Reshaping your company business model Building for the future during the downturn

Strategy& is part of the PwC network Contacts About the authors

Buenos Aires/Santiago Munich Paolo Pigorini is a senior partner with Strategy& in Rio de Janeiro. He leads the Ariel Fleichman Stefan Frey organization and change practice in South Partner Partner America and specializes in business and +54-11-4131-0400 +49-89-54525-0 organizational models. stefan.frey @strategyand.pwc.com @strategyand.pwc.com Vinay Couto is a senior partner with Strategy& in Chicago. He leads the firm’s Chicago Frederic Pirker global organization strategy business and Partner has deep expertise in selling, general, and Vinay Couto +49-89-54525-0 administrative (SG&A) transformation Senior Partner frederic.pirker including shared services and outsourcing. +1-312-346-1900 @strategyand.pwc.com vinay.couto Ariel Fleichman is a partner with @strategyand.pwc.com Rio de Janeiro Strategy& in Buenos Aires and Santiago. He specializes in strategy, organizational Gary Neilson Paolo Pigorini change, and transformation for clients in Senior Partner Senior Partner multiple industries and sectors. +1-312-346-1900 +55-21-3232-6291 gary.neilson paolo.pigorini Carlos Eduardo Gondim is a partner with @strategyand.pwc.com @strategyand.pwc.com Strategy& in São Paulo. He specializes in strategy, organization design and review, Dr. Deniz Caglar São Paulo post-merger integration (PMI), and Partner operating/business models, for clients +1-312-346-1900 Carlos Eduardo Gondim mostly in South America. deniz.caglar Partner @strategyand.pwc.com +55-11-5501-6200 carlos.gondim Dubai @strategyand.pwc.com

Per-Ola Karlsson Sydney Senior Partner +971-4-390-0260 Varya Davidson per-ola.karlsson Partner @strategyand.pwc.com +61-2-9321-1900 varya.davidson Andrew Horncastle @strategyand.pwc.com Partner +971-4-390-0260 andrew.horncastle @strategyand.pwc.com

Olaf Schirmer Principal +971-4-390-0260 olaf.schirmer @strategyand.pwc.com

1 Strategy& EXECUTIVE There is widespread recognition that the typical corporate SUMMARY cost-cutting initiatives will not suffice in the current business environment. To navigate the global downturn and even prosper in the process, corporate leaders must take a step back and consider how best to implement long-lasting and effective initiatives aimed at fundamentally improving the way their companies operate. Strategy&'s approach focuses on three strategic questions: What do we do? How do we do it, and where? How well do we do it? Our experience shows that companies too often neglect the relevant issues related to their business model (“How do we do it?”). Focused efforts in this area can result in structural improvements in efficiency and effectiveness.

This Perspective explores the commonly observed issues and derailers surrounding companies’ business models in light of important questions they currently face: Have we built into our operation the flexibility and resilience necessary to survive this crisis? Is our business model appropriate for navigating and succeeding in this global downturn?

Strategy& 1 THE NEW CEO After a period of intense growth than it did only a few months ago. across almost all sectors and Current trends in major economic AGENDA regions, the global downturn has variables suggest that difficult times rapidly shifted CEOs’ agendas from are ahead, at least in the coming strategies for growth to how to months. Companies are already improve performance and tighten facing lower demand and are having cost controls. Though the crisis increasing difficulty in finding capital. started in the U.S. financial industry, it has quickly spread to virtually The time has come to clean house. all industries and geographies. As a rule, when demand is increasing All over the world, companies are rapidly, as it was in recent years, postponing or canceling investment companies must move fast to stay plans, reviewing their operating ahead of their competitors, which targets, reducing and sometimes even often leads to decisions being made temporarily suspending production, and implemented without a thorough announcing job cuts, terminating or analysis of the structural impact on reviewing contracts, implementing the organizational model. A typical cost-cutting efforts, selling or thinking outcome is the addition of people about selling assets, and more. and positions without the benefit of a holistic view of the consequences. This sudden change poses a new When the growth frenzy settles, challenge for CEOs, who find they companies should take a step back must quickly readjust their mind-sets and reevaluate the way they work. for a future that looks very different

