As part of ASEAN – the world’s third largest market by population1 – Malaysian companies can benefit from looking beyond national borders for new growth opportunities. Global and regional trade initiatives such as the recently revived Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), China’s Belt and Road initiative (BRI) and the ASEAN Economic Community (AEC) are expected to contribute to Malaysia’s annual GDP growth of 5% per annum up to 20252. In addition, the Malaysian government’s Digital Free Trade Zone (DFTZ)3, is expected to provide a further avenue for growth for Malaysian companies. Surely then, the growth outlook for corporate Malaysia is rosy?
Accenture’s Revenue Growth research4 highlights that over half (56%) of organizations feel that their current growth strategy faces risk of disruption. At the same time, 81% of companies believe they will grow faster than the competition by 2020. Despite their belief, the law of averages dictates that not everyone will be successful.
How confident are you that your organization will attain its 2020 projected growth rate:
Our experience with Malaysian clients highlights a key fact – leaders want to invest in growth. However, the pressures of meeting P&L targets means they often are unable to find the resources and funding to fuel these growth initiatives. This is akin to the delusion that millennials are so often accused of having today – complaining about not having enough money whilst sipping on a designer coffee. It is commonplace for companies to aspire towards rapid revenue growth in their efforts to improve profitability without taking a hard look at cost management. However, winners will be companies who are willing to ask the tough questions today to unlock value from their P&L and address these challenges head on.
Leading companies are paving the way by implementing a Zero Based Mindset (ZBx) approach. Unlike traditional methodologies that use a cut-the-fat (but eventually gain-it-back) approach like every fad diet, ZBx is like a lifestyle transformation. Think of it as cutting back on unnecessary expenditures that you pick up over time – like that cup of artisanal coffee every morning, or replacing it with more wallet-friendly alternatives – such as a cup of instant coffee in the office.
ZBB implementations focus on cost management and efficiency using a closed-loop process. Think of it as a virtuous cycle of self-reinforcing insight and action that constantly challenges costs:
Most companies have ongoing cost intervention programs but the results pale in comparison to what companies are getting from ZBx. Many find it to be the closest thing to a winning playbook for removing waste and freeing up capital. 91% of companies which embark on the ZBx journey fully meet the targets set with an average annual cost reduction of 15%. Delaying ZBx implementation by even 1 week could have an opportunity cost of $5 million for a large organization5.
As a start, we recommend the following ‘to do’ list for all leaders.
Tackle the entire P&L: Most companies dip their toes in a ZBx programme by addressing General & Administrative (92% of the cases) where it is emotionally easier to address the costs. Increasingly companies are beginning to look across the P&L and beyond indirect costs where there is enormous potential for savings. This push into direct costs is not as simple as a “lift and drop” of the SG&A approach. Winning with ZBx in direct spend requires internalising the winning principles of a closed-loop cost management process to identify and rebuild the costs that companies “should” have across the entire P&L and then reinforcing that with regular monitoring and enforcement. No costs are sacred and leaders should work towards challenging all kinds of spend.
Shift cost curves with digital: ZBx does not rely on “Quartile 1-4” based cost benchmarks to direct companies on how they should be spending. It instead aims to help identify new ways of doing things through digital means to achieve a new “Quartile 0”6 performance. This approach will enable companies to shrink entire cost buckets instead of incremental improvements. This future focus reflects a continuous improvement mentality that accounts for the impact of digital technologies, sustainability practices and other dynamic forces on enterprise-wide cost profiles over time. Accenture’s Digital Performance Index research highlights that only 30 percent of Malaysian companies have made the effort to improve their employees’ digital skills – companies will have to invest considerably more in this area if they are to reap the benefits of ZBx7.
Digital helps to achieve “Quartile 0” for Procurement and Supply Chain – a large Malaysian GLC was able to jump from 10% same day Purchase Request (PR) processing to over 90% by leveraging Robotic Process Automation8
Build an ownership culture: Change management must be an ongoing process. “Decaf” approaches that do not deliver enduring behaviour change are simply not sufficient to sustain cost benefits. The core principles here are accountability and transparency across all levels of the organization, not top-down mandates that feel arbitrary to employees down the line. Leading by example is a critical part of this. Our research reveals a high correlation between the engagement level of top management in a ZBx program and obtaining the desired results. In Malaysia, when an asset manager for an offshore oil company decided to execute crew changes using fast crew boats instead of helicopters to decrease costs, the asset manager travelled with the crew on the boats despite being entitled to fly in – demonstrating the behaviour change required of the staff.
Companies have always needed to stretch their budgets to fund important initiatives or to meet their margin targets. What’s different today is that savings must be even bigger and bolder to fund the growth strategy and the pivot to digital business models. It’s time for leaders to face the facts, you will need more than coffee to fuel your growth.