Faced with uncertainty, companies are generating profits by using the one unlimited resource we have: human mind power
Profitable businesses undergo an endless, iterative process of minimizing operating costs while maximizing revenues. Conceptually, the equation is simple: lower operating costs + stable or increased revenues = increased profits.
However, in the past few years, uncertainty in global politics, economics, and social structures has intensified the pressure on businesses to deliver more results in less time with fewer resources. This pressure has yielded both painful and positive results.
The painful results are obvious: weakening currencies, depressed corporate earnings, restricted cash flows, high unemployment, and a volatile stock market.
The positive results are important, but a little less visible. Because of downward pressure, companies large and small are forced to be even more creative. They are adapting to a world of natural resource constraints, defining productivity and performance over a longer timeframe, and modifying their feedback mechanisms to measure success in new, more accurate ways consistent with the new global reality. In short, they are learning how to squeeze more value out of their operations with the same or fewer resources.
In the same way companies create value-based pricing for products or services, they are now beginning to achieve greater profits by questioning what benefits their activities deliver, and then creating more effective means to generate those benefits. One resource that is guaranteed to be available in abundance is people. And companies are finding new ways to leverage this resource to create more value.
One particularly noteworthy example is PepsiCo’s “Refresh Project.” In 2008, PepsiCo spent a reported $33 Million on ads during the Superbowl. In January of 2010, PepsiCo decided for the first time in 20 years not to advertise during the Superbowl at all. This re-evaluation of activities does not imply that they value advertising any less. The Refresh Project arguably heightens brand awareness for a wider captive audience due to the nature in which people interact with the brand. What they did was look at the benefits of their actions and found a way to create more value with fewer resources.
Through the PepsiCo Refresh Project, the company distributes $1.3 million each month in grants to individuals, non-profits, and businesses who submit ideas to help improve the environment and “refresh” their communities. A back-of-the-envelope calculation quickly shows that the annual cost of the Refresh Project is roughly half ($15.6 Million) of the $33 million spent on one night of Superbowl ads. (This excludes the sunk costs of project launch, new legal framework, and project maintenance team. However, presumably the $33 million figure did not include the ad concept creation, editing, compliance, and implementation phases either.)
PepsiCo was able to cut their advertising budget in half while attracting a wider audience that actively interacts with their brand over a longer timeframe. At the same time, they have used the project to create voluminous content, generate new ideas, and develop a new brand supported by positive messaging. They are making productive use of every dollar spent with community-based initiatives that have no other associated costs or expenses for the company.
PepsiCo has found a way to generate business value by leveraging the one unlimited resource we have: mind power. This is one of the primary ways that companies will be creating value in the new economy.