CASE STUDIES: PROFITABILITY IMPROVEMENT
TURNING AROUND A SERVICES COMPANY
A fast growing services company was losing money on operations and quickly needed to improve its profitability. Profits had dried and the company had been in the red for several quarters. The consequent squeeze on cash flows had started constraining the company’s growth trajectory.
We examined the profit pool of the company and identified the key building blocks. Each of these building blocks was analyzedin detail to identifyimprovement opportunities. This led us to 11 possible levers. These levers fell under three broad heads – sales improvements, delivery optimization and back-end process improvements.
The traditional focus of the company had been on back-end process improvements and overhead reductions. Some of these ideas had turned out to be chimeras – possible on paper, almost impossible to execute in the context of a growing organisation. Our work showed that there was significantly more opportunity in sales and delivery improvements. By examining different scenarios and options in these areas, the client team was convinced of the opportunity and set up a programme management team to go after these areas.
With any change management process, it is essential to get started quickly, show early momentum, and turn skeptics into execution champions. For each of the identified initiatives, we assessed the complexity of execution, external dependencies and timeline of implementation vs. the financial impact of the same. By taking such a portfolio approach, we helped create a practical implementation schedule which was part of the roadmap to reach a profitability of 10%.
Working against a prioritized set of initiatives, and a disciplined programme management process, the client was able to achieve significant progress. Over a six month period, profitability grew from -0.6% to 4%. The other initiatives are currently being initiated as part of the longer term profitability improvement plan.With the return to profitability, the company has started regenerating the cash flows required to accelerate growth.