Rapid cost reduction - going beyond theory and analysis
July 14, 2016
Companies typically turn to restructuring experts to rapidly turn around performance when they are facing financial stress, or distress. For those able to identify the signs, stress in business models provide early warning signals.
The current profit recession is indicative of stress in the business models of traditional blue-chip incumbents. Recent Share Centre analysis identified a 38 per cent year-on-year decrease in the UK’s largest 350 listed companies’ pre-tax profits. Revenue is under pressure from external threats; disruptors and new entrants continue to acquire market share, and macroeconomic headwinds and shocks, possibly as a result of the vote to leave the EU, are likely to further depress demand and price.
Imminent threats require a rapid response. To protect margins, businesses must go beyond theory and analysis to act quickly and focus on what is within their control i.e. cost. We are seeing more companies appointing our restructuring experts to support them to take cost out now. This gives companies the breathing space to consider their ongoing strategy and avoid financial stress/distress further down the line.
I’ve recently worked on two projects, to rapidly reduce costs. A large UK-based multinational company, with no obvious signs of stress in its accounts, approached me to help deal with its biggest source of competition: a small start-up on the other side of the world offering a cloud-based alternative to its products. Another example is a long-established distribution business, facing an influx of new competitors driven by the growth of internet shopping. This business approached us to help buy the company time to capitalise on its remaining strategic advantages.
In both cases, successful rapid cost reduction has been possible by taking a commercial, pragmatic and hand-on approach. I applied an 80/20 approach, focusing on the issues that matter to the business. I worked with my clients to rapidly mobilise high performing joint teams of the talent within the business supported by our restructuring practitioners.
Critically, these teams are not just at the top of the organisation, but interwoven with management teams throughout the business. Our practitioners know the art of the possible and support companies to be ambitious but realistic with their plans. Where there are “no regrets” initiatives and areas of cost that can be implemented immediately, the effort is focused on delivering tangible results rather than wasting valuable time on analysis.
Not all companies are aware of the competitive threats facing their business or the signals to look out for. Is your business showing signs of stress in its business model? Would you know how to identify the signs? Share your thoughts below or get in touch to discuss your situation in confidence.