When flawed organizational design disrupts business
Plummeting European sales and eroding market share were the most visible symptoms of organizational problems at a global consumer goods company. A closer look revealed other indicators of dysfunction, including lengthy and cumbersome decision cycles and bloated overhead costs. A previous cost-cutting campaign had left some departments crippled and understaffed and others bloated and ineffective. When a new CEO assumed the reins of the company’s European unit, he took stock of the situation and called in AlixPartners. Our mandates: to find opportunities to reduce costs and to fashion a leaner, more-agile, and better-connected organization. After all, with €100 million in EBITDA at risk, cost cuts alone would accomplish little if a flawed organizational design got in the way of doing business.
A deep-dive analysis yields big savings
Our team sat down with the CEO and members of the senior leadership team to review the business from end to end. What they saw was a sprawling company cobbled together from dozens of acquisitions, resulting in an overly complex, high-cost organizational structure. Interactions between the sales, marketing, and product management functions were marked more by conflict than coordination. Reporting lines and accountabilities were blurred. Business units were duplicating work that belonged to the corporate center, and country organizations were replicating by multiple times certain low-value activities in high-cost locations.
Our analysis identified up to €200 million in cost-saving opportunities across every area of the business. The CEO and the leadership team embraced the challenge and went to work on more than 20 major initiatives. Our analysis also revealed that a different and significantly leaner organizational design with fewer layers and wider spans of control could make a positive impact. As part of that, AlixPartners recommended a new structure that called for operations to be organized around product lines rather than brands. And a previously fragmented sales organization was rightsized—depending on market opportunities—and grouped by country clusters. As a result, some regions got restructured to face the new market realities, and others would see significant investment to fund future growth.
When it really matters
A project with such complexity and size cannot be completed overnight, and so we worked closely with the company for the entire one-year period it took to implement the new organizational design and savings initiatives. Reorganizing the company around product lines and regional clusters sped up the commercial decision-making process and enabled the company to optimize head count without depleting the crucial, research and development and front-line sales functions. With a more-effective organizational design in place, the company is now free to focus on initiatives to boost EBITDA by €200 million.