- You can’t prevent the earthquake. But you can prepare your cost structure.Have you ever experienced an “earthquake”? I have, in August 2016.
We were travelling in Rome with the kids (they were little back then). It was in the morning; we were finishing getting dressed at the hotel to go out, and suddenly everything started shaking.
It wasn’t strong or violent.
For a few seconds, the entire building seemed to shake, as if someone huge had picked it up and gently shaken it.
And the strangest thing wasn’t the movement itself, but the feeling it left you with afterward.
For a few seconds, you don’t know if something really happened or not.
Whether it was the building.
Whether it was your head.
If you just imagined it.
Until you realise that yes, it was real. That it was an earthquake, even if very far away.
The epicentre was about 300 kilometres away. In Rome, we only felt the aftershock, a slight sway. Nothing more.
But the feeling that lingers is something else: we are nobody. That there are things which, in seconds, can change everything.
And that, often, there is absolutely nothing one can do.
- Because an earthquake in one's cost structure cannot be avoided, but one can prepare for the impact—and that is what I shall elaborate on in the forthcoming minutes.
When one is not sure if something has transpired, but it has.
That moment is highly uncomfortable.
Because there is no clear sign—nothing falls, no alarms are triggered, no one runs…
And yet, one knows that something has shifted beneath one's feet.
That is precisely what I observe daily within numerous large corporations when discussing cost implications.
There is no visible crisis.
There is no immediate crisis to mitigate.
There is no financial collapse.
However, a shift is discernible:
Margins are progressively diminishing.
- Deviations are increasingly prevalent.
- And forecasts are no longer readily achieved.
- And, as I experienced at that hotel, the typical reaction is one of uncertainty:
- Is something genuinely transpiring, or is it merely a perception?
- Is it a structural impediment or a singular occurrence?
- Should I take action or wait?
- False reassurance poses the greatest risk. There was no panic in Rome because the earthquake was distant, slow, and muted.
Nothing “serious” transpired.
And precisely for that reason, it is easy to trivialise it.
The same applies to costs.
Large corporations seldom collapse overnight.
The unfolding events are far more subtle:
- minor inefficiencies that become chronic;
- decisions that are reiterated simply by virtue of their existence;
- cost structures formulated for a context that is no longer extant.
- It is a perpetual drain on resources that one cannot eliminate, only optimise.
- And the most perilous aspect is to presume that, since nothing has yet transpired, nothing will occur.
- There are elements beyond one's control. Others are within one's purview.
One cannot prevent an earthquake; it is not within one's remit. One may choose to worry or not, but that does not alter the prevailing situation.
At that moment, in that hotel, there was nothing I could do except accept that there are forces far greater than oneself.
However, a company’s costs are not an earthquake—fortunately—or if they are, they can be minimised.
And this distinction is key for a CEO or a CFO.
The issue is not market uncertainty, inflation, geopolitics, or energy.
That would be the earthquake.
The problem is not having prepared for when the tremor hits, even if it’s mild.
- Because the companies that truly suffer are not the ones facing an external shock, but those that realise too late that their internal structure was not prepared to absorb it.
Most companies react only after everything has already shifted.
Many organisations react only when:
- the budget no longer balances;
- the board starts asking questions;
- the deviations are too visible.
- And then they act quickly.
- Sometimes too quickly, because reacting is not the same as anticipating, and urgent decisions do not distinguish between cost and value.
- That’s not optimisation; it’s reaction.
- Optimising costs is not about preventing an earthquake; it’s about designing the building well.
They are built on the assumption that there will be movement, and cost optimisation should work the same way.
It’s not about spending less just for the sake of it, but about understanding:
- which costs are structural and which are inertia;
- which processes add real value and which just take up space;
- which decisions are made out of fear and which are made strategically.
- A well-optimised company is the one that holds up best when things change.
Most companies react only after everything has already shifted.
Many organizations react only when the budget no longer balances, the board starts asking questions, or the deviations become too visible. Reacting is not the same as anticipating.
- If you commence early, the impact is less severe. The distinction between an enterprise that encounters difficulties and one that adapts effectively is not the magnitude of the upheaval, but rather when it initiated preparations.
If you commence addressing your cost structure now:
- you detect pressures before they become critical;
- you can prioritise judiciously;
- you make decisions devoid of urgency or undue disruption.
- And when the aftershocks manifest—as they invariably do—you will not be caught unawares.
- Do not await an earthquake—prepare for it. It is evident that certain factors are beyond your control, whilst others are manageable, even if you would prefer not to address them at present.
When addressing costs, anticipating potential issues demonstrates responsibility.
Because true optimisation commences when you decide to design a structure that can withstand, even when the ground experiences minor tremors.
If you wish to discuss how to construct that framework within your company, simply drop me a queue.
Thank you for reading.
Feliz día.
