Revenue growth masked underlying profitability issues
A global manufacturer of motion control and material handling solutions grew revenue to ~$900 million. However, their growth through customer and product additions created operational complexity, eroding profitability.
BACKGROUND
Despite being an industry leader, the company faced declining profitability masked by revenue growth. Their strategy of adding customers and products created a bloated portfolio of low-margin, non-core business units that consumed resources without generating proportional returns.
Operating margin remained flat at around 8%. External pressures (inflation driving costs higher, aggressive offshore competition, and softening demand) compounded internal inefficiencies. The Board brought in a new CEO with a mandate: Transform the business model and achieve sustainable, profitable growth.
The Challenge
In the highly competitive motion control and material handling industry, the company couldn't win solely on revenue growth. They lacked visibility into which customers and products drove real profit, versus those that consumed resources and added complexity.
The challenge was identifying where value was truly created and having the discipline and strategy to simplify, even if it meant reducing revenue to improve profitability.
Portfolio included numerous low-margin, non-core business units
Rising costs from inflation and offshore competition
THE APPROACH
The board and the CEO recognized that continuing their current trajectory would undermine their competitive position. They needed a fundamental shift in strategy. The newly-appointed CEO partnered with Strategex to implement a comprehensive 80/20 simplification strategy as part of their multi-year "Blueprint for Growth."
The strategy wasn't about chasing top-line growth. The CEO and leadership team decided to reduce revenue from $876 million to $809 million. The idea was to simplify the business first, to earn the right to grow profitably in the future.
PHASE 1: OPERATIONAL CONTROL & FOUNDATION BUILDING
Working with Strategex, they began by establishing operational control and building the foundation for transformation:
• Integrated a major recent acquisition, achieving $6 million in profit improvement
• Strengthened the balance sheet with $60 million in debt reduction
• Improved working capital through inventory and accounts receivable optimization
• Built the analytical foundation for portfolio assessment
• Instilled a performance-based culture
PHASE 2: PORTFOLIO RATIONALIZATION & STRATEGIC SIMPLIFICATION
With the foundation in place, we launched an aggressive 80/20 analysis across the entire portfolio.
Customer and Product Analysis:
• Analyzed revenue at the customer and product level, and identified the 20% that drove 80% of sales
• Mapped complexity costs across the organization
• Implemented customer segmentation to drive differentiated strategies
Portfolio Rationalization:
• Divested three non-core business units
• Implemented Product Line Simplification (PLS), eliminating 40% of SKUs
• Executed Customer List Simplification (CLS), shifted organizational focus to growing and serving top accounts
• Restructured pricing strategy to reflect true value
Operational Excellence:
• Reduced operations' footprint with a simpler business model
• Streamlined operations around core competencies
• Built systematic processes for ongoing 80/20 discipline
RESULTS
Revenue declined 7.7% by design. Operating profit increased ~30% by discipline.
By eliminating low-margin complexity and focusing resources on high-value opportunities, the organization transformed its financial performance while simplifying operations, proving that less can truly be more.
By the Numbers
The systematic application of 80/20 principles created a sustainable competitive advantage that endures today.
Operating Income Improvement
Operating income increased 29.4% despite 7.7% revenue decline.
CASH FLOW
Operating cash flow increased 76%.
EARNINGS PER SHARE
EPS nearly doubled from $0.95 to $1.81.
IMPACT
The success of the 80/20 methodology led the organization to institutionalize the approach, creating its own business system incorporating these principles. 80/20 principles became embedded throughout the organization, transforming how the company filters new customers and products.
The 80/20 transformation didn't just deliver one-time results; it created a repeatable system with compounding results. Four years later, they've grown revenue 24% (surpassing $1B) while maintaining industry-leading margins, proving the 80/20 foundation enables both growth and profitability.
Our business system, which incorporates our 80/20 methodology, is key to strengthening core competencies, driving operational muscle memory, enabling scale and creating competitive advantages.
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