Cutting back Featured

7:00pm EDT January 26, 2009

Surviving in today’s economy can be tough, but there are still ways to keep your company afloat, says Jim Schuetz.

For one, you can simplify your business model by determining where you can cut back.

“Companies who are simplifying their business models are finding improved profits, improved return on assets and return cash flow,” says the Midwest regional managing director for Deloitte Consulting LLP, part of Deloitte LLP.

Doing so can also lead to customer service that is of higher quality and more reliable, improved career paths for employees and more flexibility to deal with changes, says Schuetz.

The consulting services arm of the professional services firm, which employs 3,700 across the firm in Chicago, has taken steps to make its business model less complicated by taking a hard look at some of its customer offerings, trying to better understand its customer base and putting segmentation strategies in place to focus on the most critical customers.

Smart Business spoke with Schuetz about how to simplify your business model.

Don’t wait to attack the issues. For many companies, an economic downturn is something you hope to survive — you hunker down, dial back on spending, suspend all your hiring activities and wait for the uptick in the economy that says, ‘We’re getting back to business as usual.’

For more and more companies, just surviving through the lean times in the normal economic cycle isn’t what they’re after, and they’re positioning their companies to thrive during a downturn and to grow their market share and to be poised to break through for growth when the economy rebounds.

If companies attack these issues in the good times, they’re attacking these issues on their terms. Companies that postpone and tackle these issues during the economic downturn are doing it along a timeline and on terms that are dictated to them given the financial expectations of shareholders.

Look at the various parts of your company. No. 1 is taking a hard look at your products. Take a look at both the finished product portfolio and what that portfolio looks like that’s offered to the customer as well as the packaging, components and raw materials that go into the finished products.

It’s a hard, challenging look at that portfolio and the strategic benefits of those products, the financial benefits, and starting to rationalize and get down to a portfolio that makes economic sense for the company.

Take a hard look at your supply chain. Simplification efforts, both on the product and customer side, will go a long way to simplify a company’s supply chain operations.

Take a hard look at back-office operations. In general, companies are looking to standardize and centralize their back-office operations, to improve the quality and efficiency of those operations.

Understand your customer base. It’s important to understand your customer base and the profitability coming out of that base — to know what it costs to serve your customers, to measure the customer profitability and to, based on this information, take actions to improve profits and strengthen the relationships with your key customers.

Do a simple analysis, where you sort [your customers] on a volume basis, segment them into your high-volume, medium-volume and low-volume segments, and understand what percentage of your customers make up what percentage of your overall revenue. Similar to that analysis is studying customer profitability. ... It’s understanding what they bring to the company from a profitability standpoint.

Set the right tone and focus. This is a tone that isn’t just set during down cycles or up cycles, it is a consistent tone that needs to ring throughout up and down economic cycles. You need to set the right tone, which is all about setting the right targets and balance, and making sure that you are not looking at sales growth or just focusing on the income statement and return on sales or earnings per share.

You’re looking at the overall performance from a return on asset standpoint and making sure that you are looking at driving profitable growth that drives return on assets, that ultimately drives improvement in shareholder value. Setting the right tone and balance and making sure it stays consistent through economic cycles is critical.

Second is creating that right vision. It’s creating that right vision around the front office, the supply chain and the back office, establishing the vision in terms of where you need to be, and then building the road map to get you from where you are today to where you need to be.

The final piece of how you get there is creating that right focus and team. It will take clearly defined initiatives with dedicated teams to make that happen. Tackling a vision like this in simplified business models is difficult but not impossible to accomplish in a ‘business as usual’ environment.

It requires stand-alone initiatives with dedicated teams to go off and grasp the vision.

Communicate the new model. It’s sending clear, credible and heartfelt messages about the vision and where you’re going, starting with leadership and getting leadership on board and being able to cascade that down through all levels of the organization.

The vision needs to be aligned around top management, it needs to be supported by top management and then communicated down through the organization and supported in the way that the company does business on a day-to-day basis.

HOW TO REACH: Deloitte Consulting LLP, (312) 486-1000 or www.deloitte.com