Ford Motor Company lost $12.7 billion in 2006; four years later, the company’s profits were $6.6 billion. Around the same time, Carlos Brito’s optimization policy, “one firm, a single culture,” delivered $2.3 billion of synergies. This exceeded pre-merger expectations for Anheuser-Busch and InBev’s merger by 50%.
Both Ford and AB InBev’s CEOs achieved these results by adeptly applying the principles of organizational optimization–concepts explored by Toptal Finance Restructuring Expert Christopher Hearing in this article.
Resurrection of Ford Motor Company
In late 2006, Ford Motor Company struggled. The losses for that year were staggering, coming in at $12.7 billion. This was a dramatic drop from the $1.9 billion profits of the previous year. In four years, yields rose to $6 billion and then to $100.8 billion by 2016. Ford’s remarkable turnaround occurred during the US Great Recession, which was particularly harsh on its auto industry. While Ford was preparing its massive turnaround, its closest competitors, Chrysler and GM, were negotiating bailouts from the US federal government’s Tough Asset Relief Program.
Ford’s resurrection under the leadership of President and CEO Alan Mulally is one of today’s greatest examples of organization design and optimization in action. Mulally, through a well-structured and sequenced overhaul, consolidated Ford’s regional operations into one global process eliminated resource waste and duplication, shrunk the non-value-adding platform, and improved goal clarification across the firm. Mulally called the new company “One Ford” and streamlined its strategy.
The article’s core is about organization design and optimization. The report begins with an overview of the discipline’s fundamental principles. It then explores the various concepts and themes Alan Mulally used to turn around Ford’s fortunes. Finally, I offer a practical guide to restructuring sub-optimized companies based on my experience as a global restructuring expert.
What is Organizational Optimization?
The alignment and leveraging of resources of an organization to achieve its stated goals/objectives can be described as organizational optimization. Organizational optimization is the intersection of high productivity, high efficiency, and high utilization of resources.
Why should companies bother with organizational optimization?
Staying ahead in a rapidly changing world. Businesses today operate in dynamic environments, environments marked by extreme volatility, rapid technological change, and globalization. The complexity of these factors is exacerbated by an inconsistent yet discerning global consumer class whose tastes and preferences change at a fast pace. When used effectively, however, organizational optimization can be a powerful tool for achieving both short-term and longer-term goals. This allows companies to remain ahead of the market.
The Future of Work is Here. Second, are the historic organizational structures that are changing. On-going workplace changes present new challenges for managers, who now must also manage and motivate geographically dispersed workforces. The new facilities include an increase in remote work (individual and group), a greater use of part-time work by corporations, and a growing reliance on temporary or contract employee models. It isn’t easy to manage such dispersed teams at optimal cost-effectiveness and with the best performance. This will continue to be a challenge and require a structured rethinking of organizational design.
Achieving a Strategic Advantage. By approaching the corporate challenge in a new way, non-optimized companies playing in arenas with highly optimized competitors may become less competitive and more vulnerable. By aligning company goals, hiring the right skills, and optimizing the organization, a business can better respond to changes in the market and achieve its corporate priorities faster and more effectively.
Acquisitive growth strategies have long been the norm. M&A is now a staple of global corporate culture. Aligning cultures, priorities, workflows, and human resources after a merger is often key to unlocking projected synergies.
According to a Harvard Business Review article, which is based on McKinsey & Co., only 16% of mergers meet their soft and hard goals within the timeframe. In addition, 41% of unions take longer than anticipated, and 10% are value-diminishing rather than enhancing. Deliberate strategies for organizational optimization are also a reliable and proven way to achieve greater success.
Case-Study on InBev’s acquisition of Anheuser-Busch
InBev, a Belgian company, completed the acquisition of US giant Anheuser-Busch for $52 billion in 2008. Anheuser-Busch had 48% of the US market at the time of purchase. InBev was a small player in the US with a modest production capacity.
By 2011, Anheuser-Busch reported cost synergies in excess of $2.3 billion. This was about 50% more than the initial projection. Over the same period, margins increased by 600 basis points.
Three factors were key to Anheuser-Busch InBev’s success:
First, the focus was on reducing redundancy and maximizing efficiency. The consolidation of the procurement, engineering, and logistics divisions was the first step. This was followed by a deliberate knowledge transfer throughout the organization about best practices and efficient processes. A $1 billion cost saving within a year was achieved, as well as an increase in productivity.
Second, CEO Carlos Brito implemented his “One Firm, One Culture” Policy, which enforced accountability and personal integrity while enforcing strict cost control via zero-based budgeting. The culture of the company also enabled its leaders to make decisions at the local level quickly and independently. This allowed the company to remain close to regional and local customers, even when they were dispersed globally.
Implementation intensities were the third. No compromise on integrations was the well-worn InBev practice. It led to the elimination of low-performing brands, including Peroni and Grolsch beer. Integration was not complete until all the “i’s” and “t’s” in the pre-merger plan were crossed and dotted.
AB InBev achieved dramatic cost savings through the optimization process. From 2008 to 2011, it saw:
The Integration Trap
The integration fallacy is a false assumption that mergers and purchases are the best way to achieve growth while minimizing risk. In order to avoid the integration trap early, structured and diligent efforts must be made to optimize the combined organization. It is possible to do this by mapping out both companies to identify areas of waste, overlap, and capability gaps. Then, you can eliminate the debris and overlap as well as create effective solutions to fill the gaps.
The acquiring manager must next map all critical processes and workflows in both organizations and understand them fully before working diligently to standardize and incorporate them. The surviving staff must then, ex-post, develop unifying and common goals, seek buy-in from all levels, and implement relentlessly in order to achieve them.
The Optimized Organization
According to restructuring theory and practice, optimizing an organization requires a focus on four primary areas, which I have dubbed element. These are: (1) process redesign; 2) structured workforce development; 3) improved role clarity; 4) transparent goal setting. The four elements can be implemented individually, but they work better together. Here are some more details to help you understand each:
Process redesign. The first element in organizational optimization is redefining existing workflows and streamlining them to create a more efficient and effective organization. It is best to ask the following questions for each foundational task and process used by the company. “How will this process or redesign benefit our customers?”
