Fit for Growth

A practical approach to business transformation

Fit for Growth^* is a unique approach to business transformation that explicitly connects growth strategy with cost management and organization restructuring. Drawing on 70-plus years of strategy consulting experience and in-depth research, the experts at PwC’s Strategy& lay out a winning framework that helps CEOs and senior executives transform their organizations for sustainable, profitable growth. This approach gives structure to strategy while promoting lasting change. Examples from Strategy&’s hundreds of clients illustrate successful transformation on the ground, and illuminate how senior and middle managers are able to take ownership and even thrive during difficult periods of transition. Throughout the Fit for Growth process, the focus is on maintaining consistent high-value performance while enabling fundamental change.

Strategy& has helped major clients around the globe achieve significant and sustained results with its research-backed approach to restructuring and cost reduction. This book provides practical guidance for leveraging that expertise to make the choices that allow companies to:

• Achieve growth while reducing costs
• Manage transformation and transition productively
• Create lasting competitive advantage
• Deliver reliable, high-value performance

Sustainable success is founded on efficiency and high performance. Companies are always looking to do more with less, but their efforts often work against them in the long run. Total business transformation requires total buy-in, and it entails a series of decisions that must not be made lightly. The Fit for Growth approach provides a clear strategy and practical framework for growth-oriented change, with expert guidance on getting it right.

*Fit for Growth is a registered service mark of PwC Strategy& Inc. in the United States

Preface ix

Part I Introduction and Fit for Growth Overview 1

Chapter 1 Do You Need to Cut to Grow? 3

Circuit City: The Ostrich Approach 6

IKEA: Elevating Cost Optimization to an Art Form 9

The Fit for Growth Index 12

Chapter 2 Becoming Fit for Growth: The Restructuring and Renewal Journey 17

Focus on Differentiating Capabilities 19

Align the Cost Structure 21

Reorganize for Growth 24

Enable Change and Cultural Evolution 28

Continuous Cost-Fitness Renewal 29

Chapter 3 The Leader’s Role: Aligning Costs with Strategy 31

How Do You Know When It’s Time? 32

The Three Core Questions Leaders Ask 34

What Makes the Fit for Growth Approach Different 43

Part II How to Cut Costs and Grow Stronger: A Manager’s Guide 45

Chapter 4 Levers of Cost Reduction: What, Where, and How 47

Setting the Objective 48

Identifying Differentiating Capabilities 50

Selecting the Cost-Reduction Levers 52

“What” Do We Do? Business Portfolio and Capability Choices 52

“Where” Do We Do It? Organization and Location 53

“How” and “How Well” Do We Do It? Operational Excellence 55

Chapter 5 Portfolio Rationalization: Decide What Business You Should Be In 57

What Is Portfolio Rationalization? 58

When to Use Portfolio Rationalization 62

How to Rationalize the Portfolio 64

Chapter 6 Zero-Basing: Justify What to Keep, Not What to Kill 70

What Is Zero-Basing? 70

A Versatile, Holistic Cost Lever 73

When Should You Zero-Base Your Capabilities? 76

How to Zero-Base Your Capabilities 76

Chapter 7 Aligning the Operating Model: Redefine Where Critical Work Gets Done 85

Operating Model Elements and Archetypes 86

When to Redesign Your Operating Model 92

How to Redesign Your Operating Model 93

Chapter 8 Outsourcing: Let External Providers Generate Value for You 103

What Is Outsourcing? 103

When to Outsource 107

The Outsourcing Process: How It Works 108

Chapter 9 Footprint Optimization: Rethink Your Operations and Overhead Locations 119

What Is Footprint Optimization? 119

When to Use Footprint Optimization 123

Footprint Optimization: How It Works 126

Chapter 10 Process Excellence: Simplify Work and Minimize Bureaucracy 133

What Is Process Excellence? 134

When to Use Process Excellence 139

A Guide to Process Excellence 140

Aligning Process Excellence with Other Cost Levers 146

Chapter 11 Spans and Layers: Flatten and Empower the Organization 149

What Is a Spans and Layers Restructuring? 149

When to Restructure Spans and Layers 154

How to Restructure Spans and Layers: Five Steps to a Leaner Organization 155

Chapter 12 Strategic Supply Management: Extract More Value from Your Purchases 163

What Is Strategic Supply Management? 163

When Should a Company Use Strategic Supply Management? 167

Making It Happen: A Guide to Strategic Supply Management 169

Chapter 13 Digitization: Make Technology a Game Changer 177

What Is Digitization? 177

When to Use Digitization 179

How to Digitize 182

Part III Coping with Cost Restructuring: How to Manage and Sustain the Change 189

Chapter 14 Running a Cost Transformation: Mobilizing, Scaling, and Sustaining 191

Phase 1: Diagnostic and Case for Change 193

Phase 2: Detailed Design 198

Phase 3: Execution 203

Chapter 15 Morale, Emotions, and Expectations: Leading during a Restructuring 208

