Background and Challenge
The client, a leading high-tech global engineering business, faced significant external pressure to reduce cost, while seeking internally to drive transformation throughout the organization. Although the business maintained a first-class engineering design and manufacturing capability, it was suffering from project delays and rising costs. L.E.K. Consulting was engaged to identify critical overhead and operational cost reduction opportunities that could be rapidly put into action to meet customer expectations.
A key challenge was to disentangle a large and complex cost base, spanning central functions, and program delivery elements on a diverse and aging site. Organizational complexity had evolved over a number of years, compounded by a proliferation of initiatives that lacked effective coordination. The fundamental challenge was to develop a bespoke approach to the analysis of functional efficiency in an organization with few direct peers.
Approach and Recommendations
Recognizing that different parts of the business would require different approaches, we tailored the analysis according to two high-level organizational categories:
- Back-office support functions
- Operational enabling and delivery functions
For each of the support functions, we carried out detailed benchmarking of the number of FTEs and the organizational cost against a carefully chosen industrial comparator set. Working closely with the client, we allocated employee time to a set of discrete and comparable activities within each function. Comparison against industry best practices highlighted significant, potential cost savings should the client move to a top-quartile position. Collaborative working ensured that important context for existing processes was captured and incorporated into targeted recommendations for cost reduction initiatives.
We adopted a proprietary, systematic approach to the assessment of functional efficiency for the operational enabling and delivery functions, such as project management and engineering design. Looking first at internal indicators of efficiency, we analyzed organizational structure, including spans of control and reporting lines, together with historical growth and cross-business unit comparisons. Skills, demographics and shift patterns were considered for their effect on efficiency, and a detailed investigation of performance management systems and data led to the identification of clear areas for improvement.
We then benchmarked selected elements of the enabling and delivery functions according to leading indicators of efficiency and best practice among similarly complex and capital-intensive industries. These included the levels of rework experienced, the ratio of project management to delivery staff and the relative level of investment in manufacturing process improvement.
Following our review, the client was left with a clear and detailed understanding of the cost base, a quantified year-on-year cost saving potential within the support functions, and a roadmap for improving efficiency within the operational enabling and delivery functions. we brought to bear deep industry expertise; analytical capabilities; and a flexible, collaborative approach that helped to steer the client through a period of close scrutiny from a wide range of important stakeholders.