Example III
A North-European consumer goods business ran into profit decline
A 15MM € North-European consumer goods business had been growing year-on-year by 25%+ for the past seven years, however, this trend had suddenly taken a complete turn and the profit had gone down 10%+ for the last year and with that lost market share. The executive team engaged us to evaluate the root-causes and develop appropriate plans how to change the negative trend and return the business back to profitability. Our team of three partners approached the assignment using the Profitability Framework that allows highlighting transparently the fundamental drivers of profit in the client’s business.
In the first step we fully customized the framework based on the client’s industry specifics on various dimensions. We chose the required first layer of the framework as well as the specific revenue model and the cost structure. Then dived into the most important revenue and cost drivers at a macro and micro-levels. After verifying the framework, we applied it to both the company itself (company level) and the industry (industry level) to get an understanding if there were discrepancies between the two in terms of profit decline. Using a structured driver tree as part of the framework, we were able to identify that there had not been decline in profits at the industry level and that a specific distribution channel was the main driver in profit decline due to significantly declined units sold. We then, after better understanding the main driver of the declining profits, recommended to investigate why the number of units sold via the channel of distribution have declined and to develop a strategy to tackle the issue. These were subsequently conducted in a follow-up assignment.
Case outcomes
As a result of the assignment, it was identified that the leading factor for declined number of units sold through the “challenged channel of distribution” was indeed sub-par training of the distributors employees to selling the client’s products. With re-designed training plans, improved training schematic combined with improved pricing strategy, the situation was reversed back to profitability within a less than a year from the initial diagnosis.