Our client, a leading U.S. retailer, had grown dramatically via an aggressive new-store opening strategy.
Our client, a leading U.S. retailer, had grown dramatically via an aggressive new-store opening strategy. As the retailer approached the end of its store expansion goals, the CEO began to contemplate where the next wave of growth would come from and what capabilities the retailer needed to drive that growth.
Complicating matters, the retailer’s SG&A expenses had been growing far faster than its revenue. The rapid expansion strategy led to high costs during the peak of the real estate boom; further, labor investments intended to drive better customer service had added significant expense that hadn’t produced the targeted revenue growth — and had caused a reduction in overall profitability.
The CEO had three parallel objectives. First, he wanted to reduce costs by US$1 billion to improve the cost structure and shore up the stock performance. Second, he wanted to redesign the organization and invigorate the organizational culture to improve effectiveness and enable growth. Finally, he wanted to reinvest a portion of the cost savings in priority capabilities, so the company would be in a stronger position to drive growth.
The retailer’s CEO turned to Strategy& to help identify significant, sustained cost reductions and improve his organization’s effectiveness while enabling capabilities that would drive the company’s next wave of growth.
We deployed our Fit for Growth methodology to support the CEO over more than a year to generate significant savings and enable investment in growth. The initiative started with an assessment phase in which we benchmarked the retailer’s performance, assessed its organizational effectiveness by leveraging our Org DNA Profiler®, set improvement targets, and developed an agenda for strong growth.
This initial phase was followed by a detailed design phase covering store labor productivity, field management efficiency, HQ organization effectiveness, and non-merchandise procurement efficiency. The Strategy& team worked side by side with their client counterparts to detail improvement opportunities, redesign processes, and plan implementation. In parallel, a focused team surfaced, prioritized, and directed some savings to reinvest in growth areas. Concurrently, we supported the CEO in redesigning the organization to drive growth.
The retailer reaped significant benefits from the initiative across each of the three objectives. It was able to exceed $1 billion in net cost savings in the targeted areas and saved more than planned within the first year. With its new management forums, decision-making processes, performance management, and talent development processes, the company has increased its organizational effectiveness and fueled a high-performance culture ready to drive growth. In parallel, the retailer has improved its capabilities in customer insights, merchandising, marketing, and Internet retailing via targeted reinvestment. The CEO and the CFO have publicly acknowledged the initiative’s contribution to the company’s overall performance, which was further evidenced by a 40 percent increase in the company’s stock price within 18 months.