Fit for Growth

A Guide to Strategic Cost Cutting, Restructuring, and Renewal

Vinay Couto, John Plansky, Deniz Caglar

• Editorial: Wiley
• Año: 2016
• ISBN:
  9781119268550
• Edición: 1
• Categoría: Business
• Categoría: Operations

A practical approach to business transformation

Fit for Growth * is a unique approach to business transformation that explicitly connects growth strategy with cost management and organization restructuring. Drawing on 70-plus years of strategy consulting experience and in-depth research, the experts at PwC's Strategy& lay out a winning framework that helps CEOs and senior executives transform their organizations for sustainable, profitable growth. This approach gives structure to strategy while promoting lasting change. Examples from Strategy&'s hundreds of clients illustrate successful transformation on the ground, and illuminate how senior and middle managers are able to take ownership and even thrive during difficult periods of transition. Throughout the Fit for Growth process, the focus is on maintaining consistent high-value performance while enabling fundamental change.

Strategy& has helped major clients around the globe achieve significant and sustained results with its research-backed approach to restructuring and cost reduction. This book provides practical guidance for leveraging that expertise to make the choices that allow companies to:

• Achieve growth while reducing costs
• Manage transformation and transition productively
• Create lasting competitive advantage
• Deliver reliable, high-value performance

Sustainable success is founded on efficiency and high performance. Companies are always looking to do more with less, but their efforts often work against them in the long run. Total business transformation requires total buy-in, and it entails a series of decisions that must not be made lightly. The Fit for Growth approach provides a clear strategy and practical framework for growth-oriented change, with expert guidance on getting it right.

* Fit for Growth is a registered service mark of PwC Strategy& Inc. in the United States

Part I
Introduction and Fit for Growth Overview

1
Do You Need to Cut to Grow?

What is currently inhibiting your company's ability to grow? Is it simply the global economic headwinds all companies are trying to navigate? Or is it rising consumer expectations? Digital technology disruption? Increased regulatory scrutiny? Competitive pressure on margins? Commodity volatility? Or has an activist investor just taken a substantial stake in your company and demanded immediate and drastic cost savings?

It doesn't matter. The effect is the same. Whether they're trying to jump-start flattening revenues or facing imminent bankruptcy, companies across industries and geographies are realizing that the only way to unleash growth—profitable growth—is to cut costs, often dramatically. In the globally interconnected, digitally disintermediated market in which all enterprises operate today, there is no safe harbor when it comes to the bottom line. To protect and bolster it, companies need to focus on managing costs as rigorously as they concentrate on growing revenues. In fact, as with any living organism, there is no profitable growth without equally robust pruning.

Welcome to the New Normal.

So, are you fit to weather this tough competitive environment and come out ahead? We've devoted 70 years of collective experience to helping dozens of companies answer this question affirmatively: Are you Fit for Growth?

To be fit in this way means to be prepared as a growth enterprise. This is not just a matter of innovation prowess, entry into new markets, or acquisition savvy. It means to have your resources, and thus your cost structure, aligned to your company's overall strategy—deployed toward the right businesses, initiatives, and capabilities to execute your growth agenda effectively. Fit for Growth companies have the right amount of resources they need to compete effectively—no more, no less—at the right places. As we noted in the Preface, companies become Fit for Growth by doing three things consistently and continuously:

1. They focus on a few differentiating capabilities.
2. They align their cost structure to these capabilities.
3. They organize for growth.

To focus on a few differentiating capabilities, you must build a clear identity for your company, based on the things you do better than any other company. These differentiating capabilities—the three to six combinations of processes, tools, knowledge, skill, and organization that enable your company to outperform—are at the heart of the Fit for Growth approach. When you know what your company does well and base your strategy on it, it gives you a “lighthouse”: a clearly defined, focused goal that everyone in the company can see that directs them all to fulfill the same objectives. In such companies, employees know what drives the company's strategy; indeed, outsiders know, too.

But too many companies have not achieved this focus, and you can generally tell by the distractions endemic to working there. Too many initiatives clog people's calendars. Managers go to multiple meetings on unrelated topics every day. The best talent is tasked on so many high-priority programs that they are burning out. The distractions drain financial resources as well, so it's no wonder that these companies routinely underinvest in the activities unique to their enterprise, where they have begun to build a distinctive edge.

If a company's cost structure is not aligned to the company's strategy, its leaders will base their spending on other factors—generally to the company's detriment. We often see companies struggle this way. You can spot them because of symptoms like these:

• They use benchmarking as a way to make allocation decisions. Every function from marketing to HR to risk management is pursuing an excellence agenda, spending significant money to be “best in class”—better than other companies, whether or not those functions are strategically critical to the company.
• Legacy programs with little impact continue to get funded—becoming self-sustaining organizations in their own right—while priority growth initiatives cannot get off the ground.
• The budget process is basically “last year plus 3 percent,” and staffing levels are out of sync—they might have twice as many finance people counting the money as sales people bringing it in, for example. Every couple of years, they go through a “fire drill” cost-cutting program to reduce overhead, and then watch the costs steadily creep back.

Last, if a company is not organized for growth, inefficiencies proliferate and decision making becomes uncertain. The internal bureaucracy is so cumbersome that it takes a week to get a sales quote approved; meanwhile your competition wins the business. Decisions made weeks ago still have not been executed and, worse, frequently come back for reconsideration. Information moves haltingly through the organization and is not readily available to the people who need it. People are afraid to take calculated risks for fear of failure and career derailment, which stifles innovation. Managers actually “manage” fewer than four staff on average and are overinvolved in their subordinates' work. Incentives don't motivate behaviors that drive the company's strategic priorities.

You get the picture. Too many organizations are not Fit for Growth, and their employees, leaders, and shareholders are living with the consequences. In fact, the majority of institutions—both private and public—display some or all of these symptoms.

In the current business and economic context, company leaders cannot afford to let their organizations get or stay out of shape—not if their goals involve profitable growth. They need to focus on what they do best, align the cost structure, and organize to support the strategy. They need to accept the facts: they need to cut to grow.

And that is hard. It requires difficult choices and wrenching trade-offs. Not everything you do is a differentiating capability, which means that you are probably overinvesting in the rest of your processes, systems, and organization if you haven't made conscious choices on how to allocate costs. This is particularly true of large, mature companies that have settled into a complacent, comfortable rhythm. The lean structure and laser focus of their early years has dissipated, and it becomes increasingly difficult to get back in shape.

Consider the cautionary tale of consumer electronics retailer Circuit City.

Circuit City: The Ostrich Approach

Circuit City's precipitous fall from grace vividly illustrates what not to do in the quest to be Fit for Growth. Forced out of business in early 2009, the once thriving big-box chain careened from solvency to bankruptcy to liquidation in less than six months.

Why? Because management did not adhere to the Fit for Growth formula. They lost sight of their differentiating capabilities system, which was centered on the hand-holding, advisory relationship they had developed with middle-class consumers looking to buy big-ticket electronics devices. Therefore, when it came time to cut costs, they cut into this productive muscle—undermining the customer experience—instead of shedding other nonessential costs. Last, they did not make the changes to their organization necessary to protect and promote what they did best.

Serial entrepreneur Sam Wurtzel was onto something big in 1949 when he opened a television shop in the front half of a tire store in Richmond, Virginia. He foresaw the American public's fascination with the fledgling medium and helped put a TV set within lower-income families' reach by offering installment payment plans and free overnight in-home demonstrations.¹

In the flush postwar 1950s, Wurtzel sensed the growing demand for refrigerators, washing machines, and electric stoves and capitalized on that wave by offering appliances in his stores. He spotted the trend toward big-box discounting and was one of the first retailers to build superstores. Over the decades, under continued astute management, Circuit City expanded its offerings from TVs to appliances and personal computers. By 2000, it was the dominant electronics retailer in the country with 60,000 employees at nearly 700 locations and annual sales of more than $12 billion. Circuit City was ranked in the top 200 of the Fortune 500 and was featured in management expert Jim Collins's bestseller Good to Great.²

Circuit City flourished for decades with a commissioned sales force trained to hand-sell expensive and complicated home entertainment systems and appliances, along with extended service plans. These salesmen in sports jackets were the cornerstone of the company's business model, and they felt a sense of pride and loyalty in the company. They were experts in their field, educating buyers and participating in the rewards. Circuit City built its value proposition around the customer experience this veteran sales force delivered.

But as the company advanced toward the end of the century, it lost sight of this differentiating capabilities system and did not evolve it to meet changing customer needs. Circuit City did not adjust its product assortment or store formatting to keep up with retail trends or the times, and failed to play to its strength in customer experience enabled by expert advice. It also strayed from its premium-customer-experience value proposition when it signed cheap real estate leases for “B”- and “C”-grade sites inconvenient to customers.³

You have only to look as far as Best Buy—which experienced steady growth as Circuit City's sales declined—to understand what Circuit City could have done differently.

It could have sought opportunities to keep its trust-based premium advisory capabilities front and center. It could have invested in locations more convenient to customers and attracted traffic by offering the full line of home theater systems, accessories, peripherals, and gaming software. It could have streamlined the shopping experience for busy customers and been earlier and bolder in capitalizing on the promise of the Internet, especially in the services arena, where it had a natural advantage. In fact, high-end advisory services—such as home entertainment system consulting and installation—were a natural market opportu...