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Once again, it would benefit you if you asked some questions to aid you in your
analysis. What questions would you like to ask?
Some clarifying questions are necessary at this stage:
" Are the applications similar for each department?
o Yes, identical
" Can we ignore other aspects of cost?
o Yes, we can
" What are the relative revenue/application?
o Identical in this case
" Are both departments operating at capacity?
o Yes, they are
" Are the residential and broker markets expected to grow, if so by how much?
o Let s assume that they will not grow beyond their current volumes
" Are the 5 salespeople critical do we really need 5?
o Yes
Now that you ve asked these questions, what options for generating savings would
you like to propose?
Options:
" Merge RM with BM, new IT process, train all staff, and let go of excess staff
" Move BM revenue to RM, eliminate BM and expand RM
" Look at outsourcing BM and RM
" Increase efficiency of BM by implementing IT and cross-training with RM staff
Question 3
The CEO has reviewed the options that you ve given him/her and has decided that
he/she would like to move the broker application volume to the residential
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mortgages department. Outsourcing is too sensitive from an industrial relations
perspective at this stage, and cross-training has not worked in the past.
How many additional staff will RM require? What will be the total cost
savings?
Again, it is necessary to ask some questions to aid in your analysis:
" Can we assume that staffing is application volume dependent?
o Yes
" Can we assume that the applications are identical, and ignore the costs to
modify the RM IT to handle broker applications?
o Yes
" Can we assume that the staff being transferred from BM will be paiod the new
salary?
o Yes
New staff level:
- The total application volume for RM in the future will be 100,000
- This is a 25% increase over the current volume of 80,000
- Assuming volume dependent staff levels, this implies a 25% increase in back
office staff
- Therefore we will need 1.25 * 30 = 37.5, or rounding up, 38 operations staff
- We also need to keep the 5 salespeople
- Therefore, a total of 13 staff will be transferred to RM, and 17 staff will be let go
from BM
Cost saving:
- 17 staff @ ¬ 50k are being let go => a saving of ¬ 850,000
- 13 staff are being given an extra ¬ 10k => an extra cost of ¬ 130,000
- Therefore, the total saving is ¬ 720,000 per year
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Question 4
You have to sell this recommendation to the CEO. When you go to present your
findings, you discover the CEO is rushing off to a board meeting. You have 30s to
communicate your message.
The candidate should provide a concise recommendation, following the pyramid
principle1. It should be related to the initial issue of profitability, include the saving.
Rambling is not good. For example:
We ve looked at the pilot divisions as you suggested. We recommend eliminating
the BM division, and rolling broker applications into the RM division. This move will
reduce costs by ¬ 720k p.a., helping to ease the staffing pressure that profitability has
been facing for the last decade. We will have to let go 17 BM operations staff as part of
this move. Our recommended next steps are to begin an implementation plan for this
move, and to identify other consolidation opportunities within the bank.
1
The Pyramid Principle by Barbara Minto
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Case 18 - Performance Chemicals
Introduction
" The client is a $250 million Performance Chemicals division of a $7 billion Specialty
Chemicals Company.
" The CEO of the parent company has set a growth agenda . He believes that his
company can become the fastest growing chemical company in the industry and has
set a growth target of 10-15%.
" The CEO has asked all division business managers to develop growth strategies to
support his agenda.
" Performance Chemicals business manager, like many other managers in the
company, does not believe that there is significant untapped potential in the markets
served by his unit. The business manager has approached Strategery Partners for
advice.
Question 1: Is the Performance Chemicals business manager s scepticism in the
CEO s growth target warranted?
Hint: Often clients will frame a challenge presented to you based on implicit assumptions
that may, or not be correct. Your job as a consultant is to ensure that the challenge is
correctly/accurately defined, independent of client-bias, so that your problem solving
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