The Problem
A large global logistics service business was in the midst of a significant downturn. Facing a liquidity crisis projected in the next year, they needed to cut $200M in costs. Complicating matters, the business was highly labor intensive and union regulated, which meant that cuts had to be made primarily outside union labor.
The business had hired a new CEO who felt that the existing business plan was tired and in urgent need of revitalization.
The Solution
As a first step, the management team asked RBL to help them develop a strategic framework for organization design and cost reduction. The company established a steering team, made up of the CEO and direct reports, to guide development of the strategy and parameters for cost reduction.
The strategy team focused on how to refresh strategy and revitalize the business. They concluded that service distinctiveness was the customer value proposition for their logistics business, and they were then able to identify the core work processes that determined this distinctiveness. They allotted investment resources to redesign and upgrade these capabilities, even in the midst of a massive cost reduction effort.
The steering team chartered five cost sub-teams organized around selected functions to recommend cost reductions and new functional designs aligned with the new strategy.
The cost reduction teams were tasked with identifying ways to save $200M. This started with taking an inventory of all the work, assessing each type of work as strategic or operational in relation to their new strategy and cost-benefit analysis parameters, and identifying the best location to provide that work—whether an enterprise, region or local hub. Next, each sub-design team considered the implications for change if they had to make cuts of 20%, 30%, or 40% and submitted recommendations for meeting their cost targets.
The teams then reviewed and revised the suggestions until they established a plan across the business in agreement with the strategy team’s framework.
The Outcome
The company identified $90M in cost savings that they could realize in the first nine months, which staved off their liquidity crises and bought the time they needed to complete the turnaround. The second year brought additional cost reductions that saved a total 30% of overhead costs through realigning and redesigning business operations.
More important than merely realizing the needed cost reductions, they had achieved these cuts while positioning the business for future growth. Over the next few years, the stock price doubled and the business won awards as industry best in class and best place to work over multiple years.