Right-sizing your cost base for COVID-19
Rapid cost re-calibration solution to maintain business continuity
The unprecedented rise of COVID-19 and subsequent government measures are triggering immediate P&L impacts on businesses across the world. Public social distancing obligations and guidelines are translating into various effects on business depending on the segment – demand-driven revenue losses, fulfilment-driven revenue losses, abnormal revenue phasing, portfolio imbalances and reduced workforce utilisation.
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.
Assess and define the impact on your value chain
Identify key processes & resources for right-sizing
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.