Large-scale corporate restructurings have become a fact of life. But success rarely comes from applying the latest breakthrough methodology; rather, it is an exercise in common sense.
Our research shows that the majority of S&P 500 companies have gone through a restructuring initiative between 2012 and 2016. It is no longer a question of if it will happen to your company but a question of when.
In working with chief executives and senior management on restructurings over the years, we have seen some succeed spectacularly and others stumble. Most of the leaders we work with are experienced corporate practitioners — they have been through their share of change initiatives (and likely endured many that failed earlier in their careers). They know that success is rarely a matter of applying the latest breakthrough methodology or jargon-laden formula; rather, it is an exercise in the common sense that comes with experience.
Whatever the industry, management needs to answer three core questions about the journey they will embark on:
- How do I energize my organization for transformation?
- How do I achieve cost fitness while also enabling growth?
- How do I manage the transformation and make it enduring?
From these, we have distilled a set of 10 leadership principles that answer these questions. These tenets combine the first principles of strategic cost reduction and reallocation with the “new normal” mandate dictated by increasingly activist investors and shareholders demanding accelerated value creation.
- Make the case for change. Most people understand that business conditions are tough, and are prepared to accept and even support a large-scale change effort if they are convinced it is necessary. But to ensure this support, the chief executive must personally make the case for change. This needs to start with a compelling and candid analysis of the business climate and the company’s position.
- Align the top. The senior management team must be unified, aligned and committed to taking the necessary steps to achieve the articulated targets. There is no room for those who lack the capabilities, mind-set or willpower to execute the program.
- Declare a “new day”. Nothing is to be gained from looking backward and blaming past administrations or decisions. To appeal to hope and a positive vision of the future, explicitly rule out censure and sanctions for actions taken by previous management teams.
- Showcase quick wins. To build confidence and accelerate momentum, identify and showcase victories early in the transformation process. These are cuts that generate significant savings rapidly with relatively minor transition costs.
- Put everything on the table. If you want your effort to be credible, all costs need to be examined, including the company jet, the executive dining room, corporate giving — even employee benefits. This sends a powerful signal to the organization that “we are all in this together.”
- Challenge the what, how, and how well. You need to address the root causes of high costs rather than the symptoms. Do not look just at how or how well you do something but also at the what: the businesses in your portfolio, the products and services you deliver, the customers and markets you serve, and your operations and administrative footprint.
- Balance cost cuts with investments in capabilities. You cannot affect step-change transformation without fueling your growth engine. If you do not identify, articulate and nurture your company’s differentiating capabilities — the few things that it does better than anyone else — you will stunt your new, slimmed-down organization.
- Set up a parallel organization to change the business. Cost transformation is not business as usual, but you need to run your company as usual while you make the changes. The best way to accomplish this is to establish a dedicated program management office to oversee the transformation.
- Communicate before, during, and after. Skillful internal and external communication tied to a strong strategic vision is a must. Communications should be clear, frequent and consistent, yet adapted to the specific issues and concerns of each business unit or function.
- Keep the weight off. A cost transformation is more than an exercise in reconfiguring expenses and strategy — the true transformation is in the behaviors and practices of the people who make up the organization. If these do not change, the change will not stick.
For more information on how to transform your costs strategically, see our new book Fit for Growth: A Guide to Strategic Cost Cutting, Restructuring and Renewal by Vinay Couto, Deniz Calgar, and John Plansky (Wiley, 2017).
To read more on how companies manage cost in a more strategic way and unlock performance, see our Fit for Growth* microsite.
* Fit for Growth is a registered service mark of PwC Strategy& LLC in the United States.
© 2017 PwC. PwC refers to the PwC network and/or one or more of its member firms, each of which is a separate legal entity. See pwc.com/structure