Performance improvement
Performance improvement services covering cost reduction, turnaround strategy, process improvement and price optimisation, delivered at pace and tracked through to the accounts.
Overview
Performance improvement is the work of lifting the operating result of a business inside a defined period. It is done through cost, where most engagements begin; through price, the lever most often left alone; and through a turnaround, where profit and cash have to be restored before anything else can be planned. Each is worked in the same way, from a baseline through opportunities sized and validated to a benefit tracked in the accounts.
The work is done alongside the management team, with a small senior team providing the tools and the frameworks and the management team delivering the initiatives, so that the capability to run a later program tends to remain in the business.
75%
of cost programs failed to meet their targets, in the survey of C-suite executives that the Agile Cost Advantage report cites.
11.1%
lift in operating profit from a 1% improvement in price, for a company with average economics, against 7.8% for variable cost and 3.3% for volume.
6%
or more of revenue lost to off-invoice discounts and leakage by the average industrial company, before it reaches the invoice.
Sources: Bain & Company survey of C-suite executives, cited in The Agile Cost Advantage; Managing Price, Gaining Profit (Marn and Rosiello, Harvard Business Review); Bain & Company and Pricefx, cited in The Pricing Success Formula.
The register
Most engagements begin as a cost program. The others are taken on where the position of the business calls for them, and a pricing review often follows once the cost base is settled.
Cost taken out at pace, with the customer proposition and the growth options intact.
Profit and cash restored where the position of the business has deteriorated and the recovery has to be delivered inside a short period.
The complexity and inefficiency along the value chain, and the potential for automation or outsourcing.
The price structure, the discounting behind it and the leakage between list and invoice, worked as a margin lever with the same baseline, sizing and tracking as cost.
Cost reduction
The stages run in order, with the Value Delivery Framework beneath all of them linking the targets to the program plan and the tracking.
A high-level breakdown of the cost base by type and division, benchmarked externally, with a target for each area in place of a single figure for the whole business.
As many opportunities as can be found, each treated as a stand-alone initiative and prioritised on potential value against speed of delivery.
The assumptions behind each opportunity validated, then a business case and a project plan for each initiative, with early deliveries fast-tracked.
Delivery tracked against the milestones and the financial benefits in each plan, so a delayed initiative is identified early enough for mitigating action.
Pricing
Each begins from the price structure as a whole rather than from the headline rate, and from the margin realised on each account rather than the revenue booked.
Customers tend to be less price sensitive than cost-plus thinking assumes, and the rate is often set from cost rather than from what each segment values.
The discounts, rebates and in-kind benefits granted over the past year, valued, traced to whoever approved them, and checked against the volume they were granted for.
Customer profitability by segment first, then by account where it matters, so the accounts that lose money on each order are priced or served differently.
Freight, handling, warranties and support charged separately, products unbundled where customers value the parts differently, and the cross-sell that lifts transaction value.
Incentives adjusted for the margin realised on each deal rather than the revenue booked, with the discounting behind each deal tracked.
A move from cost-plus to pricing on what customers value, which the Pricing Success Formula report puts at a premium of 5% to 10% and a margin uplift of up to a third.
Turnaround
The sequence matters because the cash position sets how much time the rest of the work has.
A weekly cash forecast, the facilities and covenants, and the near-term actions that give the rest of the work the time it needs.
Margin by product, customer and channel, the cost base set against the competitive position, and the causes of the decline separated from its symptoms.
The few moves that make a material difference to profit and cash, sized and sequenced, with a business case for each and its effect on cash understood before it is committed.
Senior executives in an active role, a short reporting cycle, and variances surfaced while there is still time to act on them, with the board informed as the plan is delivered.
From the reports
Each sets out the method in full, and is sent by email on request.
The framework in full, with the tools for each stage and the reasons programs fall short of their targets.
The profit effect of a 1% price improvement against the other levers, the components of a price structure, and the leakage between list price and invoice.
Starting a conversation
Most performance improvement work begins with a short conversation about the target, what has been tried before, and where in the cost base or the price structure the opportunity is likely to sit.
