In this first blog I will focus on an issue that many businesses could be facing right now, profit erosion. They may not be seeing the year on year sales increases they have enjoyed in previous years. With increases in rates, materials and wages and also competitors fighting to retain market share; defending margins will become a priority for many.
The Runner approach is one way that has enabled a number of businesses to make a step change in their cost control and to boost profits. I will outline the Runner approach in this first blog.
I intend to write a blog once a month sharing what I have learned about helping businesses achieves their goals.
The Runner is a carefully selected internal resource, appointed with the remit to identify and facilitate major cost reduction and profit improvement opportunities. Their brief is to look at the business with a fresh pair of eyes, turn stones over with no fear or favour.
The most successful Runners have had a successful track record in the business, are hardworking, analytical, respected, ambitious maybe on the succession plan, confident and assertive, most of all they want to do it.
The process The Runner follows is:
- Investigate areas of opportunity to cut costs e.g. buying, waste, efficiency, stock etc.
- Examine what’s actually happening in each area by getting the facts not opinions.
- Compare what’s happening compared with best practice preferably outside the business i.e. who does this best in the world?
- Run a pilot which is low cost low risk, to test the scope and scale of the opportunity to reduce costs.
- Learn the lessons then either scale up or drop.
Some of the key principles in delivering The Runner role are:
- There is no such thing as a fixed cost, everything should be challenged and investigated for reducing including the accountants audit fees!
- Nothing is off limits; one CEO was spending 100k sponsoring a golfer….
- Get pace into the process, quick wins convince doubters.
- Give the Runner the time and space to do the job properly, one client kept dragging their Runner, a management accountant, back onto preparing the monthly accounts then wondered why they struggled to deliver.
- The process is akin to the zero based budgeting approach and should be used with the same rigour.
The benefits businesses have enjoyed when they have used the Runner in the right way almost always significantly exceed their expectation e.g.one client reduced material cost by 20%, adding £90 million to profits over 10 years, through more effective buying processes, looking outside the industry and bringing world class practises in. Another found opportunities to reduce the waste allowance when building new houses from 8% to 4% without impact on quality or the customer in an industry where average waste ran at 10%. A retailer reviewed staff rotas and saved 600k increasing profits by 20%. These were results way beyond their expectations.
The process works because in the good times many businesses costs get taken for granted and no one has the time or brief to review it. I will share some of these stories in future blogs.
“It’s not what you do it’s the way that you do it that’s what gets results.”
Sam Paddison Runner Hugh Rice Jewellers
I was appointed Runner In March 2017 with the remit to find significant cost reductions in order to support the strategic aim of boosting profits. As Finance Manager of the business trained to follow process I wondered how I was going to cope with what was described as a “creative entrepreneurial approach”. Originally I was asked to split my role 50:50 between Finance Manager and Runner.
The initial few months were frustrating as I found it impossible to maintain the 50:50 split; it was more like 90 Finance 10 Runner because we were installing new systems and controls. However I had managed to identify several 100k’s worth of cost savings and when the MD’s eyes lit up the decision was made to backfill my finance role in order to release me to focus on the cost saving opportunities.
I initially started on the low hanging fruit typical P&L stuff, Rents, Rates, Audit Fees, Staff Rotas and some other areas. I worked on my own on this first phase. Once I was concentrating solely as the Runner the cost reductions far exceeded expectations, adding 37% to the nett profits.
Encouraged by the success of Phase 1 I began to look at things differently and not directly on the P&L, there are opportunities amounting to over £2 million savings adding a potential further 90% to the profits in the second year. Many of these projects will provide competitive advantage so I am not going into detail on them here but we are well on the way to delivering them.
What have we learned so far? The biggest insight has been it is possible to significantly improve profits if you take the Runner role seriously; many of my colleagues were sceptical at the start but were won over by the results we produced.
We have found that in order to make big improvements in profitability you need to free up resources to work ON as well as the colleagues who are day to day working IN the business.
In Phase 1 I produced the results on my own; I didn’t need to work with other colleagues in order to take the opportunities. However in Phase 2 I needed to collaborate with colleagues to produce the results. For example reducing discounting by sales colleagues required working with the stores to share new control information and retrain them not to automatically discount. This was more difficult to achieve as it was a real culture change. During this period I learned that I had to work hard to ensure colleagues trusted me so they truly engaged in the new process.
Is there more to go? The good news is that the benefits of the cost changes and culture changes we have achieved will be now enjoyed every year. Also with variable costs at c.90% we believe there is still plenty to go at.
For me personally this has been a fantastic development opportunity, initially I was nervous, particularly when we backfilled my original job! But this has given me real on the job development and opened so many new doors in the business.