Lessons Learnt

In two previous blog entries I have told you about the turn-around project I carried out with an internal project team. Maybe you are getting sick and tired of hearing about it, but I feel that it was a perfect example of how internal teams can carry out projects that most people think will require a large external team of high-powered consultants. I promise that this will the last update dealing with this theme……….


The key lessons learnt from this process can be divided into general lessons related to the choice for an internal team, and lessons related to how an internal team dealing with such a complex issue can be helped to become successful.

The key lesson must be that internal project teams can successfully deliver "consultancy-grade" results. Sponsors of this project agree that there are only marginal differences between what this team delivered (including the key fact that it delivered on time) and what their favorite top-level consultant would have delivered. In addition, the work carried out by this team has resulted in automatic buy-in through-out the organization, and a fast and (so far) successful implementation.

Key lessons from this project related to ensuring that a team will be successful include:
• Ensure that the right people are made available for the project (skills, attitude, network, etc)
• Give the project a flying start by ensuring that that the goals and expected deliverables have been clearly defined
• Give the team a kick-off that enables the team to take ownership of the project (develop hypotheses and approach, etc)
• Follow-up on work done by individual team members to ensure that it follows a logical and focused structure and gives clear conclusions and recommendations that are supported by facts
• Ensure that the team communicates through-out the whole process (internally in the team, to key stake-holders, etc)

While every situation is specific, I am sure that any project team that follows these fairly generic lessons will be successful. However, the specifics of doing this can be challenging for an organization that is new to this way of working. As evidenced by the testimonials given to me at the end of the project I have played a key role in enabling the success of this team.

Follow the links if you are interested in more information on project planning or project management training.

Use a project team to plan a turn-around (2/2)

In my previous blog-post I described how a project team developed a structured overview of the reasons for an engineering company being structurally loss-making. In this post I will give a short overview of the initiatives that were developed to turn the company around and the implementation plan used to ensure that the initiatives will be carried out.



A total of 20 initiatives were developed by the team in four main areas:
•Improved marketing through more focused use of distribution channels, focus on certain segments, and a move away from selling small (loss-making) projects
• Professionalizing the end-to-end process for selling and carrying out projects (clearer scope definition, value- instead of cost-based pricing, improved hand-overs to the engineering teams, more intense follow-up of budgets, etc)
• Large reduction of supporting costs through a detailed added-value analysis of existing activities
• Structural reorganization of the company, leading to less management layers, clearer and more focused responsibilities, etc

Implementation of the 20 initiatives has been closely linked to the new organization structure, with relevant managers having clear responsibility for specific initiatives. Each initiative has been described in detail and including a high-level implementation plan. The first responsibility for the relevant managers is to develop a more detailed plan (in order to develop ownership) for the individual initiatives under his/her responsibility. Progress on the initiatives will be a key element of the weekly management team meetings and will also be including in the monthly meeting with the corporate sponsor.

My latest update from management and corporate sponsors is that implementation is going well, and that they are optimistic that the company will finally become profitable and better positioned in the market.

Follow the links if you are interested in more information on project planning or project management training.

Use a project team to plan a turn-around

Some months ago I helped an engineering company plan a turn-around. The engineering company is part of a larger company, and has been consistently loss-making for the last five years. New owners decided that "enough is enough" and asked the management to come up with a restructuring plan. The results of this process were an unchanged strategy, minor changes to the organization, and some ad-hoc cost-saving initiatives.


This resulted in a high level of frustration at the corporate level, and the general opinion was that external consultants would need to be called in. Fortunately, wiser minds prevailed and it was suggested to use my proven approach for enabling internal teams to carry out complex projects successfully.

My first suggestion was to move the responsibility for developing the turnaround plan away from the management team to a separate project team. A team was selected consisting of a fairly young group of female middle-managers who had critical minds, good analytical skills, and the ability to think "outside of the box", and were respected within the organization.

A kick-off meeting was spent agreeing the overall approach to the project. Key outcomes was an agreement on a phased approach (with a clear separation between a first phase focusing on fact-finding and understanding the key issues, and a second phase to develop new initiatives) and use of a hypotheses-driven approach (as used by all major consultants).

