In recent times and accompanied by the unfavorable situation, we find many organizations with serious problems in their results. For this reason, in a more or less organized way, many are currently restructuring to remain competitive with elements such as relocation of production centers, reduction of staff, changes in the organizational structure, closing or opening of business units, etc.
The problem that appears many times in restructurings is that they act hastily and are very focused on the short term (and not so much on the client), thus endangering the medium-long term viability of the company, although short-term results can be very positive.
In our work we find restructuring where basically what is done is to take the profit and loss account, see the most important items and from there start with objectives of the type: reduction of 7% in the cost of direct labor, reduction Rejection rate 3%, reduction of 6 points in the ratio of indirect to direct labor without taking into account the impact that these measures will have on the company's competitive position and on the client.
Therefore, when proposing a restructuring, an analysis of the value proposition to the client must be made - and that it must be aligned with the company's strategy - and from there, a cost-benefit analysis of each of the processes.
A practical case that shows this situation is, for example, companies that differentiate themselves from their competitors due to exceptional customer service, offering differential delivery times compared to their competitors.
When they start the restructuring, they make reductions in their productive capacity and then they have "typical market" service dates, which, although they achieve a significant cost reduction, mortgages their future since they themselves have eliminated one of their basic competitive advantages.
In addition to taking the client into account, as we have mentioned, some practical tips in a restructuring are:
- Have a strategy and its corresponding plan (with their respective scenarios) to balance between the short and long term strategy.
The strategic plan must define the path, objectives and deadlines to perfectly overcome the crisis.
The plan is critical in difficult times since, together with internal communication, it is the only way to keep calm, have a united team and prepare the organization for the next positive cycle.
After defining the plan, leaders are needed within the organization to develop and communicate the plan creating effective and efficient teams. They must "excite" the rest of the team as motivation is essential for the success of the plan. If you start to not see the path clearly and to abandon the ship, the teams are destroyed and you enter a spiral that is not positive at all.
In this process, it is very important to monitor the results of the plan and to make decisions in an agile way based on its results.
- Focus on the best customers. Quoting the book "The Loyalty Effect," a 5% increase in retention increases profitability by 40% to 95%. But beyond the books and theory, let's see the following real case:
|
Number of clients |
% of total billing |
% Profit contribution |
|
two |
19.04% |
49.42% |
|
10 |
20.31% |
37.12% |
|
80 |
41.38% |
17.2% |
|
83 |
11.29% |
5.83% |
|
301 |
7.85% |
-9.2% |
In which we clearly observe how the greatest contribution to the company's profits (and a large part of the turnover) is given by 12 clients (approximately 3.5% of the total number of clients) while 301 clients with the lowest turnover They make you lose profitability (9.2%).
For this reason, working on this data can be the first step on the road to profitability by making customers reach profitability or losing them in the worst case (which is always better than having them and making us lose money).
In these cases, the use of CRM tools is very useful.
- Strategically reduce costs. It is important that this reduction is made with a clear vision in the long term and always valuing the value perceived by the client.
The "cuttable" costs are those that provide little value to the customer as we have discussed previously. In this phase, the perfect definition of the cost system (preferably based on activity) is the basic tool that will help us in making decisions.
- Act quickly but calmly. As we said before, you have to be agile in making decisions, but you have to balance with reflection, correct and complete information and analysis. Improve communication with employees, investors, customers, suppliers, banks… since at this time the lack of formal communication causes informal communication to flow, which is always worse and is not controlled. Focus, focus and focus. Know exactly what value is added (core business) and focus on it by outsourcing as far as possible everything that is not exceptional. Doing a deep analysis, in most cases we find that entire "units" / products / customers of a company are not profitable and never will be. These moments are ideal to undertake these restructurings. The solution is not to sell more. On many occasions it is thought that by increasing the turnover and / or the sales force - many times sacrificing prices - something is solved since more will be sold and everything will be solved.
On many occasions we find companies that increasingly sell more and the more they sell, the more they lose. The clear reasons are not having a clear cost structure, so before considering a radical increase in sales, a thorough analysis should be done.
- Study the technological and e-business possibilities. New Technologies offer important possibilities in cost reduction and business development, which must be analyzed at this time.
But perhaps the most important thing of all is to be clear about the initial diagnosis and to understand perfectly the reason for the situation, since if not, everything will be "hitting the road."
In conclusion, although many times we are tempted to make cuts indiscriminately, we must always take into account the value perceived by the customer and make a clear diagnosis of the situation before starting to act.
