" 35

&

'

Book

Fit for Growth

A Guide to Strategic Cost Cutting, Restructuring, and
Renewal
Vinay Couto, John Plansky and Deniz Caglar
Wiley, 2017 !
Also available in: French , Russian , Spanish , Portuguese
" 35 # 0
Listen now )

(
$

% Download

8
8 Applicability
Rating 7 Innovation
7 Style

Recommendation
At too many companies, managers tolerate bulging budgets and
fuzzy goals. But out-of-shape organizations put themselves in grave
peril, argue PricewaterhouseCoopers consultants Vinay Couto, John
Plansky and Deniz Caglar. In their useful guide – something of a
workout plan for bloated bureaucracies – the authors exhort
managers to trim the fat and stay motivated to keep it off, even after
the hard work appears to be over. Their instruction manual offers
clear, step-by-step directions for tackling issues such as outsourcing
and budgeting. However, some readers may sometimes wish for
more specific examples. Nevertheless, getAbstract recommends this
overview to managers in large organizations.

In this summary, you will learn

• What Circuit City and Ikea teach about the elements of
corporate success,
• Why cost cutting may be crucial,
• How to gain the support of your employees during a change
initiative and
• When to consider “zero-based budgeting.”

Take-Aways
• PricewaterhouseCoopers’s “Fit for Growth” approach helps
executives prepare their organizations to slim down and stay
“fit.”
• Successful organizations strive to stay fit at all times, not just in
a crisis.
• In fit organizations, the business strategy acts as a “lighthouse”
– a defined beacon that guides everyone in the company and
those outside it.
• The CEO is crucial to a Fit for Growth initiative and must take
the lead.
• Achieving easy victories will create confidence and momentum
for this new initiative.
• Cutting such perks as company jets and executive dining rooms
shows you’re serious.
• Fit for Growth isn’t just about cutting costs; investing for
growth also matters.
• Outsourcing a function doesn’t mean walking away from it; you
still have to manage it.
• Focus your process improvement initiative on rooting out
inefficiencies.
• Organizations often overlook mid-level managers as an
important part of change management.

Summary
Bloated Bureaucracy
Today’s corporations face relentless change and brutal competitive
pressures. Many managers learn the hard way that complacency can
be deadly, and profit squeezes can prove overwhelming.
PricewaterhouseCoopers’s “Fit for Growth” approach guides
executives in preparing their organizations to compete in this
environment by slimming down and staying lean.
In fit organizations, the business strategy acts as a “lighthouse” – a
clearly defined beacon that guides everyone in the company and
those outside it. In unfit companies, the profile is flabbier.
Conflicting goals and schedules crammed with meaningless meetings
characterize organizations where sclerotic bureaucracies slow
decision-making.

Circuit City and Ikea

Two big-box retailers offer divergent examples of how to prepare (or
fail to prepare) for growth. The what-not-to-do case study comes
from Circuit City, which failed to adapt to changing competition and
disappeared. After a long decline, the owner had to liquidate the
chain. In contrast, Ikea has stayed relentlessly focused and is
thriving.

“ ”
“In our experience, companies that become Fit for
Growth do not see cost optimization as a single, ‘big
bang’- style event.”

Circuit City, whose creation dated back to 1949, was such a

staggering success for a time that it cracked the top 200 of the
Fortune 500 list. Corporate management guru Jim Collins featured it
in Good to Great, his bestseller about well-managed companies.
Over the decades, the retailer grew by relying on commission-based
salespeople to move its high-ticket electronics.

But after 2000, Circuit City responded to competition from Best Buy
with ill-considered moves. In 2001, Circuit City stopped selling
appliances so abruptly that it failed to tell its suppliers. And in 2003,
it laid off its well-paid, experienced salespeople and replaced them
with rookie hourly employees. These missteps set the company up
for a fall. Then the Great Recession struck; Circuit City had to close
for good in 2009.

Ikea, on the other hand, weathered the Great Recession and is

thriving. The Swedish retailer’s revenue growth routinely tops 10% a
year, and its sales exceeded 30 billion euros in 2015. Ikea remains
“laser-focused” on its goal of selling attractive furnishings at rock-
bottom prices. Ikea’s customers are loyal, and its workers devote
themselves to the mission of slashing costs.

