savings

“The purpose of a business is to create and maintain a customer.” This quote is how Peter Drucker once summed up the purpose of a business. Although this saying has fallen out of fashion in some circles, it still holds: business focuses not on creating a product or service but on building close relationships between people and the company. Only when the service is used can a business be considered a business. So, everything that happens before that is, in the truest sense of the word, “advance payment” and, therefore, not yet a business.

Nevertheless, most people within a company focus on what happens before the service is used and before the relationship is established, and they see this as the purpose of their work. Depending on their expertise and function, they develop, design, calculate, manage, and lead, thus creating the costs before any “cash is received.” Who would blame companies and organizations for losing sight of customer acquisition when working this way? Incidentally, the incentives are also typically not geared toward customer use and customer generation but instead toward the performance of the company itself: low costs, high efficiency, maximum profit, and so on. Most CEOs do not receive their million-dollar bonuses because they have generated customers but because they have cut costs in the delivery of services. Efficiency beats effectiveness, according to conventional wisdom…

And so, in recent months, we have witnessed organizations making cuts with a blunt knife to remove anything that seems unnecessary. When people say, “McKinsey is in the house,” it does not necessarily mean an improvement in generating customers but rather an improvement in the cost balance sheet. I can relate to this because costs are the body-fat of a company: too much and it becomes sluggish; too little, and it is malnourished and underperforms. However, costs remain the vital substance from which an organization draws its energy. And if the organization must perform well, it needs the proper nutrients. Anyone involved in sports knows this all too well. If you compete starved, with no reserves or provisions, you won’t survive the race, let alone make an impression.

How can you determine how much excess fat can be trimmed away and how much must stay? Exactly, it depends on what you want to achieve! If you wish to generate customers, it’s not enough to only do the bare minimum; you must perform at your best because you don’t create customers merely by selling—that will generate impassioned consumers. You generate customers by exceeding what they expect and by fostering their emotions. By always being committed, always executing everything you do consistently, acting authentically, and thus standing out from the crowd. In short, by exciting your customers! If you fail, your “customers” will be merely users, buyers, or consumers. They will not connect with you or support your company on the long run.

So, the real art of “slimming down” is ensuring you always have enough substance to inspire your customers. Simply cutting 20% everywhere doesn’t work. Just like athletes, you train your body and build up the necessary reserves where you need them. In business, the same applies: anything that doesn’t contribute to customer excitement can go. High bonuses for managers including fancy cars for the management, endless product choices for retailers, or stock returns for shareholders beyond the ordinary. This can go. And there’s a lot more that can be done.

To be sure that you are cutting costs where you should, you need to know the state of your customer bond: are your customers unemotional users or buyers, or are they already part of a loyal customer base? Measuring customer impact can be enlightening here and provide insight into where and how you can save costs and focus your efforts. If, for example, your impact on customer emotions is declining sharply, yout customers become buyers and will leave for the competition as soon as they can, assuming it is more “exciting” over there. In this case, it is advisable to invest in the design of a coherent brand experience and to reduce the costs for everything else. However, if customers complain about the product range, you can skip the brand refresh and instead invest in creating relevant offerings. The Customer Impact Score is a valuable indicator for measuring customer impact.

Customers are only as good as the company they do business with. So, if you must budget your resources carefully and still want to build a loyal customer base, you must focus on your customers, not on saving money. The closer your customers are to you, the better you know their needs and the more significant savings you can achieve despite – or perhaps because of – this. One indicator of a company’s effectiveness is, for example, revenue per item number. The higher this figure, the more effective the business. What giants like Apple are achieving is still wishful thinking for many companies. Not because they couldn’t do it but because they are still saving in the wrong places. You shouldn’t save on design; you should design the savings!