What: "Resizing Business in a Downturn: Tactical or Structural Cost
Reduction?"
Who: Omar Aguilar, principal, Deloitte Consulting LLP
When: Available immediately
Where: www.deloitte.com/us/debates/resizing
Details: The recession and credit crisis are causing precipitous
declines in consumer and business demand. In response to
declining sales, many companies need to resize their business
and reduce costs in order to maintain acceptable margins -- or
even just to stay afloat. The main question is how far to go.
Should you focus on a tactical approach that delivers
incremental savings in a relatively short time? Or a structural
approach that delivers results that are larger and more
sustainable?
"To achieve the required reductions, most companies must apply
a structural approach that focuses greater attention on
strategic improvements such as streamlining their
infrastructure, adjusting their service delivery model and
redesigning their business model," explained Omar Aguilar, a
principal with Deloitte Consulting's Strategy & Operations
practice. "These types of improvements can deliver cost savings
that are larger and more sustainable. And the good news is that
a structural approach doesn't have to take a long time. If done
right, it can start delivering results just as quickly as a
more tactical approach."
Aguilar offers tips for getting started, including:
* Know where you stand. Many companies are in worse shape than they think. For example, debt covenants often have strict requirements for cash flow and profitability, which means that even a company that is handling the downturn gracefully may find its existing loans suddenly withdrawn -- leaving the business desperately short of cash.
* Look at everything. In a deep and prolonged recession, traditional belt-tightening activities such as hiring freezes, expense deferrals, reduced travel and training, and across-the-board budget cuts won't be good enough. Companies must look at structural improvements such as direct spend and cost of goods sold reduction, infrastructure optimization and financial restructuring. They must also give more attention to their balance sheet and cash flow.
* Focus on major cost drivers. When resizing your business, focus on the structural drivers that drive complexity and cost. Customers, product mix and number of stock keeping units, geographic footprint and physical assets can all play a significant role in determining a company's structural costs. Rethink what you can afford for the current and expected market conditions, while preserving your core business and capabilities.
"A structural approach to cost reduction can better position a company to protect its margins, capture market share, and capitalize on opportunities such as bargain-priced acquisitions," said Aguilar. "It can also free up resources to invest in new products and services, marketing and advertising. These activities can help a company survive the downturn and get a jump on competitors when the economy turns around."
To view Aguilar's additional tips for structural cost reduction, as well as points and counterpoints on this issue, please go to www.deloitte.com/us/debates/resizing. This topic is one in a series of Deloitte Debates that examine today's pressing business issues from multiple perspectives. New debate topics are added weekly.
To speak with Aguilar, please contact Britton Josey at +1 404-220-1334 or bjosey@deloitte.com.
As used in this document, "Deloitte" means Deloitte Consulting LLP and Deloitte Services LP, separate subsidiaries of Deloitte LLP. Please see www.deloitte.com/us/about for a detailed description of the legal structure of Deloitte LLP and its subsidiaries.
Contact: Britton Josey
Public Relations
Deloitte
+1 404 220 1334
bjosey@deloitte.com
Website: http://www.deloitte.com/us/debates/resizing/
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