Dear Audience, cut costs, or boost growth? The right answer for recession-hit companies is both. Strategic restructuring has become a key issue for top management – and it’s here to stay. The ABB electrical engineering group made an impressive comeback in 2011, with orders at an all-time high and net profits up by a quarter on the previous year. “We cut costs and improved our project management,” summarizes the company’s Texan CEO, Joe Hogan. “In a volatile market environment, we achieved record sales and solid earnings.”
This success is partly the result of Hogan’s restructuring program. Barely two months after coming to office, he announced drastic cuts and bold growth plans, including a string of strategic acquisitions. In the months that followed, ABB snapped up the industrial motors manufacturer Baldor for USD 4.2 billion, and the electrical engineer Thomas & Betts for USD 3.9 billion.
X is the new V | Strategic Management
This combination of savings and growth is the hallmark of today’s strategic restructuring plan. Until a few years ago, restructuring was a V-shaped process in which you began by cutting costs to reduce unprofitable sales and ideally secure your future growth. That was the best-case scenario, but in the worst case your busi- ness never clawed its way back up the other side of the V.
Today, the V should be replaced by an X. Companies need to concentrate on not one but three key components of their business: finance, operations, and strategy. Nils R. Kuhlwein von Rathenow, a partner at Roland Berger Strategy Consultants, explains: “A strategic restructuring brings lasting improvements in efficiency and profitability, so it’s a sustainable comeback.” If you analyze share price trends, he says, companies that restructure during a crisis add substantially more value than cost cutters …