We designed and helped implement a comprehensive performance transformation plan for a European automotive manufacturer and realized an improvement in the earnings before interest and taxes (EBIT) margin of six percentage points.
A globally operating European automotive manufacturer had been experiencing strong and profitable growth over many years. However, the client was now looking at a significant expected earnings gap of up to 75% in two years. This was due, in part, to the recently introduced CO2 regulation leading to higher technical cost to rescue CO2 emissions per vehicle and thus avoid those penalties.
It was essential for the client to achieve an improvement in profit to secure the financial strength it would need for future investments. We were therefore commissioned to support a comprehensive profit improvement program to offset the potential earnings gap and ensure that the client's financial targets would be met in the short and medium term.
The program required a holistic and comprehensive approach addressing a broad set of levers, that combined cost-reduction levers (like product cost down, reducing spend, and optimizing CAPEX) as well as sales and margin improvement levers (measures with an impact on revenue and margin, such as sales campaigns based in digital tools and intelligence).
During a short diagnostic phase, our team found ambitious yet realistic profit potential and defined a program to achieve it in a timely manner. Together with the client's management and teams, we then devised a set of measures with a short-term and medium-term impact and aligned them with the organization.
Focus areas for the holistic profit improvement program
This close collaboration continued in the execution phase as we worked with the organization to implement the defined course of action, supported by a strong transformation management office. We gained the full buy-in and commitment of the senior management team through frequent and regular interactions with the board.
An EBIT margin improvement of six percentage points. The transformation project helped the client develop a target vision for several strategic areas and had a significant impact on company profits, with a substantial improvement in the first year and a threefold increase in the following year.
Fundamental transformations of large corporates require significant buy-in and leadership from the board and strong coordination to steer the journey.Romed Kelp, Partner