A division of an international company was approaching the middle of the financial year and was forecasting a full year profit shortfall against target of £16m; recovery actions were needed. A target was set to reduce by £8m the division’s £150m Costs of Sales spend in the second half of the year. This would address half of the profit shortfall as it would drop straight through to the bottom line. Other actions would be taken to address the remaining shortfall.
The resources of the division were fully utilised delivering business as usual and had almost no spare capacity. No analysis had been undertaken of the £150m Costs of Sales spend and the £8m target was set without any analysis and understanding of how achievable it was. Initial analysis identified that around £80m was not addressable – savings in the £80m would improve the profitability of the division but deteriorate profitability in other divisions of the company.
One person was seconded full-time to design and manage the programme (the programme manager), with sponsorship by the Director of the division. A virtual organisation was assembled, with each unit of the division contributing what appropriate resource it could. This was followed by the programme manager working with each unit head to obtain more people, including one person to manage a programme office. The resultant “virtual team” of some 30 people was made as close to a “real team” as possible with extensive engagement and communications activities. Clear “roles of change” were established and individuals in those roles were trained, supported and coached by the programme manager. The virtual team met and identified that no big savings were available in the £70m Costs of Sales that were addressable, and identified some 100 small savings projects. The programme office monitored these 100 projects. The office established flexible reporting tools that gave overall programme visibility to all, including a visible barometer that captured the cumulative savings impacts of what became some 200 small savings initiatives.
The programme manager reviewed the £80m of “non-addressable” spend and drew up an action plan that would benefit the division without deteriorating the profitability of other divisions in the company. This action plan was managed in isolation from the 200 small projects.
Strong communications processes and activities were established within the virtual team and also with all the stakeholders in the division and in other relevant divisions. Weekly updates on progress towards the £8m target were communicated widely. The programme manager agreed mechanisms for validating the savings made, and for rewarding the virtual team for their successes if the £8m target was achieved.
- £8.25m of Costs of Sales savings from the addressable £70m in the second half of the financial year were achieved and verified by the Finance team.
- Some 35 individuals received reward and/or recognition for their successes, more than funded by the over-achievement of savings.
- Over £6m of additional savings were identified and realised from the “non-addressable” £80m that did not adversely impact other divisions or the company overall.
- The division made the profit target for the year.
- Root cause analysis was conducted when reviewing the 200 or so small savings projects, and processes and procedures were redesigned to prevent reoccurrence. Similar root cause analysis was conducted for the “non-addressable spend” actions.
- When designing a complex transformation programme, engage all the stakeholders in an appropriate way. In this case, getting the right level of appropriate resources took a great deal of investment of time to help stakeholders understand what benefits allocating already stretched resources would give to them.
- Establish an organisation to manage the programmes, with clear “roles of change” and sufficient education, support and coaching. Make sure there is sufficient capability within the organisation to support the operational and the transformational activities concurrently.
- Educate and manage your sponsor sensitively and effectively. Do not burden a “big-picture” person with the minutiae of 200 small projects; just let them have visibility of actions and progress against the savings barometer.
- Establish good communications processes and communicate good news widely and often.
- Create and foster a strong common sense of purpose and a team identity when working with a virtual team.
- Devise appropriate reward mechanisms for success and ensure they are valuable to those receiving them; sometimes the individual values 10 minutes personally with the Director more than a cash reward (sometimes not!)
- Do root cause analysis as you go along. On a programme with so many small projects if you leave the analysis to the end you are unlikely to want to take on such a large task, and you will have forgotten the lessons from the earliest projects.
- When you are told something is “non-addressable” do make sure you understand why and be curious as to what might be possible.
- Manage unconnected work streams separately. Managing the “addressable” work stream separately from the “non-addressable” work stream allowed focus to be maintained.
See also www.dancewiththeelephants.com