
   • Greater than average retirement rates have also reduced the like-for-like labor pool
   • A shortage of affordable childcare has also negatively impacted the labor market

   These and other pandemic driven factors have given rise to unprecedented labor shortages, pressure to increase wages, greater than average labor turnover (“The Great Resignation”), and HR nightmares all around.

   Great, but so what?

   The bottom line is that many businesses cannot find qualified candidates to fill open positions. Even when they are offering above market rates, putting revenue, profit, growth, and even long-term business viability at stake, there remains a shortage of viable candidates.

   This is where the question of automation comes in.

   In our experience as consultants, we’ve often seen clients consider the investment and business case for increased automation. This is across many industries and business functions, looking at everything from the standard evaluation of more efficient heavy machinery to consideration of exotic solutions involving robots and artificial intelligence, through to more mundane decisions on IT. Many times, even when the return on investment is clear and the business benefits obvious, they hesitate to make these investments due to perceived risks, the availability of labor, and the fact that their businesses could still operate satisfactorily without increasing automation.

   In most cases this was probably the right decision at the time. But the question now is, “Can businesses really afford not to consider and implement increased automation solutions?”

   If labor is a sizable part of your business expenses, and your labor costs are increasing, now is the time to look at labor saving and automation solutions no matter what the industry or function.

   In the past, automation investment cases may have hinged on reducing existing headcount. Now, they might revolve around the mission critical reality that people cannot be found to do the work that needs to be done for the business to operate.

   Equally, maximizing productivity and job satisfaction of existing employees in the tight labor market may also provide a compelling case for investment.

   Essentially, investment cases for automation may now be about more than just simple margin improvement, or cost takeout opportunities that previously you could afford to ignore or not do. They could relate and be the answer to existential threats to ongoing business sustainability.

   Conclusions

   If, for whatever reason, you have previously considered automation but decided not to move forward, it may make sense to revisit these potential opportunities.

   Now might be the right time to identify and evaluate automation opportunities. It might also be time to implement anything that is either a quick-win or that could be transformational, be that from an operational or financial perspective.

   Core Catalysts regularly helps clients identify opportunities for increased automation and build business cases to support investment decisions. We also aid in vendor selection through to project management and implementation of automation initiatives, across all sizes, types, and durations of project. If you believe we could help your organization, why not reach out to us to schedule a call?

   We hope you have enjoyed this series of thought-starters for 2022. Thank you once again for reading and please share any thought or comments you have.

   – Mark Jacobs, Client Service & Delivery

2. Questions for 2022 Pt. 2: Price Increases

   February 16, 2022 11:00 am Leave a Comment

   Two weeks ago, we wrote about four questions for 2022 based on factors that we can all agree will influence our business this year. We went further and addressed the first question: Is your organization data literate enough?

   We’ve received some interesting comments related to the need for greater data literacy in organizations. This would enable better examination of weak links in the supply chain, operations process improvement in areas susceptible to disruption, and generally increase organizational flexibility and dexterity across all functions in response to this new “VUCA” world.

   This week, let’s dive into the second question we raised: Should you be considering price increases?

   What we already know:

   Once again, let’s take what we know about 2022, and then apply it to the question:

   • It’s generally accepted that inflation in the United States is currently running around 7%.
   • Unprecedented supply chain challenges and labor disturbances brought on by the pandemic have throttled output. At the same time, the pandemic has increased various costs (such as increased expenditure on PPE, safety protocols, etc.) leading to both increased business expenses and decreased productivity.
   • Conversely, unprecedented fiscal and monetary stimulus has turned demand in the opposite direction to supply.
   • Unemployment rates are at historical lows, creating additional worker shortages and upward pressure on labor costs (meaning additional incremental business expenses).

   Great, but so what?

   No one knows whether current inflation rates will be a short-term aberration or a long-term reality.

   Equally, while supply and demand-side economics may eventually achieve equilibrium, it is highly likely that post-pandemic business expenses will be higher than pre-pandemic ones, affecting profit margins.

   In order to maintain profit margins, businesses can do three things:

   • Decrease expenses
   • Increase prices (to increase like-for-like revenue)
   • Increase volume (to decrease relative costs, increase relative margin through economies of scale, and boost revenue)

   An oft-quoted McKinsey study succinctly lays out the comparative effectiveness of these three strategies:

   “A price rise of 1 percent, if volumes remained stable, would generate an 8 percent increase in operating profits – an impact nearly 50 percent greater than that of a 1 percent fall in variable costs such as materials and direct labor, and more than three times greater than the impact of a 1 percent increase in volume.”

   Put simply, like-for-like, price increases are far more effective than the alternate strategies.

   In the context of 2022, one could also contend the following: While effectively implementing price increases is difficult, it will be even more difficult (nigh impossible) to cut your way to margin maintenance or to increase volumes significantly enough, bearing in mind the expense pressures we are all facing.

   But there’s the rub: effective implementation of price increases.

   The stigma of price increases

   We’ve been involved in multiple price increase projects, and we can tell you the following:

   • Most organizations don’t like asking for price increases (and are bad at implementing them when they do)
   • Most customers don’t like price increases either
   • More than 50% of the time, the net impact of price increases (after concessions to big customers) is either break-even, or negative
   • Done badly, price increases can (negatively) affect customer relationships.

   However, can your business afford not to raise prices right now? If you cannot, what should you do?

   Build your business case for the price increase

   Data disarms. It’s hard to argue with evidence of increased expenses outside of your control, and customers with professional procurement functions will appreciate a fact-based approach.

   Communicate clearly

   In addition to a clear business case, customers respect vendors who communicate clearly. Your message should reinforce shared values, mutual respect, and commitment to an ongoing and mutually beneficial business relationship.

   Plan, Plan, Plan

   Achieving effective price increases is an important muscle in your business. If you are out of practice, the best way to overcome this is to invest the right amount of time, resources, and executive oversight into planning and managing your price increase activities.

   Conclusions

   Based on the extreme levels of expense increases your business is experiencing, you may have no choice but to consider increasing prices. This does not mean that expense reductions are impossible or inadvisable (see the third post in this series), or that increased labor costs cannot be mitigated longer term (see the fourth post in this series), but increasing prices effectively is going to take some time and effort, and you may not have all the resources, experience, and expertise to do this on your own. If this is the case, Core Catalysts may be able to help!

   Thanks once again for reading. Please share any thoughts or comments you have, and we’ll see you again in two weeks for the next question in the series: Have we adequately reviewed business cost structures and all major business expenses in light of how business has changed?

   – Mark Jacobs, Client Service & Delivery