Right-sizing your cost base for COVID-19

Businesses are rapidly left with a cost base, both direct and indirect, that requires immediate right-sizing to fit the interim shape and size of their portfolio’s performance. This unprecedented right-sizing requires tailoring like no other – this is not solely an accelerated ‘cost reduction’ exercise, but one that demands cost- and resource-flexibility by design, enabling businesses to rapidly bounce back on the return of regular trading conditions.

Our cost performance and right-sizing team has worked under comparable conditions to those faced by a number of businesses today – immediate loss of significant contracts, immediate demand-erosion, fulfilment restrictions and supply chain shortages. We understand the pace and flexibility required.

How our approach can help you respond and inform your stakeholders

How rapidly can we address and impact our cost base?

• Assess activities to stop immediately – many activities will not be required during this period due to change in business demand.

• Re-assess how to conduct middle and back office activities – identify key activities and assess how best to service them: Re-allocate and re-purpose existing workforce based on assessment and interim requirements. Make the relevant changes if required.

• Scale-down activities related to long-term contracts – where multi-year asset leases, real estate contracts and other contracts exist, eradicate all associated servicing and utilisation spend, furthermore, where possible re-allocate or re-purpose for revenue generation.

How can we deliver right-sized business continuity?

• In short-term, prioritise existing contracts and live customers over new business

• Define your revenue-critical population – focus on retaining and enabling FTE that are critical to ~80% of your re-forecast revenue and fulfilment: client relationship owners, key sales personnel, client service, manufacturing and distribution (where applicable).

• Identify best practice cost performance and right-size to adjusted revenue forecast – identify functional and/or process costs as proportion to revenues for comparator businesses, and scale proportionally to revised revenue forecast. A number of costs may reach a point where loss of scale will require entirely new ways of working to drive cost down.

Are we sufficiently flexible to capitalise when trading conditions resume?

• Interim operating model must enable rapid scaling – revised resourcing, operating structures and processes must be modular to ensure that all segments of the value chain can be flexed individually to manage cost, e.g. rapid scale-up in front office should not be hindered by Finance or HR capacities.
• Assess outsourcing and contractor models – external capacity will enable rapid scale-up when demand is unlocked to capitalise on market opportunities.