Probably not – but its price may be.
Following up on my previous post on costs, it may be worthwhile to focus on Greece and the specific challenges faced by local companies.
With 73 Small-Medium Enterprises (SMEs) per 1000 inhabitants, far exceeding the European Union norm, Greece has a dominant SME segment . This results in overly fragmented markets, hence companies often find that they overspend in order to differentiate and communicate their value proposition, as well as attract and retain customers.
Furthermore, the modest size of the local market hinders the development of scale and scope efficiencies, which can come only as a byproduct of strong exports. Even so, the swings in the business cycle of such a small market are very wide. In addition, expanding the business can get very expensive; consequently, strategic planning is lagging and investments are hard to justify.
As the impact of the financial crisis to Greek businesses accumulates, some risks are becoming more prominent. In particular, a convoluted and unstable corporate taxation framework affects companies’ net income, but also jeopardizes their business planning as they need to consider all those nested tax cases. Finally, lack of payment from corporate and retail customers alike, is growing at an alarming rate and “bad debt” becomes a major concern.
Principles to stand up to the challenge
To begin with, nothing can be improved before it gets measured. The common-sense advice to “(1) record (2) monitor (3) act” holds true for costs as well, and can bring substantial benefits even when performed at an elementary level. Moreover, lack of resources across the smallest of the Greek companies means that the bar is set fairly low, making cost monitoring a potential source of competitive advantage.
Monitoring costs and acting upon relevant insights should not be limited to cost-cutting. On the contrary, the most challenging and rewarding part of this process is identifying those expenses that make a difference, and increasing the share of resources dedicated to them. For instance, analysis may reveal that a free shipping promotion may be preferable to steep discounts. It is unfortunate that sometimes the Greek word for “investments” takes on a tone of negativity, because sustained profitability is based on a solid investment strategy that is aligned with the company’s goals and operating environment.
Achieving both long-term performance and short-term liquidity, however, may be more complicated than that – and more relevant to the current problems faced by these Greek companies. In this game, whoever optimizes operational expenses best, wins. Apart from renegotiating property leases, requesting additional lines of credit, and the like, it may be necessary to use creative payment schemes. For instance, modifying the payment terms with a key supplier to a revenue-sharing model can bring some relief; leveraging other pay-as-you-grow practices (like “software as a service”) may provide further flexibility.
Finally, the toughest costs to manage are related to a company’s workforce; unfortunately, the rigidity of Greek labor laws sometimes leads to extreme measures (including layoffs). The company’s leaders must proactively exhaust all possibilities of mutually beneficial arrangements (e.g. part-time work, telecommuting or performance-based compensation). This alone can make a big difference in companies of up to 10 people, which comprise the vast majority of the SME segment.
No silver bullet
The situation for Greek companies is far from enviable: the name of the game is “survival”. A sharp focus on costs, no matter how effective, is not sufficient to turn things around. It is, however, absolutely necessary.
 Source: 2008 SME fact sheet at http://ec.europa.eu/enterprise/policies/sme/files/craft/sme_perf_review/doc_08/spr08_fact_sheet_gr_en.pdf