“Expanded restructuring actions are required to protect UTC profitability and are expected to position the company for resumed earnings growth in 2010.” — Louis Chenevert, CEO of United Technologies Corp. (March 2009)

22 Strategy& In a recession, softening demand eventually come back once the initial and review the way they operate. It generally makes it difficult to focus is lost. is time to seek short-term savings deliver results by relying simply on while building the foundations for revenue. Profitability is defended by The current economic crisis demands another growth period in the future. increasing the focus on cost control deeper reflection. The effects of this It is dangerous indeed to merely stand and operating efficiency. However, downturn are expected to last for in the wings as a passive spectator, while most companies are quick to quite some time, so companies should as this could create disadvantages start cutting costs, we argue that the consider long-lasting initiatives, vis-à-vis the competition or lead to outcome of most of these efforts— rather than temporary cost-cutting increasing pressure from shareholders, which may be necessary—tends to efforts. True transformational cost analysts, or creditors. In other words, be marginal and short-lived. Despite reduction opportunities need to break it is imperative that companies use the immediate results, cost reductions ingrained structures and behaviors the downturn to seize the future with generally do not structurally change throughout the company. Moreover, their own hands, before a top-down the way the company works, or how the downturn creates a window of mandate is imposed. its executives think, so those costs opportunity for companies to rethink

“As a consequence of the unprecedented crisis affecting the global economy, which also affects the air transportation industry, it has become inevitable for Embraer to implement a revision to its cost structure and workforce.” — Embraer statement announcing a 20% reduction in production and administrative personnel (February 2009)

Strategy& 3 Strategy&'s approach goes organizational model and in-house levers mentioned earlier, companies beyond traditional cost-cutting versus outsourcing (make or tend to neglect relevant issues related efforts, focusing on a set of three buy) choices. to their business model (“How do we strategic questions (see Exhibit 1). do it?”). Focused efforts in this area How well do we do it? Performance can result in structural improvements What do we do? A strategic review of assessments, identification of in efficiency and effectiveness. the company’s portfolio of products opportunities, and implementation of and services, as well as the markets operational improvement initiatives. The remainder of this Perspective and customers targeted. focuses on issues surrounding While the first question is addressed the company Business Models by How do we do it, and where? in yearly strategic planning processes, describing our view of these issues An assessment and rethinking and the third has to do with the and commonly observed derailers. of the company’s business and tactical performance improvement

Exhibit 1 Companies’ Typical Performance Levers – Key Strategic Questions

- Portfolio analysis What do - Products & services rationalization we do? Market, Customer, - Analyzis of customer segments & cost-to-serve Products & Services - Redefinition of the business & organizational models - Refocusing the corporate center - Redefining the business units & their accountability How do we do Business Model - Back-office consolidation & outsourcing it, and where? & Organization - Development of shared services

- Manual vs. automated processes - Process redesign - Procurement optimization How well - Aligning service levels and costs Policies, Processes do we do it? & Technology

Source: Strategy&

4 Strategy& BUSINESS MODEL The activities performed in a business client-driven functions that support organization can be split into three the business units and the corporate STRUCTURE blocks, or elements, according to center. Establishing an efficient their nature and their role in deliver- and effective support area requires ing results. Typically, the Corporate a clear definition of its operating Center performs activities related to model. Traditionally, these areas strategic leadership, Business Units can be centralized at the corporate house functions focused on the headquarters or decentralized product or customer value creation, to provide each business with a and Support Services provide internal significant level of autonomy. In client-driven services and manage out- most cases, support areas can be sourcing relationships (see Exhibit 2). consolidated in a shared services center, a model that defines new 1. Corporate center. The corporate relationships between internal clients center holds the functions that and service providers. provide strategic and financial guidance for the company. Its key role 3b. Outsourced services. is to fulfill five fundamental missions: Outsourcing services is another provide strategic leadership, control relevant theme for companies, and monitor results, develop and especially during downturns, when promote a corporate identity, gain a reduction in costs is necessary. access to and allocate capital, and Outsourcing can be extremely ensure that the required capabilities efficient and effective, but it must be and talent are available. carefully planned and executed. Many executives believe that outsourcing 2. Business units. These areas are is an easy move to cut costs by responsible for activities directly reducing the activities currently related to providing services and executed in-house, benefiting from the products to customers and are outsourcer’s economies of scale and usually structured into units that are its focus on core functions. A classic accountable for results. mistake is outsourcing to “make the problems go away.” But evidence 3. Support services. Support areas are shows that most of the promised focused on providing cost-effective benefits are not captured.

