Continuous Improvement to Take Market Share – August 2014

This topic concerns strategy.

A small company cannot count on taking market share from its larger rivals by price cutting alone. Even improving quality alone is not a sustainable strategy. A larger competitor can often easily meet price cuts and has many tools at its disposal to compete solely against quality improvements.

An effective means for smaller companies to compete with larger rivals is through continuous improvement driven by following their target customers and adjusting to the changing needs and perceptions of these customers. Among the tools for this effort are excellent service, reputation, customer delivery, safety, and adept management of customer relationships. To deploy this approach, management must operate every aspect of the business with a laser focus on maintaining and enhancing its organizational flexibility in order to quickly exploit opportunities as they arise.

While this effort should be spearheaded by the CEO, there are several means through which the CFO can drive the organization to achieve the firm’s competitive goals.

The first way the CFO can help is by improving cash and working capital management. Although large companies typically don’t care much about terms offered by a small company, this should not preclude a constant push on collections, inventory management, and payables management. Often, slow steady pressure results in modest improvements in collections as resistance erodes. Other tools to improve working capital management include tracking movement of inventory, prioritizing bills due, and making use of credit or purchase cards to improve float.

Another contribution the CFO can make is through cost control efforts. Vast cuts are not necessary, nor advisable. Cost reductions should be made only if one can justify that revenue will not fall by as much or more than the costs saved. If not pursued in this manner, the company is constrained, thereby allowing competitors to move ahead.

For a small company, to become a low cost provider is folly as it reduces capital available for R&D and other growth opportunities. Instead, the focus should be on providing better quality and service. In this respect, the CFO can contribute by ensuring the maintenance of local inventories; accurate and timely shipping; and simple, clear invoices.

Another aspect of competitive strategy is to understand why the firm’s product/service is good for the customer. In turn, this requires an in depth understanding of the customer. The CFO can help by providing data on customer metrics that help define and categorize customers as well as pinpoint meaningful attributes sought by the customer.

For small companies to compete with larger rivals, management must stay clearly focused on why it belongs in their market and instill a sense of purpose throughout the organization. The CFO can be instrumental in this effort by helping make sure the customer has fewer reasons to go elsewhere; maximization of cash flow; and providing information upon which optimal decisions can be formulated and implemented.

Capitol CFO Solutions serves clients in Washington DC, Maryland, and Virginia. Please contact us for a free consultation.