80/20 Case Study:
Achieving Profitability by Reforming Leaders
The consulting division of a major $3.4 billion utility had been struggling with flat growth and relatively low profitability for five years. The focus had consistently been on the development of sophisticated growth plans, but unfortunately, these would not yield the desired results. The president of the company, while well-intentioned, couldn’t get the needle to move; and his team was disillusioned with his leadership and the lack of results. The employees’ morale was low especially since bonuses were non-existent; people worked hard and passionately on serving clients but with limited reward.
Resolved to find the solution, the president engaged Strategex’s Profitability Enhancement and Growth Strategies (PEGS) team led by Joe Hahn. 80/20 training sessions were conducted for the leadership team as well as next-level managers. Leaders and managers were cautiously optimistic, taking a “wait and see” attitude, even though the principles and concepts, supported by a robust analysis of customers and products/services, were readily accepted. Meeting with the president and the leadership team on a monthly basis became a forum for ongoing training and real-time prescribing of recommended changes.
In the first six weeks, focusing on low-hanging “quick wins,” the company realized an increase of $2M in profitability. Throughout 2007, as 80/20 tools were applied, the P&L began to show significant and continuous improvement, leadership and managers began to believe in the process, and the president became a changed man and a respected leader. Implementing various 80/20 principles prepared the company to effectively and profitably manage the addition of a new business.
Approximately mid-year, the parent announced that this division would be divested. The preceding period of no growth followed by the most recent improvement appeared highly suspect and viewed as potentially unsustainable. Suitors began to make offers that were triple the value of what they would have been only nine months earlier. Top line and bottom line became convincingly high and sustainable; and three months later the parent decided that this was a strategic, high-growth, high-margin business and pulled it off the market.
In just one year, the company grew its top line by 18%, and improved operating income by 400%. Mid-year and end-of-year, generous bonuses were distributed as the company increased its value by $60M. The president, the leadership team, managers, and the parent company now attribute this magnificent transformation to the 80/20 process.
The leadership team has contracted with Strategex for 2008 PEGS consulting to continue improving business results, cascading 80/20 principles down through the organization, and working with segmented businesses and business unit managers to drive record-level growth and profitability. Expected results are continued top line growth and, minimally, an additional 2% in operating income improvement.