Exhibit 2 Business Model Structure

- Provides strategic leadership - Exercises control - Defines the corporate identity - Manages access to capital and its allocation ۱ Corporate - Builds/strengthens key - Focus on customer Center capabilities value creation - Improve operating effectiveness Strategic Corporate - Provide cost-effective - Manage the Guidance Policy client-driven services product/technology - Manage outsourcing portfolio Results/ Service relationships - Develop talent Accountability

۳b ۳ ۲ Business Service Support Service Outsourced Units Services Services

Request Manage

Source: Strategy&

Strategy& 5 TYPICAL BUSINESS MODEL DERAILERS

We would argue that the main goal for corporate leaders, especially during times of high uncertainty and expected downturn, is to develop a robust business model with flexible and accountable operations, efficient and agile support functions, and a lean corporate center focused on setting the strategic guidelines Kick-Starting a Business Model Diagnostic while controlling the results through Strategy& has developed a methodology for reviewing issues related to the an appropriate set of indicators. business model that allows for a precise diagnostic and enables focused However, in many companies, the efforts on a company’s critical issues. In addition, our methodology entails the roles and responsibilities of each identification and implementation of quick wins early in the effort in order to element of the business model maximize the needed savings and fund the rest of the program. (corporate center, business units, support services, and outsourced Although every company has its own realities, a set of key questions helps to services) and the interfaces between kick-start the diagnostic (see Exhibit A). them are not clearly defined, which leads to duplicated or misaligned activities, unclear strategic guidance, and ultimately poor performance. We find that many companies face difficulties in their operations that can be directly traced to this lack of clarity. The downturn merely makes Exhibit A these problems more apparent. Key Questions on Business Model Improving the business model starts with a precise diagnostic of each - What roles should the corporate center play? element, and follows with targeted Corporate - Given these roles, what is the best organizational structure? Center quick wins that will produce savings - What should be the decision rights of the corporate center and the business units? that can then fund the remaining restructuring that needs to take place - What is the best way to organize the business units? Business (see “Kick-Starting a Business Model - How can we align business units with the company’s strategy? Units Diagnostic”). - How should we push accountability and how can the business units be held accountable?

- Which services should be centralized vs. decentralized? - How can we ensure that support functions provide the right level of service for the business? Support - Is shared services the most adequate construct? If so, for what functions? How should Services shared services be governed? - Which services should be outsourced? What are the expected savings/effectiveness gains? - How can we ensure the appropriate management of outsourced services and vendor relations?

- How many people do we need to perform the activities? Overarching - How many and what work levels should there be in the organization? Topics - What is the adequate number of layers and spans of control? - What are the gaps in skills and qualifications?

Source: Strategy&

6 Strategy& Building a More Effective shareholder returns (as measured by a corporate staff that supports rather Corporate Center stock price growth). than “audits” the business units.