In the first step we developed a hypothesis that the engineering company needed to leave behind its current approach to its business (offering a coordinated suite of engineering related services to the same customers) and focus on understanding the intrinsic attractiveness of what should be seen as separate business-areas. The CEO attended this meeting, and defended the existing strategy, but accepted the overall logic suggested by the team.

During the next few weeks the team focused on developing proof for the hypotheses developed in the first meeting. This involved understanding the markets in which the company operated, analyzing the operating processes, and developing a financial overview of the individual business areas and projects. The team agreed that the hypotheses-driven manner of working was helpful as it gave the team clear objectives to work toward and enabled a very focused and effective way of working.

The results of the diagnostic phase supported most (but not all) of the original hypotheses developed by the team. A key finding supported the decision to look at the business areas independently. Different from what we originally believed, it turned out that all the business areas provided a positive contribution to the overall profitability of the business. However, the contribution from each business was small. This was caused by a wide range of marketing and operational issues. Marketing issues included too many small loss-making projects, incorrect pricing methods, and insufficient focus on existing, profitable customers. Operational issues included insufficient planning of projects, low follow-up of budgets, and a lax attitude towards scope creep and up/cross-sell.

The final step in the diagnostic phase was to communicate the findings to the management team and the corporate sponsor of the project. The key challenge with the management team was getting buy-in to the radically different picture of the company that the team presented. Based on the thoroughness of the analysis and the pyramid based presentation this went well. The corporate sponsor was very happy with finally receiving a structured analysis of why the company was loss-making and asked the team to continue with the developed of initiatives and an implementation plan.

Follow the links if you are interested in more information on project planning or project management training.

Complexity Reduction For Structurally Improving Profitability

For most of you, the complexity of your business has increased over the last ten years. Key reasons for this include increased competition, the need for segmented offers for meeting specific customer requirements, new technologies, etc. While this may have lead to higher revenues, it has more often than not also lead to structural increases in capex and higher operational costs through-out the supply-chain. In addition, I have seen numerous companies where increased complexity has lead to difficult and slow innovation processes, seriously hampering the companies’ abilities to meet new competitive threats and/or market opportunities.

Today, I see that many companies believe that complexity reduction is a fairly easy way to reduce costs. A project is started to carry out a Pareto analysis of revenues across products, and typically sees that the 80/20 rule holds, and that the tail is not profitable. The project then suggests that the 10% of the product portfolio having the lowest sales are terminated. In spite of protests from marketing & sales this is then carried out. Results, however, are more often than not disappointing, or even non-existent.

In my experience, complexity-reduction is a critical activity for a majority of businesses. While complexity-reduction in the restaurant business appears to be fairly easy, in most companies I consult to it needs to be carried out in a structured and well thought out manner where:

• It is understood that not all complexity is bad, and that the crux is to get and keep the right level of complexity for your specific company situation

• It is realized that the process is complex, will take time, and will result in only limited “low-hanging fruit” opportunities

• It is possible to put a well-organized and broadly supported project team in place to carry out the project.

If you believe that your company is suffering from too high complexity, my experience is that you will need to put in place a project to carefully consider a number of inter-linked aspects related to complexity. The first step in the process will be to understand the complexity in your organization. This will involve understanding the true complexity drivers of your current business. Typical examples include number of customers, number of products (at the lowest level of detail), number of packaging variations, number of ingredients, number of technologies, etc.

You will also need to understand the value of your market-facing complexity (i.e. those aspects which your customers see). This will involve understanding the reasons for the variations in your market-offering, analyzing the value that your customers place on the variation offered, and deciding what the consequences would be of reducing the variety you offer to the market-place. The final analytical activity will involve understanding the costs of complexity by going through a detailed activity-based costing exercise to allocate costs to the different complexity drivers (products, customers, etc).

The next step will involve carrying out a direct pruning of the product portfolio based on the preceding analytics. This portfolio reduction will not focus on the tail of the product portfolio, but will rather seek out products where the strategic value is low and costs can truly be reduced either due to a negative margin or through specific opportunities to reduce overhead through the removal of one or more products from the portfolio.