Uncertainty and Anxiety 209

Phase 1: Opportunity, but for Whom? 211

Phase 2: Anxiety Surfaces 214

Phase 3: Turmoil, but also Glimmers of Something Better 216

Chapter 16 The Human Element: Getting People Ready, Willing, and Able to Change 224

Elements of a Culture-Led Change Management Program 226

Phase 1: Diagnostic and Case for Change 230

Phase 2: Detailed Design 233

Phase 3: Execution 242

Chapter 17 Staying Fit for Growth 246

Strategic Levers: Translating Strategy into Performance 247

Operational Levers: Executing against the Plan 251

Organizational Levers: Assign Accountability and Reward Cost Consciousness 253

Cultural Levers: Unleashing the Individual 255

Sense and Sustainability: Getting from Here to There 258

Notes 259

Acknowledgments 261

About the Authors 265

Index 267

VINAY COUTO is a principal with PwC US.

JOHN PLANSKY is an executive at State Street.

DENIZ CAGLAR is a principal with PwC US.

The authors bring more than 70 years of combined strategy and business transformation consulting experience and the unrivaled industry and functional capabilities of the PwC network to solve companies' toughest problems and help them capture their greatest opportunities. Strategy& is PwC's strategy consulting business.

Very few organizations manage their expenses for sustainable success. And when the time inevitably comes to cut their costs, many companies cut in a way that makes them weaker, not stronger.

The experienced consultants with PwC's Strategy& team reveal the hidden problems of conventional cost management—and how your company can do better. Drawing on decades of research, observation, and experience helping clients, these experts have developed a unique approach to help CEOs and senior executives cut costs constructively.

The Fit for Growth concept redirects an organization's resources and investments toward its few differentiating capabilities—the strengths that set it apart from competitors. When a company manages costs this way, it becomes fit for growth. Its cost structure, organization, and culture are aligned with its strategy.

In this book, the authors take you through every detail of the Fit for Growth approach. They walk you step by step through the nine most important levers to restructure costs, complete with case studies, and practical examples from leading companies around the world. From mobilizing to scaling to executing to culture change and leadership, this valuable hands-on reference stays with you throughout the entire process. It shows you how to:

• Galvanize the executive team and the organization to embark on a transformation
• Apply cost reduction levers while avoiding common pitfalls
• Overcome the shortcomings of basic change management techniques by using the best of your existing corporate culture
• Confidently manage morale and keep the entire organization engaged
• Avoid falling back into old, unproductive behaviors
• Apply proven tools and techniques for sustaining the benefits of the transformation.

For the first time, senior thought leaders with Strategy& share in detail their leading practices and collective experiences to help you enable change and cultural evolution in your own organization.

Fit for Growth is your definitive game plan to cut costs and grow stronger.

PRAISE FOR FIT for GROWTH

"Building a company for growth requires efficiency, confidence, and innovation. What I love about this book is how accurately it captures the business world in which we live. Based on their vast experience, the authors offer valuable perspective on how to ensure your organization's competitive fitness for the future."
—RICHARD ASHWORTH, President of Pharmacy and Retail Operations for Walgreens

"Growth-oriented companies have the foresight, courage, and discipline to focus on what truly brings distinctive value to their customers, making tough trade-offs to invest in and execute only those ideas with the greatest impact for their customers. Fit for Growth expertly and succinctly details how organizations need to work, think, and act differently to align their growth agendas with their cost agendas and ensure profitable and sustainable growth."
—KRISTI SAVACOOL, CEO of Aon Hewitt

"Fit for Growth is a comprehensive guide for any organization searching for accelerated growth, especially in a low-growth environment. The book's practical examples provide clarity on how efficiency, cost consciousness, and strategy can be combined in a stimulating way."
—DR. WOLFGANG BÜCHELE, CEO of Linde AG

"Fit for Growth reminds us that strategic clarity and coherence set companies apart, but that choices on efficiency and focus are required to drive investments in strategy and maximize shareholder returns."
—SEAN CONNOLLY, President and CEO of ConAgra Foods

"Fit for Growth provides excellent insights on how to strike the right balance of driving a growth agenda while staying cost competitive, including not only a conceptual framework but also hands-on, practical, and highly relevant implementation guidance."
—DR. RAINER MARTENS, Member of the Executive Board and COO of MTU Aero Engines AG

"Having lived in the trenches with the authors, I came to know the full price of clutter and complexity. Fit for Growth is a blueprint for reigniting growth and unlocking value that has been tested in many of the deepest trenches—a real reminder that growth is about purpose, simplicity, and discipline."
—JOHN BERISFORD, President of S&P Global Ratings

"Fit for Growth provides excellent guidance to executives who want to drive profitable growth and align winning strategies with a sound cost structure and operating model. Tangible examples and practical techniques show how to provide the leadership required in a forward-thinking, cost-effective, and operationally sound organization."
—SANDRA M. VOLPE, SVP of Strategic Planning, Communications, and Contractor Relations for FedEx Ground