Large corporate centers have This calls into question the single- Unfortunately, most companies are earned their bad reputations, so it minded devotion to cutting costs in the not strong execution companies. is little wonder that they are often corporate core. If big is not necessarily Not surprisingly, the corporate staff the first target of many corporate bad, what constitutes good? in companies with weak execution restructurings. Years of bureaucratic tends to “audit” more than support “Big Brother behavior,” glacial First, companies need to recognize the business units, resulting in decision making, and opaque that the optimal size of the unnecessary bureaucracy, hindering overhead allocations have not won corporate center is not simply a decision making and adding cost. corporate headquarters many allies function of efficiency, but also one among the P&L-bearing business of effectiveness. Corporate centers It’s a bit of a chicken-and-egg units and newly streamlined support must strike the right balance. But dilemma. Does the deadweight of functions. Consequently, in recent how do you assess the effectiveness the corporate core contribute to a years the best practice in sizing the of the corporate core? Over the past weak performance culture, or does corporate core has been to shrink it few years, Strategy& has collected a weak performance culture disable and cut its costs. more than 50,000 individual responses the corporate core? Regardless of the from around the world and created answer, we believe that half the battle The irony is that there is no evidence an organizational diagnostic tool is in setting explicitly clear roles and that streamlining the corporate core that we have posted online. expectations for the corporate core. contributes much incremental value to According to our findings, companies a company. In fact, our analyses show with strong execution (those that Ultimately, the right size of the no correlation between the efficiency quickly translate important strategic corporate core is a function of the of the core (as measured by the size and operational decisions into action) role the company expects it to play, of its staff relative to revenues) and are significantly more likely to have whether it is (1) governance guardian, (2) advantage accelerator, or (3) scale economizer (see Exhibit 3).

Exhibit 3 Corporate Core Roles

Governance Guardian Advantage Accelerator

Role Role - Discharge legal, regulatory, and fiduciary responsibilities - Leverage capabilities to deliver value above what individual to protect shareholders and employees portfolio businesses could generate autonomously

Typical functions Typical functions - Reporting - Investor and government relations - Corporate strategy - Manufacturing excellence - Legal - Audit - M&A/new ventures - Lean six sigma - Tax - Compliance - R&D - Corporate marketing - Treasury - Org development

Common challenges Common challenges - Corporate functions become risk-averse and - Metrics on value creation are over-controlling Scale Economizer difficult to establish and measure - Governance requirements are used as - Cultural barriers inhibit top-down an excuse for budget increases Role building of horizontal capability - Harness scale company-wide to maximize cost efficiency synergies in non-market-facing activities

Typical functions - IT - Compensation and benefits - Purchasing - HR payroll and admin - Accounting operations - Facilities

Common challenges - Centralized functions are unresponsive to business needs; shadow staffs emerge in the businesses - Scale is suboptimized because tough decisions on standardization never get made

Source: Strategy&

Strategy& 7 Governance guardian. There Not surprisingly, the advantage the functions that are sensitive is no opting out of this role, accelerator role is the most to economies of scale, scope, and which encompasses all the legal, challenging of the three. To be specialization (IT, purchasing, compliance, and finance activities effective, the corporate core must accounting, facilities, payroll), and needed to abide by corporate not only add value to the business you will have a good sense of what governance standards and regulatory units but add more value than the overhead encompasses. It cannot requirements. Although the added businesses could generate on their be eliminated, but it certainly can value contributed is limited, this own—and more value than any other be optimized, and that is the third role is not a significant drain on corporate parent could provide. It role of the corporate core: the resources either, as economies of scale must focus on capabilities that are creation of common processes, are easily leveraged and head count truly differentiating: those where the standards, and consolidated pools needs are low. In our experience, a company must be the best to win and of expertise. More often than not, company of about 10,000 employees where it has the skills to be the best. this takes the form of shared-service can comfortably handle governance operations, either housed in corporate activities with a staff of about 30. Take a look at the Global Fortune headquarters and reporting to a 500 today, and you will see every corporate functional head such as the Advantage accelerator. This is where variation on the advantage accelerator CIO, CFO, or CHRO; established the corporate core makes the leap theme. Procter & Gamble and 3M, as organizationally distinct centers from “auditing” the business units for example, have invested heavily in under a shared-services leader; or to releasing the value trapped within corporate R&D and have enjoyed big outsourced/offshored. The corporate and between them. In the advantage new-product payoffs as a result. Dow core is still ultimately responsible accelerator role, the core can create Chemical and General Electric, on the for optimizing the efficiency and considerable incremental wealth if it other hand, have focused on building effectiveness of certain back-office or does its job right. a strong multi-business manufacturing overhead functions, which is its most function to encourage manufacturing critical role. The advantage accelerator excellence at the individual business concentrates on the sources of unit level, as well as across businesses. The most common derailer related competitive advantage identified in a BP has pushed hard to create a to the corporate center, therefore, company’s strategy, whether they are high-performance HR culture in its is not size but the lack of a clear innovation, leadership development, corporate core, which oversees the definition or dissemination of its role. consumer marketing, manufacturing setting of stretch targets and personal This, in turn, leads to a number of excellence, or any other critical performance contracts. other symptoms such as inadequate capabilities. By allocating resources to capabilities, excessive number of the development and sharing of these Scale economizer. Beyond observing highly paid executives second- winning capabilities, the corporate minimum fiduciary obligations and guessing the business unit heads, core makes explicit choices about cultivating strategic competitive and lots of questions about value where an advantage matters most in a advantages, the corporate core is addition. company’s market. basically overhead. Think of all