“Improving all your processes a little bit will yield less

value than improving your most important processes a
lot.”
Ikea’s unique culture sees wasteful spending as a “mortal sin.”
Product designers and logistics specialists work together to trim
costs. Since shipping packages with empty space is wasteful, Ikea has
pursued innovation in packaging to avoid “transporting air.” Its focus
on efficiency even in good times underscores a stark contrast with
Circuit City. The failed retailer saw improvement as a panic move it
pursued only in response to added competition. At Ikea,
improvement is a continual process of meeting internal goals, not of
responding to outside pressures.

Ten Rules for Corporate Fitness

Fit for Growth isn’t just a cost-cutting exercise. It’s a strategy that
reaches deep into a company and adapts to its strategic focus. This
ambitious change initiative demands that an organization’s top
executive play a major role.

To guide your Fit for Growth mission, follow 10 principles:

1. The CEO must make a direct pitch – Managers and rank-

and-file employees don’t have the juice to drive cost-cutting
change. The CEO must commit publicly to shareholders and
analysts to show how highly he or she values the change
program.
2. Get top managers on board – For any change program to
work, senior executives must buy into it. Use calm persuasion to
enlist them. Instead of publicly berating skeptics, engage in one-
on-one talks with uncommitted managers. Once you persuade
them to cooperate, they’re likely to become crucial supporters.
3. “Grant amnesty for the past” – Change means looking
ahead to the future, not back. Don’t cast blame for past
mistakes, and don’t make people feel defensive.
4. Look for easy victories – Piling up a few “quick wins”
creates confidence and momentum for your new initiative. To
make progress without drastically affecting your people’s
budgets, slash easy-to-cut expenses or negotiate better deals
with vendors.
5. Cut executive perks – To get the rank and file to buy into
cost cutting, share the pain. Company jets and executive dining
rooms are powerful symbols. By cutting them, you show that
you mean business and that you’re willing to sacrifice “sacred
cows.”
6. Dig deep – True transformation requires a thorough
assessment of your business, your customers and your place in
the market. Don’t be afraid to drop unprofitable customers or to
offload unpromising businesses.
7. Invest, too – In addition to slashing expenses, find an
investment. Managers, employees and shareholders will rally
around an investment-driven vision that embraces growth.
 8. Establish a “parallel organization” – In a large company,
you must continue to run your business as you implement
sweeping changes. Set up a separate team to be in charge of the
change under the leadership of a credible senior manager.
9. Communicate – If employees don’t understand the need for
change, your project is doomed. To create a lasting
transformation, you must communicate clearly and consistently
about your ambitions. Start early and then keep at it. Also
communicate to outside parties, such as business analysts and
the media.
10. Don’t relax after you’ve reached your goal – Losing
weight is hard work, but keeping it off is the true test of a
sustainable restructuring. After you’ve implemented Fit for
Growth, you’ll need discipline and focus to keep the
restructuring from backsliding.

Commonsense Budgeting
Trimming the budget slims down a bloated operation. But too many
companies take a flawed approach to budget revamping. They look at
last year’s budget and adjust next year’s spending plan with little
thought to business priorities or strategic issues.

“ ”
“What is clear and what ultimately motivates leaders to
take the first steps on a Fit for Growth journey is the
discomfort of staying where they are.”

“Zero-based budgeting” provides a wiser approach. First, it starts

with a clean slate. You fund only those activities necessary for the
business to serve its customers and compete with its rivals. This
process suits organizations that are facing bankruptcy or fighting
pressure from activist investors, but it also can be useful for healthy,
growing organizations.

Getting to Zero
A well-executed zero-based budget unburdens a company of
unprofitable activities and makes money available for more
profitable investments. To implement zero-based budgeting, do the
following:

• Define priorities – Inertia is a powerful force, so budget

cutting often becomes an exercise in trying to justify existing
cost structures. Resist that urge. Take a thorough look at which
functions and capabilities you really need, and which ones you
can do without.
• Account for every hour and dollar – Seek a clear
understanding of the time and cost required to perform every
function and capability in your company.
 • Determine value – Once you know how much each
functional category costs, determine how each one creates
value. For each cost center in your budget, ask: “To what extent
does this activity drive margin, cost control or growth?”
• Host a “challenge session” – In zero-based budgeting, you
need to determine which departments or functions will
continue to function and which won’t, or at least which
departments may survive only in a reduced form. Gather your
leadership team to rank the importance of each part of your
organization in a challenge session. Each department will argue
for its continued existence. Managers in tax, legal, risk
management and compliance are especially likely to overstate
the importance of their departments. A tough-minded manager
must determine if these functions are critical to your company’s
core business.

