How To Reset Costs And Reshape Your Business For

How to reset costsand reshapeyour businessfor growthA Fit for Growth guideto respond to andemerge stronger fromthe COVID-19 crisis

IntroductionCEOs were already juggling cost challengesbefore the COVID-19 outbreak. Then the world’s20 largest economies went on lockdown withinan eight-week window. Optimism for a quickrecovery has evaporated and one big questionlooms: How to prepare for a future that will beforever changed, but is still not fully known?Most companies will work to protect the bottomline, while also building more resilience andagility into the organization.But while cost-cutting is necessary, it will notbe enough. Even worse, done the wrong way,it can harm a company’s chances of survival.Leaders also have to pivot value propositions,figure out ways to grow and identify newsources of revenue to find their place inthe future. This involves cutting costs in a waythat doesn’t harm the business, whileredirecting costs to the drivers of growth:the capabilities that differentiate a company.The global pandemic has upset past beliefsand models about costs. On one hand, coststhat were once fixed in the minds of businessleaders have become more variable (thinkoffice space), while capabilities that might havebeen differentiators in the past are now justtable stakes (automation and collaborationtechnologies). So much has changed thatstrategies may need to shift in new ways toredesign the business and cost structure formore enduring strength and agility.ContactsOur global Fit for Growth* leadership team is ready to helpVinay CoutoGlobal leader,Fit for Growth Platform 1 312 213 6753vinay.couto@pwc.comDeniz CaglarPrincipal, PwC US 1 312 420 8569deniz.caglar@pwc.comDr. Michael WagnerPartner, PwC Strategy& Germany 49 170 2238 539michael.wagner@pwc.comMatt ManiPrincipal, PwC US 31 6 22 79 19 espond-and-emerge-stronger.html*Fit for Growth is a trademark of PwC registered in the United States.Strategy& A Fit for Growth guide to respond to and emerge stronger from the COVID-19 crisis1

Fit for Growth for the new normalFit for Growth provides a powerful and complete approach to beready for the new normal and emerge strongerDevelop a cleareyed strategyRevisit your strategy andbe clear on your musthaves to win in the future– regardless of any economic scenarioDouble down onyour differentiatingcapabilitiesAccelerate yourcultural evolutionRadically transformyour cost structureSustain your focus on yourstrategy growth pillars/must-haves that will berelevant in any economicenvironmentReimagine youroperating modelRevisit your entire coststructure to establishshort-, mid-, and long-termactions to fundamentallyadjust for the futureReimagine how youorganize and collaborate– using technologyaccelerators andstrengthening resilienceActively engage theorganization to define therequired behaviors tobuild on cultural strengthsand own the actionsto shape the futureStrategy& A Fit for Growth guide to respond to and emerge stronger from the COVID-19 crisis2

Develop a clear-eyed strategyNew normal considerations will require all businessesto reassess strategic priorities across the value lstrategyWorkforcestrategyPricing adjustments to accountfor increased costs and/orchanges in volumesRevisiting and refreshing productand solutions portfolio to ensurerelevance in post-COVID-19 worldEvolving sales processes andtools for increased remoteselling and digital channelsAssessing if any industry andmarket trends have accelerated(e.g., e-commerce, digital models)Quantifying changes in realestate and workforce strategy(e.g., increased remoteworking, facility utilization)Designing new employee healthand wellness policies andguidelines (e.g., tracking ofpotentially impacted staff, paidsick leave policies, healthyworking guidelines)Optimizing discounting, incentivesand credit terms to enable restartand glide path to the new normalEvaluating life cycle andprofitability of businessand market positionsIdentifying opportunities to pickup growth-enabling assetsAssessing supply chain strategy(e.g., supplier resiliency, revisitmake vs. buy, distribution costs)Adding resiliency into the businessmodel (e.g., reevaluate footprintand manufacturing strategy)Implementing changes in shiftpolicies, work hours, workingnorms and practices andremote work ing government programs to assess pros and cons ofparticipation and impactResetting financial targets given additional costs of operations(e.g., due to new health and safety norms, operations costs)Incorporating potential long-term shifts in policy that may impactchoices on footprint, workforce, tax and overall strategyEstablishing cost and cash management discipline the across companyOptimizing the balance sheet to build sustainabilityStrategy& A Fit for Growth guide to respond to and emerge stronger from the COVID-19 crisis3

Double down on your differentiating capabilitiesZero-base your entire cost structure to reset future costand clarify where to invest and how to pay for itNot requiredLegacy investments and activitiesthat no longer support the goforward strategy“Lights-on”Bare minimum activities neededto “keep the lights on” in thebusinessTable stakes/entry ticketBasic competencies/activitiesrequired by everyone toparticipate in the industryDifferentiating activitiesActivities that provide you with acompetitive advantage and/or areneeded for future differentiation Executive travel benefitsLocal IT help deskLocal call centerManual order managementReal estateHR and finance back-officeIndirect procurementCustomer call centerEliminatePossiblenew coststructureResist the temptation to continue becauseof a commitment to legacyAim for cost levelsbelow competition30–40%Be better than benchmarkQuality managementCustomer insightsCollaboration technologyWeb-based self-serviceGeneral accountingCut costs to keep a“good enough” quality Online commerce 360 customer experiencemanagement Digital operations Performance managementInvest at levels abovepeers to gain acompetitive advantage Currentstate coststructureWarning: What you thought wasdifferentiating may now be table stakesWarning: Benchmarks will shift in thisperiod – aim to be the benchmark, nota Strategy& A Fit for Growth guide to respond to and emerge stronger from the COVID-19 crisis4