8 Strategy& Moving to Business-Driven alienating process. They had built up On balance, the results of this type Support Services significant autonomy over the of implementation have been very years, which was now about positive. Overall costs are generally In working with and talking to more to be taken away in return for reduced by 15 to 20 percent initially, than 50 organizations about their “centralization.” They were being and if implementation is closely support services in the past decade asked to relinquish control. managed, this level of performance (and mostly in the last five years), is maintained through the transition. we have observed three predominant In this environment, support service However, not all organizations have models—all of which are in use managers were confronted with major succeeded, even with this model today (see Exhibit 4). The choice of problems in selling the concept. In the in mind. The shortcomings are model combined with excellence in absence of restructuring, it was often generally twofold. First, some support implementation is what drives the not possible to reduce costs. This service managers are too aggressive large difference in results. resulted in a service organization with in outsourcing activities such as few of the benefits but many more of finance and information technology Stage 1: Organizational Consolidation the headaches of implementation. without fully understanding how to manage external relationships, The objective of many of the early Stage 2: Supply-Side Restructuring resulting in failure to address models (and even some recent ones) inefficiencies. In effect, they pass was to capture scale efficiencies By the mid-1990s, many on the inefficiencies to the outside within the organization. However, organizations understood that in vendor with no program in place because the solution selected order to capture much of the promise, to improve operations. The second focused primarily on organizational fundamental restructuring of support major shortcoming is business aggregation, it generally delivered services, in addition to consolidation, managers who are not fully engaged limited sustainable benefits. Usually was required. In general, the decision in the process and still view it as an executive was appointed to to implement was made at a very an initiative to take away control. implement the new model, and once senior level and the functional heads The result can be a very contentious the structure was in place, the head (or a head of shared services) were relationship—almost legalistic in began negotiations with business held accountable for delivering the nature—between the support service units about the services that would savings. The best implementations unit and the business. Evidence of be consolidated and sold back. The then involved a major functional this relationship can be seen in very focus was on consolidation, rather reengineering effort to eliminate work long service-level agreements, some than fundamentally changing the way and simplify processes. The focus of covering more than 20 pages. Unless services were delivered. the support service managers was the two sides work together to further clearly on making the supply side as drive down costs, the potential of the Business managers found this a very efficient as possible. new operation is necessarily capped.

