Initiative 1: Analyze profitability by component
The first requirement is to gain a better understanding of where the company makes and loses money. This task can be difficult because complex companies often lack consistent information and systems across their many businesses and geographies, and because their ‘‘shared costs’’ – those which could not be directly attributed to individual components – represent a large share of the total cost structure. A profitability analysis typically will reveal large profit disparities in lines of business, brands, products, and customers.
Initiative 2: Rationalize brands and SKUs
Most complex companies will find that they have many brands or SKUs that contribute little to revenues or gross margin. Such components need to be evaluated along several dimensions including the additional customer reach relative to base brands or SKUs; customer loyalty, satisfaction, and relevance; and the added burden on manufacturing and distribution productivity and asset efficiency.
Initiative 3: Realign customers and networks.
Complex companies have the opportunity to improve the mix of low-cost and high-cost production capacity. Eliminating or cutting back on a single account in order to reduce overhead absorption is just the first step. Addressing sufficiently large groups of accounts allows a firm to consolidate facilities and close the highest-cost production lines or service centers.
Initiative 4: Embed this process in long-term strategy.
An integrated perspective is a prerequisite for senior executives to establish and communicate their strategic priorities.
Dr. Antony Michail
Founder of Anacalypsis Strategy & Marketing Consultants