Geoff Clarke, COO, IPG Mediabrands Australia
Company overhead - or in others words the ongoing expenses a business incurs that are not directly related to the production of goods or services - are essential for the overall operation of the business but don't contribute directly to generating revenue. But do they?
That’s not the most exciting opinion piece opening I know, but as business sector economics rapidly transform from old world to new world, fueled by technology convergence¹, we need to re-focus our attention on the underappreciated, often neglected company overhead.
“Your overhead is too high; you’ll need to discount to proceed with commercial discussions."
While a standard negotiation tactic, all businesses large and small are guilty of reducing their position with one simple key stroke.
Old Rules, New Reality: Rethinking Business Priorities
The old economic paradigm prioritised revenue-generating activities, often neglecting the importance of overhead costs. This approach, while seemingly logical, can stifle innovation and limit growth. Today's business landscape, driven by technology convergence and skilled talent, demands a more nuanced approach. While revenue generation remains crucial, companies must recognise that efficient operations and human capital are equally vital for long-term success.
Investing in technology and empowering employees not only enhances productivity but also strengthens the foundation for future growth. By strategically managing overhead, companies can unlock hidden potential and achieve a sustainable competitive advantage.
Tech Convergence: Protect your engine room credentials
Technology convergence¹ is quickly reshaping the very core of how a company functions. Its ability to streamline operations, personalise experiences, and accelerate decision-making is undeniable. This transformative power demands a fundamental shift in how businesses approach their infrastructure and overhead. Companies must recognise that technology, including research & development (R&D) investments, is no longer a peripheral expense but a strategic asset. These investments are essential for driving innovation, enhancing productivity, and ultimately, shaping a company’s future and the quality of its output.
By embracing technology convergence¹ and protecting the talented people that drive its development and implementation, companies can unlock unprecedented levels of efficiency, competitiveness, and employee satisfaction.
From Expense to Asset: Rethinking the Value of the Overhead
In an effort to highlight the importance of protecting a company’s overhead, viewing it as a strategic asset, rather than a commoditised item open for discount, following are some clear benefits to protecting and prioritising.
- Improved Efficiency and Productivity:
- Investing in Technology: By not cutting back on technology investments a company can streamline processes, automate tasks, and reduce manual effort. This leads to faster turnaround times, fewer errors, and higher valued output.
- Talent Development: Investing in training, development, and employee well-being fosters a more engaged and productive workforce, leading to higher quality work, better problem-solving, and increased innovation.
- Optimising Resources: By properly allocating resources to essential functions, companies can avoid inefficiencies and waste. This can include investing in better infrastructure, improving communication systems, and streamlining operational workflows.
- Enhanced Innovation and Growth:
- Research & Development: Investing in R&D allows companies to explore new ideas, develop innovative products and services, and stay ahead of the competition. This leads to long-term growth and market leadership.
- Strategic Partnerships: Investing in new partnerships and collaborations can unlock new opportunities, accelerating a company’s growth trajectory.
- Brand Building: Investing in marketing, branding, and customer experience builds a strong brand reputation in turn attracting loyal customers. This leads to increased sales and revenue.
- Increased Resilience and Sustainability:
- Stronger Financial Foundation: By maintaining a healthy financial foundation, companies can weather economic downturns, adapt to market changes, and invest in future growth.
- Improved Risk Management: Investing in risk management strategies, such as robust cybersecurity measures and disaster recovery plans, protects businesses from potential threats and disruptions.
- Environmental Sustainability: Investing in sustainable practices, such as energy efficiency and waste reduction, reduces your environmental impact and builds a more responsible business model.
- Improved Employee Satisfaction and Retention:
- Positive Work Environment: Investing in a positive work environment, including comfortable facilities, supportive leadership, and opportunities for growth, attracts and retains top talent.
- Employee Empowerment: Investing in employee empowerment, such as providing autonomy and decision-making authority, fosters a more engaged and motivated workforce.
- Competitive Compensation and Benefits: Offering competitive compensation and benefits packages ensures companies attract and retain skilled professionals.
Investing in the Engine Room: Why Overhead Matters for Long-Term Growth
So while front line roles, responsibilities and services will always have a direct and tangible connection to company revenue, those talented people working within the company engine room, those driving in this case advancements through technology will help drive long term competitiveness, sustainability and ultimately shareholder return.
In an era defined by rapid technological advancements and evolving business models, the traditional view of overhead as a mere discountable expense is no longer tenable. Companies must recognise that investing in their "engine room" – the technology, talent, and infrastructure that drive efficiency, innovation, and growth – is not a cost but a strategic investment. By embracing this shift in perspective, businesses can unlock a wealth of potential, fostering a culture of innovation, resilience, and sustainability.
The benefits of prioritising overhead are undeniable. From streamlined operations and enhanced productivity to increased innovation and improved employee satisfaction, investing in these crucial areas lays the foundation for long-term success. While revenue generation remains paramount, neglecting the engine room that powers it can lead to stagnation and ultimately hinder a company's ability to thrive in a dynamic marketplace.
It's time to move beyond the outdated old-world notion of discounting overhead. Instead, embrace the transformative power of technology convergence¹ and the value of a highly skilled workforce. By strategically managing overhead and investing in the resources that drive growth, companies can position themselves for a future of sustained success and competitive advantage.
The future of business lies in recognising the interconnectedness of revenue generation, operational efficiency, and human capital. By embracing this holistic approach, companies can unlock their full potential and navigate the ever-changing landscape of the new world economy.
¹ The reference to Technology Convergence in this article is referring to the combination of but not limited to Generative and Specialised AI, Machine Learning, Deep Learning and Robotic Process Automation)