The companies that need to change the most are often the ones least able to change. This is not a Zen paradox but a description of the conundrum facing many business leaders after years of below-par growth. Low margins and declining profits never create a solid basis for turning a business upside down. It may seem like an impossible task, but there is a way to achieve a disciplined and effective change process that can boost your margin and sustain your growth.
Extreme discipline needs to be brought to the process of change. The change itself needs to focus on creating increased margin, and quickly. While the transformation needs to be immediate, it needs to ensure that it doesn’t leave unfinished business in its wake. Our approach in end-to-end margin transformation (E2EMT) is designed to produce just such a disciplined transformation process.
From strategy to transformation to overview
State of departure
- A well-established market position
- Footprint across 45 countries
- A low organic growth over the past six years
- An EBITDA 10 pts. below market leaders
A testing inspection and certification (TIC) group asked for support in the design and execution of its five-year strategy and company transformation. Like many in its situation, a recent history of low organic growth meant its earnings before interest, taxes, depreciation and amortization (EBITDA) was well below market leaders.
Impact
In developing the strategy, we started with an overview of the industry’s market dynamics and opportunities, producing a clear picture of the group’s performance and challenges, and the assets it could leverage. This identified the major value plays that would unlock growth, detailed in a robust business plan that provided granular objectives for each lever. This vision was then used to develop a compelling investor narrative.
The end-to-end margin transformation focused on six key dimensions in the TIC
1. Extreme focus on value plays: We focused on five value plays in the first wave and the same number in the second. These included best in class commercial effectiveness, total workforce management, the operating model, and lean support functions.
2. Balance the value levers: To balance growth, commercial actions, and performance, we drove down to granular delivery impact. Interventions included targeted campaigns on loss-making accounts and the professionalization of pricing.
3. Invest X2: As well as scaling up best practices, we produced new decision tools, improved human resources, and sharpened incentives. The new tools and solutions included a pricing web tool and a margin management web tool.
4. Engineer the transformation path: When mapping the desired transformation path, we put in place maturity gates. The map included TIC’s transitional organization and identifying quick wins designed to improve margin.
5. Stretch and help: For each initiative, we equipped, tracked, and supported managers. We developed a pyramid management solution and accompanying tool, as well as new standard delivery models, and embedded these within the tools provided.
6. Land the transformation: The new operating model is to designed to foster growth through alignment of the commercial organization globally around geographic sectors, business lines, and specialized business units.
The TIC’s compelling investor story of its five-year transformation strategy led to a major private equity fund entering with capital. The group has since doubled its organic growth through a better-focused portfolio and investments, and has increased its EBITDA by more than 5 percentage points.