A Guide to Strategic Cost Cutting, Restructuring and Renewal (2017) by Vinay Coute, John Plansky and Deniz Caglar
Successful organizations strive to stay fit at all times, not just in a crisis. In a fit organization, the business strategy act as a “lighthouse” – a defined bacon that guides everyone in the company and those outside of it. The CEO is crucial to a Fit for Growth initiative and must take the lead.
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.
In this book, 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.
Improving all your processes a little bit will yield less value than improving your most important processes a lot.
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 up the company for a fall. Then the Great Recession struck, Circuit City had to close for good.
Ikea, on the other hand, weathered the Great Recession and thrived. They remain focused on its goals of selling attractive furnishings at rock-bottom prices. Ikea’s customers are loyal, and its workers devote themselves to the mission of slashing costs. Ikea’s unique culture sees wasteful spending as a “mortal sin.” 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.
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. To guide your mission, follow 10 principles :
- The CEO must make a direct pitch.
- Get top managers on board.
- Grant amnesty for the past
- Look for easy victories (especially at the start) to create confidence and momentum
- Cut executive perks
- Dig deep
- Establish a “parallel organization”
- Don’t relax after you reach your goal.