Our client, a multibillion-dollar consumer goods company active across several business areas (“businesses”) and a large number of geographies (“markets”), was facing a difficult business situation.
Our client, a multibillion-dollar consumer goods company active across several business areas (“businesses”) and a large number of geographies (“markets”), was facing a difficult business situation: It had been experiencing limited revenue growth, declining market shares, and increasing margin pressure. The leadership team, in analyzing the situation, had identified several underlying causes: slow decision making due to organizational complexity and massive overhead, limited success in its innovation efforts, lack of speed to market, and the inability to connect with end customers.
The client asked Strategy& to support the company in an ambitious business improvement and cost reduction program. The program aimed at delivering €1.3 billion in savings over three years by restructuring the entire cost base “above the business,” including all corporate (support and business) functions and shared services, as well as overhead across all organizational layers, businesses, and markets. The magnitude of the targeted savings required addressing the underlying organizational complexity and operating model choice, including the role of the corporate center.
We helped the client set up a comprehensive two-pronged transformation program involving:
- A radical cost savings program based on a new, less complex operating model for functional support.
- Reinvestment of a significant part of the savings into major growth drivers, such as growth markets, customer-centricity, and innovation.
Our approach was geared toward realizing quick wins and, in parallel, working on longer-term operating model changes. We started with a clear set of overarching design principles to develop the new operating model, which included guidelines for simplification (such as having one single point of accountability or fewer organizational layers), the support for new developments led by local markets, and the alignment of the organizational setup with the company’s distinctive capabilities. We then developed a new organizational structure that achieved a good balance of decision-making power between the main axes of the matrix organization and ensured clear accountabilities, roles, and decision rights. We worked with the client to redesign and streamline a set of major processes and establish common data sources that enabled the implementation of effective metrics and incentives.
The holistic way in which we approached the program and its tight embedding in the organization was a major success factor. We initially focused on addressing costs “above the business,” which sent the clear signal that the corporate office had skin in the game. Freed-up funds were then reinvested into capability building, which helped position the program as being part of a wider growth agenda. We also tightly incorporated ongoing initiatives into this Fit for Growth program, thereby ensuring that all activities were aligned toward one common goal; this allowed us to have quick impact and avoid pushback from the organization against yet another new corporate program.
Key success factors of the transformation program
The program is on track to deliver structural cost reductions in line with the objectives of the project.
The client now also has solid cost management capabilities that allow it to sustain the realized savings and continue to further reduce costs. The organization has gained a productivity and cost consciousness mind-set, cost performance indicators have been institutionalized, and cost management tools and processes are being used throughout the organization.
The client is also organized in a more streamlined way: The matrix structure is much simpler, and the new operating model is aligned with the company’s capabilities and strategy.
* Fit for Growth is a registered service mark of PwC Strategy& LLC in the United States.