In addition to reducing the complexity that is visible to your customers, the project team will also need to look at opportunities to reduce below-the-skin (i.e. not visible to your customers) complexity. At one of my large telco clients, this is one of the key issues they are facing. They currently provide many services that are similar from a client perspective, but which are delivered through different technologies. The company is now going through a process to move delivery of all services to one platform, and expects that this will result in major savings. However, it is finding this process challenging as it requires a broad coordination across the commercial and technical organizations.

While these activities related to reducing customer-facing and internal complexity will provide you with considerable benefits through the one-off reduction in complexity, my experience is that complexity will quickly creep back if structural changes are not made to key processes. The most important process to change is the innovation / new product development process. The key goal of the changes to this process is to ensure that only complexity that truly adds value is allowed in new products. A key change to enable this is to ensure that all complexity costs are included in the business case for the new product. In addition, the improved innovation process should ensure that the production of the new product minimizes internal complexity by pushing for the use of modular designs, re-use of components, etc.

Finally, the complexity-reduction team will need to put in place (or improve) a portfolio management process to ensure that an overall portfolio view is taken in decisions related to new products, and that regular reviews are carried out to discontinue low-value / end-of-lifecycle products.

While the described process is intense and requires a substantial investment in time and resources the returns are also substantial both in reduced costs and extra revenues through faster time-to-market for critical new products. Follow the links if you are interested in more information on project planning or project management training.

Gordon Ramsay and Radical Profit Improvement

If, like me, you enjoy good food, good wine, and real cooking, and occasionally have time to watch television you have probably seen one of the many programs that Gordon Ramsay has made where he flies in to turn around a restaurant that is in deep trouble. These shows typically revolve around scenes showing gross incompetence that scare you from ever going to restaurants again, and the very interesting and colorful use of the English language by the three Michelin-star cook.

In addition, there is another commonality across these programs that could be useful to those of you facing a situation requiring a dramatic turn-around. An activity that has been carried out in all the restaurant turn-arounds that I have watched is a ruthless pruning of the menu to enable the restaurant to focus on a few dishes that are a) popular, and b) within the capabilities of the restaurant staff.

I believe that this is an excellent analogy to what many other organizations also need to do in these difficult times. For most companies a "back to basics" strategy is a much better way to improve profitability than a flat 10% across-the-board reduction of costs. (see Setting up a successful cost-reduction project for more information). Watching a few restaurant turn-around shows also gives a good lesson in how this type of consolidation can be carried out. As in the restaurants being helped in the television programs, the focus of the new product portfolio in your organization should be "popular and simple".

Finding out which of your products or services is popular should be fairly simple as your financial data should tell you which products give the highest sales. This initial analysis, however, should be expanded by also looking at which products are sold to a broad customer base and cover a wide set of customer needs. The typical steps carried out for the restaurants in the show also include market research by walking round town to look at which other restaurants exist and which ones are crowded. Similar steps in the case of most companies would be to carry out some fairly straight-forward market-research by interviewing a few clients.

Finding out which of your products are simple to produce involve looking at financial data and analyzing your production process. Your financial data should give some indications on the profitability of your individual products (direct margins, etc), but this data should be used with care. The main issues with accounting data include a) tax issues often play a large role in deciding the accounting rules that are followed, b) unrealistic assumptions are often made related to costs being fixed or variable, and c) many indirect costs are not sufficiently linked to their real cost-drivers (i.e. the products actually causing the costs to be incurred).

An analysis should therefore be carried out of the production process itself. For a restaurant this is fairly simple as it is possible to directly see the dishes that create chaos in the kitchen. In a larger organization with processes that typically cover more time, space, organizational units, and people this can become quite a complex undertaking. Complexity in itself, however, is no reason not to start. There are several possible starting points for such an analysis including customer interviews (which of our products are you unhappy with and why), interviews with sales people and service representatives (which products give the most complaints), interviews with production people (which products are the most difficult to make and which result in the most rework), etc.

By combining the results of these two analytical streams it should always be possible to determine products that are a) not popular, and b) complex to make. The short list resulting from this combination will always be a good starting point for carrying out a "pruning of the menu" in your organization.

Follow the links if you are interested in more information on reducing complexity, project planning or project management training.