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Rapidly simplifying an organization turns around performance

A 5-month restructuring effort reduces organizational complexity and achieves new efficiencies that help deliver $2 billion in incremental profit.

Challenge

A global logistics company, historically an industry leader, had seen its performance lag its competitors’. Its overhead costs were significantly higher than average—driven by a complex, oversized organization with a large regional staff and cumbersome processes requiring multiple handovers.

The CEO asked McKinsey to help undertake a comprehensive restructuring. His objectives were to bring the leadership closer to the business, reduce cost, simplify the organization, strengthen performance management, and improve responsiveness to customers—all in the space of a few months. This would be a tough challenge, given that the 25,000-strong workforce was spread across 150 countries.

Discovery

Informed by a thorough diagnostic of the current organization, McKinsey worked closely with the company's leadership to determine the architecture of the new organization. A critical discovery was that by simplifying important processes such as pricing, the company could remove a full organizational layer, its regional structure. It was agreed that unnecessary or duplicated activities would be removed, decision-making streamlined, and performance management redesigned to give country managers clear profit- and loss- accountability.

Guided by McKinsey's organization design experience across hundreds of companies, the leadership also made two critical choices to steer the restructuring. First, for the sake of speed and simplicity, standardized structures would be applied in all countries, with very limited tailoring. Second, the entire new organization would "go live" at the same time—both to accelerate performance improvement, and in recognition of the company's interlinked nature.

With these decisions made, the restructuring kicked off. Over an intense five-month period, the new organization was designed level-by-level; new core processes were developed; detailed job descriptions were defined right across the business; 2,500 employees were appointed to new positions through a carefully managed application process; and new performance metrics were created.

McKinsey used several key tools to ensure the restructuring was both rapid and rigorous. For example, a web-based solution made it possible to map the current activities of more than 20,000 full-time employees in just 10 days—information that helped populate thousands of new job descriptions at speed.

A central program-management office (PMO), co-staffed by McKinsey consultants and the company’s best talent, oversaw the restructuring and provided hands-on support to managers designing their own units. The PMO defined and drove a detailed master plan for the transition, and developed a comprehensive communication effort that included a detailed "implementation handbook" for line managers.

Impact

A comprehensive global reorganization was designed and successfully implemented in just five months. During this time the organization was significantly simplified and streamlined, personnel numbers were reduced by 12 percent, two major business units were demerged from the organization to increase focus on its core business, and a far-reaching new performance-management system was put in place.

As a result, the company's profit margin moved from bottom quartile to best in the industry in two years, adding over $2 billion in incremental profit. The company was able to ride out the downturn, defend its leadership position, and deliver substantial growth during the recovery.

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