The Cost of Restructuring
A badly-done restructuring can, instead of restoring a business to health, bring it to its knees even faster.
A business exists to provide a product or service that
people want where and when they want at a price they are prepared to pay. To this end, the business employs fixed
assets (buildings, machinery, equipment), current assets (debtors, stocks,
cash), current liabilities (trade and other creditors), debt and share
capital. The final asset is, of course,
people.
These days, the focus on costs results in things being seen
very one-dimensionally as costs to be reduced or eliminated. “If you only have
a hammer, you tend to see every problem as a nail” as Abraham Maslow said.
At any one time, a business’ people, assets, liabilities and
processes will be arranged and balanced in a certain way to deliver products or
services to a certain standard. When you
remove one element (e.g. reduce staff), you alter the balance.
One familiar example is reducing costs by offshoring customer call
centres. We hear frequent complaints
about being unable to understand operators in another country, poor language
skills, attitudes and problem-solving abilities. Result: increased customer complaints (which cost more to resolve) and a shift to another service provider.
If a process has been set up with a certain number
of inputs in mind, it will have to be changed to cope with the
new environment. As many are discovering
to their cost, you can’t change one side of the equation without changing the
other.
One way of avoiding potentially disastrous scenarios is to
review the business process before
making changes and/or cuts. If the
changes proposed will result in a poorer quality product or service, then the
question to be asked is “Will this result in a reduction in income, reputation
or both, and can we afford it?” Get it wrong and customers will switch, unless they are prepared to accept a poorer
product/service in exchange for the same/a lower price.
This all pre-supposes that a business understands what its customers value, i.e. what its Unique Selling Proposition (USP) is. Those deciding where to make the cuts may not have this information.
If a business has to cut costs or risk going out of business, it needs to decide which cuts will result in the least “fallout” and then communicate to all stakeholders why it is making those cuts. Generally, few will dispute the need to ensure the continuing health of a business that is providing a product or service that people consider important. This is even truer in sectors where competition is intense. In the latter case, you either reduce consumer choice by going out of business or maintain it by cutting back.
If a business doesn’t know what its target market is, and
what it values and is prepared to pay for, how can it make money? If relocating a call centre offshore results
in increased dissatisfaction (and therefore reduced need), this will reduce
revenues as word of the poor service or product quality spreads. As a result of this, one UK bank has relocated its call centre back to the UK.
Labels: Crisis Management, Customer Care, Financial, Productivity, Selling, Strategy
posted by William Martin @ 15:45
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