Embracing Outsourcing
Companies can cut costs and grow leaner by outsourcing.
Outsourcing can range from hiring a research and development team
next door to moving a call center across the globe. Outsourcing turns
labor from a fixed cost to a variable expense you can adjust,
depending on volumes in your business. Typically, an outsourcing
initiative will save 5% to 10% on manufacturing and supply chain
costs, and as much as 50% for back-office functions.

“ ”
“Markets today are changing much more rapidly than
most companies do, and footprints risk becoming
outdated.”

Outsourcing no longer focuses solely on finding cheaper labor,

although that’s one advantage. Strategic outsourcing can boost your
productivity and transform your processes. Outsourcing a flawed
operation, however, will just extend your challenges. To implement
outsourcing, heed these tips:

• Analyze your options – Before you outsource any function,

be certain the activity can be done more efficiently outside your
company. If keeping it in-house creates more value, forget
about outsourcing. Functions most suited to outsourcing have
easily measurable, repeatable processes. Outsource functions
with a minimum of 20 to 30 employees.
• Shop for suppliers – As you research outsourcing vendors,
define your needs specifically. As you interview vendors,
consider the outsourcing company’s experience in your
industry and the provider’s cultural fit with your organization.
• Manage the transition – You must actively manage your
outsourcing provider. You also have to manage your employees,
who are likely to feel uneasy about losing fellow workers. The
employees who do stay in place will shift their focus to
managing the outsourcing provider.
“Right-Sizing”
From factories and warehouses to administrative offices and
research centers, large organizations typically amass extensive brick-
and-mortar operations. These costly facility networks are inflexible,
which makes them prime candidates for cost-saving
“footprint optimization.”

“ ”
“Don’t try to be world-class at everything – that’s a
recipe for waste.”

Telltale signs include tax incentives that could reward a move,

regional wage differences that could present cost savings or a
migration of suppliers to a new location. Moving facilities can bring
big savings, but it isn’t free. Beware of the transition costs connected
to footprint changes.

Pursuing “Process Excellence”

Large organizations with complex operations inevitably struggle with
inefficient processes. Instituting process excellence focuses on
increasing efficiency, boosting quality or strengthening the bottom
line. Process excellence doesn’t require a full Six Sigma or
lean project.

First, identify the processes which are crucial to operations that

require an overhaul. Determine your needs by comparing your
processes to those of your competitors and by talking to your
customers and users. Analyze your processes to ferret out waste.

As you move ahead, the CEO must manage the emotions and fears of
front-line workers and their supervisors. Rank-and-file workers tend
to believe that senior management is disconnected from the rest of
the company. This feeling intensifies during a change initiative, so
communication is crucial. The human part of restructuring moves
through three phases:

• The restructuring takes shape – Uncertainty rules.

Workers worry that they’ll lose their jobs, so they pepper front-
line managers with questions and concerns. Top leaders should
strive to be transparent and motivate the troops with their case
for change.
• “Detailed design” – The restructuring takes a more defined
form. Pilot projects and other tests begin. Anxiety intensifies.
Employees don’t care about the business case. They want
reassurance about their future. Senior managers often prove
too preoccupied with the details of the restructuring to reassure
their staff members.
• “Execution” – Restructuring accelerates. Workers get a better
sense of how their jobs will change. Senior leaders must
communicate through a variety of mechanisms, including town
 halls, video meetings, newsletters, blogs and emails.

About the Authors

Vinay Couto, John Plansky and Deniz Caglar are principals at
PricewaterhouseCoopers. Couto has worked with companies in a
variety of industries; Caglar specializes in outsourcing. Both are
based in Chicago. Plansky, who is based in Boston, focuses on
information technology.

This document is restricted to the personal use of Gabriel Razzotti

([email protected])

Is this knowledge worth sharing?

Share this summary with your colleagues and discuss it during your next coffee break.

Share it with friends & family – they can read it without even registering. ?

Tell the world why you liked this summary: Just share it on your favorite social network.

More on this topic

Customers who read this summary also read
 The Sustainability Simplify Lead and Disrupt The Vanishing Visibility Marketing Digital @ Scale
Edge American
Corporation
*8 + & *7 , *8 & *9 + & *7 + & *8 + &

Related Channels

Management Change Management Business Biographies

Comment on this summary

Write a comment...
Post

Sitemap

- English Deutsch Español Русский 中⽂文 Português Français

. / 0 1
© 1999-2019, getAbstract