Exhibit 4 Evolution of Support Services Models

High Stage 3

Business-driven Solution Stage 2 - Processes reengineered to Supply-side Restructuring Stage 1 best practice

ts - Business units control demand - Processes reengineered to Organizational Consolidation best practice efficiencies fi Bene - Businesses still use services - Functions consolidated at historic levels without reengineering - Businesses unsupportive of centralization

Low

Low Sophistication High

Source: Strategy&

Strategy& 9 Stage 3: Business-Driven Solution and be actively involved in the design With the successful implementation and delivery of those services. of both demand- and supply-side The new wave of successful initiatives, companies using a implementations shows that some The focus of shared service managers business-driven solution have been 40 percent of the total benefit of has shifted from providing functional able to sustain cost savings of more implementing shared services comes excellence to users to providing than 30 percent. from demand management: shared functional adequacy in which the service managers working with the businesses determine what their As for support services, the main businesses to achieve a cultural needs are and the level of service they derailer is a company’s failure to change in how they regard support can afford. To achieve this cultural establish the internal service provider services. The goal is for business shift, many organizations have relationship that the business-driven managers to think of support costs adopted governance mechanisms and solution entails. The lack of an as controllable rather than as a processes that involve key business internal market often leads to a reality head office allocation. Clearly, all and functional representatives in the (or at least a perception) of high of the supply-side restructuring and ongoing decision-making process. costs and low service levels. In some reengineering is still necessary, but Generally, a shared services board and cases the business units rebuild their successful demand management shared service buying committees are own service organizations, leading requires that business unit managers the primary decision-making bodies. to a phenomenon we call “shadow rethink their support requirements staff,” in which support functions are replicated within the organization.

10 Strategy& Treating Business Units as the marketplace rather than do with choosing an inappropriate Businesses by its relationship to the rest option for how the business unit is of the company. organized. In practice, there are six The concept of the business unit main options, in their “pure” form is straightforward. Businesses are The business unit model benefits (see Exhibit 5). built around what they do best. customers through greater value in Rather than starting from the inside terms of price (lower cost), speed, Each of these options presents and looking out, a business unit is and customization to their needs. advantages and challenges. For organized from the outside—in other The corporation provides the example, functional alignment words, from the perspective of the line managers with the financial, encourages the development of customers in the market, without intellectual, and human capital they highly specialized skills, leading regard for entrenched organizational need to succeed and lets them make to efficient work within business lines, titles, or personnel. the strategic and operating decisions units, but it may result in an overly necessary to drive the business. internal focus (“silos”) restricting Once identified, business units are cross-functional coordination and treated as real businesses. Line Organized and managed this way, bottom-line accountability. On the managers are given the accountability business units can leverage their other hand, while customer segment and authority to run the business capabilities to deliver a superior value alignment allows increased focus on and make decisions based on their proposition. Decisions are made customer segment needs and delivery unique market requirements. They closer to the customer. Business units stream integration, it can lead to a are empowered to make strategic, not only are able to meet the demands higher cost structure and lower levels financial, and personnel decisions as of today but also can anticipate of coordination within functions to required by the business. and shape the customer needs of ensure a consistent approach to the tomorrow. They justify their existence market. In its purest form, a business unit in competition with the best the would be structured and managed marketplace has to offer. Even though there is no “ideal” as if it were an independent entity option per se, our experience shows with outsourced services. Its There are two main derailers related that some are much more adequate effectiveness would be measured by to business units. The first has to for a given company reality.

Exhibit 5 Business Unit Alignment Options

OPTION DESCRIPTION Functional - Aligned around functions (departments) - Enables scale benefits and typically provides the lowest cost position

Geographic - Aligned around geographic regions - Enables the organization to effectively deliver on regional differences in customer demands

Product - Aligned around products - Enables the organization to rapidly innovate new products

Customer - Aligned around customer segments served Segment - Enables the organization to focus on the unique needs of each customer segment

Channel - Aligned around distribution channels - Enables the organization to optimize delivery through each unique distribution channel

Process - Aligned around critical high-level activities - Enables the organization to effectively operate where processes are complex or where a high level of cross-functional integration is required

