Jim Hollingshead, CEO of Insulet, has a problem that most C-suite executives would envy. For eight consecutive years, the medical device maker has reported at least a 20% increase in revenue growth.
Insulet’s flagship product is the Omnipod, a wearable insulin pump that automatically delivers multiple daily injections for people with diabetes. But while revenue is rising sharply, so too are expenses— including for research and development as Insulet works to improve the company’s products, expand beyond the 25 countries it serves today, and create new medical devices.
“That creates all kinds of challenges,” said Hollingshead during a virtual conversation hosted by Fortune on Wednesday. “And so cost management for us is multifaceted. Prioritizing what we are actually building is really important.”
To wrangle all the innovation avenues that Insulet could pursue, but may not actually result in a product that is brought to market, Hollingshead said Insulet has spent most of the last two years pairing back the company’s R&D portfolio to focus more on what could be brought to market in 2024 versus what’s to come in three years. “It’s allowed us to get much sharper,” said Hollingshead.
Business leaders are facing pressure to address costs amid a difficult economic climate after a few years of high inflation and increases to labor costs, both of which have eased of late but remain challenging. When C-suite leaders were asked what their top three strategic priorities were for 2024, executives across North America, Europe, and Asia all ranked “reduce costs” as their top priority, followed by growth, according to a Boston Consulting Group survey of more than 600 global executives.
But while companies are often able to hit their initial cost savings targets, they struggle to remain lean. In North America, 41% of executives said costs eventually creeped back into the business, while nearly a third admitted that cost-cutting hurt their business or growth ambitions.
Paul Goydan, managing director and senior partner at BCG, said that businesses today are cutting costs, in part to help boost their bottom line, but should enact those cuts surgically and free up resources to invest where they need to invest.
At Anywhere Franchise Brands, a franchisor of real estate brands including Coldwell Banker Affiliates and Century 21, President and CEO Liz Gehringer said the pandemic forced big changes to how agents interacted with clients. Home buyers were willing to do a lot more virtually, resulting in big cost savings from fewer in-person events and meetings at the brokerage office.
“Those were great fundamental shifts in cost savings, but now, are those things still satisfactory?” asked Gehringer. “Will people still accept business done that way? And what’s the hybrid approach?”
Office space is an expense that can continue to be looked at closely, Gehringer said, because there’s still less being done in person today. She also sees an opportunity to combine some siloed, service-focused functions across all the businesses Anywhere Franchise Brands handles.
In just the first year following the merger of Harris Corporation and L3 Technologies in 2019, L3Harris Technologies cut $650 million in costs, saving $100 million on just the combination of two headquarters into one, as well as shutting down some duplicate facilities and using their combined might when negotiating bids from vendors. The defense contractor, which generates $20 billion in revenue annually, is in the process of an additional $1 billion, three-year cost cutting project.
Last year, L3Harris fended with activist investor D.E. Shaw, agreeing to add two new members to the company’s board as a result of a pact that would also look at costs and the company’s operational performance.
“There’s that Wall Street short term focus on quarter results and we try to take a longer term approach,” said L3Harris CEO and Chairman Christopher Kubaski.
GXO Logistics CEO Malcom Wilson said that when it comes to forecasting, the pace of supply chain disruptions is increasingly jarring. Four years ago, there was the global pandemic, followed by manufacturing difficulties in Asia, and then shipment disruptions along the shores of major ports in Los Angeles and Long Beach, Calif.
“It’s very difficult today to make a plan for a year and anticipate that plan is going to be achieved, trouble free, and everything is going to happen as you expect it to,” said Wilson, who leads the contract logistics provider.
“If you’re not prepared for disruption tomorrow, you are not prepared,” said Mary Powell, CEO of Sunrun, a home solar panel and battery storage provider. “My orientation has always been that the way to win is to have the leanest, fastest, highest-performing customer obsessed organization.”
When managing talent expenses, staffing a company with high quality talent doesn’t mean the quantity should also be so large too. “People create work,” said Powell. “They create work as much as they do work. It is so important that you have only the right amount of people in your organization.”
Designer Brands CEO Doug Howe said that within retail, each year they reset their plans and think about cost efficiencies and innovation. The company, whose brands include Keds and Topo Athletic, is particularly excited about generative AI.
One area of focus when leveraging AI are efficiencies, said Howe, and while there is obviously a strong desire to lessen costs, Designer Brands is leaning more toward productivity. As an example, the company creates hundreds of product descriptions of Designer Brands’ website, a laborious process that’s being streamlined in a generative AI pilot program that allows the team to create 800 product descriptions in just 20 minutes.
“That would have taken a team weeks prior to that and it’s actually better content,” said Howe. “It’s more relevant for the customer. It’s more efficient for the business.”