Radically transform your cost structureCarefully structure cost actions over the short-, mid and long-termto prevent excessive and/or insufficient reactionsTimeTop leversBalancesheetBottomlineToplineOverarchingEst. cost impact(cumulative)Respond to the crisisQuick wins and cashmanagement focusOptimize post-crisisOptimize for operationalexcellenceTransform for the futureTransform to a more resilientoperating model Supply chain stabilization Working capital optimization Optimization of supply chainprocesses Supply chain resilience Consolidation and centralizationof supply chain functions Logistics and supply chainautomation Immediate operational costmeasures (“quick wins”) Elimination of non-core activities Restructuring across thevalue chain Operational efficiency focus Operating model redesign Digitization, automation,offshoring and outsourcingacross the value chain Top-line stabilization Customer engagement Service offering rationalization Pricing optimization andresetting Sales and marketingfootprint reset M&A to reshape portfolioand gain assets at a lowercost post-crisis Rationalization of productsand markets Aggressive focus on cash Immediate flextime measuresfor the workforce andgovernment programs Organizational restructuring Outsourcing and offshoring Operating model revamp Optimization of y& A Fit for Growth guide to respond to and emerge stronger from the COVID-19 crisis5

Reimagine your operating modelThe crisis provides the opportunity to consider improvementlevers to reset and accelerate your operating modelVariableFoundationalValue123What we do andwhere we want todifferentiateWhere workgets done andhow we organizeto do workHow wellwhat wedo getsexecutedWhat products and servicesshould we deliver?What shouldbe centralvs.decentral?What shouldbe commonvs.custom?What should be differentiatedvs. commodity?What shouldbe in-housevs.outsourced?What shouldbe best costvs.low cost?Organization designEnd-to-endprocessesRisk managementand resiliencyPerformancemanagementAutomation anddigitizationCulture andbehaviorsWorkforce developmentData managementChange enablementStrategy& A Fit for Growth guide to respond to and emerge stronger from the COVID-19 crisis6

Accelerate your cultural evolutionActively engage the organization and ownthe actions to shape the futureShow empathyFinally, successfulexecution hingeson engaging theorganization tounderstand thenew normaland sign-onBe courageousEngage the team Acknowledge how peoplefeel – understand thehuman impact on them Stand in your purposeand values to helpdefeat fear and uncertainty Be transparent in sharing thesituation, challenges andopportunities Visibly demonstrate care forpeople in the decisions youmake and how you implementactions for change Take bold decisions Invite people to shape the ideasand contribute solutions Share the “why” behind yourbusiness decisionsAssumeresponsibility Take personal ownership ofthe required transformation Acknowledge reality and focuson the next best decision Align leadership incentivesto push for performance Use the opportunityto acceleratenecessary actions,even if unpopularAct with urgency Drive toward actionableinsights and analysesand be decisive Use the future to shape thepresent – act deliberately Be willing to adapt strategiesand align resources quickly Involve leadership at all levelsto engage and communicateBe transparent Keep employees connectedand engaged Continuously frame the casefor change and communicateauthentically with straight-talk Reassure stakeholders withactions, but also showcaserealistic outlookSource: Strategy&’s “Leadership in a Disruptive Age”Strategy& A Fit for Growth guide to respond to and emerge stronger from the COVID-19 crisis7

An accelerated approachThe Fit for Growth approach helps generate first results quickly while shaping the path to emerge stronger Scenario plan Baseline andanalyze spend Identify immediatecost actionsWeek 0W1Securebusinessandpeople Understandcash/liquiditypositions Supportemployeephysicalwell-being Establish crisismanagementPMO Implement immediatecost actions Shape pricing andcustomer terms actions Tighten workingcapital executionW4AcceleratediagnosticsStabilize thebusiness Optimize workingcapital position Engage riskcustomers/receivables Stabilize supplychain andoperations Launch priority “no regrets” actions(e.g., sourcing and automation) Initiate portfolio actions Shape footprint redesign, including operations,shared services and real estate utilizationW6Launch shortterm actionsPlan for the future Assess activities and zerobase cost structure Shape product portfolioand organization actions Assess automation agendaW12Launch midterm actionsShape midterm actions Complete opportunityassessments Design operating model anddetail organization structure Develop implementation planW24Shape structuraltransformation Detail structural transformation Launch transformative M&A andasset measures Design target processes andexecute technology agenda Execute and manage planStrategy& A Fit for Growth guide to respond to and emerge stronger from the COVID-19 crisis8