Source: Strategy&

Strategy& 11 The second derailer has to do with Common Business Model interfaces between functions and accountability. As stated before, the Derailers areas (see Exhibit 7). whole purpose of business units is to empower their managers to view them We have identified certain, common as real businesses, calling the shots business model derailers and on strategic, financial, and resourcing their implications as perceived by decisions. However, the level of managers (see Exhibit 6). responsibility is often curtailed by limiting the managers’ decision rights The reasons for these derailers are or not holding managers accountable typically related to the fact that for bottom-line results. each entity within the organization has a life of its own and may not be In fact, in a large number of adequately connected to the rest of situations, it is hard even to measure the firm, leading to suboptimization. bottom-line results, as costs are Stand-alone efforts for specific not properly allocated. The whole areas and business units without a purpose of setting up business units holistic approach tend to neglect may end up watered down in a cross-functional synergies and misalignment of expectations. underestimate the complexity of the

Exhibit 6 Business Model Derailers and Implications

BUSINESS MODEL DERAILERS COMMONLY OBSERVED IMPLICATIONS Roles and responsibilities - Lack of clarity on how the corporate center adds value of the corporate center not - Excessive interference in business unit operations clearly defined - Excessive number of positions Business units not organized - Inappropriate organizational definitions for business units adequately or not accountable - Unclear decision rights leading to lack of agility for results - Lack of accountability for results - Inadequate cost allocations leading to lack of transparency in performance - Misalignment among the business unit’s metrics, goals, and incentives

Lack of internal market - Areas consistently operating at a high cost, below benchmark levels for support services - Low service levels and high level of complaints - Support functions replicated within the organization (shadow staff)

Source: Strategy&

Exhibit 7 Client Example: Utilities Company

OBSERVED “SYMPTOMS” IDENTIFIED ISSUES PROPOSED ACTIONS - Slow decision-making processes, with long - Corporate goals not clearly defined or properly - Redesign of the company’s business model, lead time to react to customer demands and cascaded to business units reconfiguring the business units to be primarily aligned competitors’ moves - Business units organized by geography, with limited around customer segments, but still able to take into - Low level of accountability: business units focus on different client segments account regional specificities theoretically responsible for the full P&L, but - Top management too engaged in nonstrategic activities: - Comprehensive review of how top management is in fact only measured by top-line growth excessive span of control organized, enabling it to refocus on strategic functions, reducing span of control - Corporate center staff duplicated at the - Absence of adequate control mechanisms business unit level (shadow staff) - Assessment of the key business processes, defining - Functional areas operating in silos, with limited decision rights, roles, and responsibilities for each area - Poor service levels by support functions integration and cooperation - Centralization and standardization of support services; - High cost of support services: above market - Lack of support policies and process standardization creation of a shared services center benchmarks across the organization - Deteriorating financial performance - Design and implementation of a control panel with key metrics and targets for the business

Source: Strategy&

12 Strategy& CONCLUSION The current global downturn has defined a new CEO agenda, in which greater efficiency and effectiveness are key themes. Companies need to focus simultaneously on short- term actions that capture immediate savings and on restructuring efforts that will catapult the company to a new, sustainable level of performance. By adopting a thorough approach to reviewing and improving their business models, companies can benefit from long-lasting savings and build solid foundations for growth once the downturn effects cease. Doing it while simultaneously contending with myriad other short- term concerns related to managing through this crisis is no small task. But there will never be a better time.

Strategy& 13 Strategy& is a global team These are complex and charting your corporate We are a member of the of practical strategists high-stakes undertakings strategy, transforming a committed to helping you — often game-changing function or business unit, or 157 countries with more seize essential advantage. transformations. We bring building critical capabilities, than 195,000 people 100 years of strategy we’ll help you create the committed to delivering We do that by working consulting experience value you’re looking for quality in assurance, tax, alongside you to solve your and the unrivaled industry and advisory services. Tell us toughest problems and and functional capabilities and impact. helping you capture your of the PwC network to the out more by visiting us at greatest opportunities. task. Whether you’re strategyand.pwc.com/me.

This viewpoint was first published in 2009, prior to the merger of Booz & Company (now Strategy&) with PwC in 2014. www.strategyand.pwc.com details. Disclaimer: This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors.