In the second half of 2018, we were asked to support the turnaround of a large, globally active medium-sized company. In collaboration with an internal project team and management, we developed and validated measures with medium-term savings potential in the three-digit million range. We also mapped these measures transparently with a tool for ongoing controlling.
After decades of success, the company has been confronted with a steady erosion of its market position and profitability in almost all businesses for several years now. A broad-based innovation and growth offensive have not succeeded in reversing the trend but have instead exacerbated this negative trend. At the same time, administrative expenses and internal services continued to rise and grow regardless of the sales trend.
In this background, we launched an ambitious program together with the CEO and CFO in September 2018 to once more generate an adequate return on investment. The decisive factor here was an equally structured approach along the entire value chain, as well as a pragmatic approach with a clear prioritization of the relevant drivers. Another success factor was transparency, starting with the number of production sites and their interdependence.
The cost-cutting initiatives developed by Corporate and the businesses (including plant and site closures and reductions in administrative costs) were approved by the company’s Board of Directors as early as December 2018. This has once again created a solid basis for the further development of the company, which is now in the process of being implemented.
To return to the success of the past, this year will not only see a resolute implementation of the identified measures, but also a strategic review of the businesses as well as an increase in organizational efficiency. Both factors, that is, an erosion of the market position and organizational dysfunctions, are the root cause for the current problems in earnings.
Progress at three levels will be needed to improve organizational performance on a long-term basis:
- Leadership: Taking individual responsibility for goals and priorities, common alignment in the leadership team, focused performance dialogues to give a strong leadership team its full impact.
- Collaboration: Focus on overarching success drivers for the entire company, overarching transparency and team play rather than going it alone as basis for a rapid further development of the business and the best possible cost position.
- Positioning: Further optimization of the footprint in production and sales, focusing/efficiency enhancement in support functions and pragmatic realignment of the organizational structure where necessary in order to create a sustainable competitive operating model.
It will be important to dovetail the increase in organizational performance as far as possible with the ongoing operational improvement initiatives and, for example, regard the reduction of overhead functions not as a mere cost compression, but as an improved efficiency. 2018 marked a successful take-off. In 2019, it will become clear whether the strategic and organizational prerequisites will also be created to enable a return to former standing.