Organization changes in profitability decline

Hi Adrian,

I would suggest the following structure:

Step 1: Identify the problem. You can proceed through the following steps:

1. Segment by profitability/revenue channels. Ask the interviewer how the client segments its profitability channels. In your case, that may be related to the different products in supermarkets, or type of restaurants
2. Identify which channel is the priority. Ask for the change in profitability for each channel. Then start from the one that had the biggest decline in profits.
3. Identify whether it is a revenue or cost issue. Ask how revenues and costs changed for the channel that you have identified. Start from the area which has the major negative change in absolute amount
4. Analyse the components of revenues and/or costs. According to what you found in step 3, you should further segment revenues in price and volume and costs using fix or variable costs, or dividing them through the value chain.
5. Identify the component that is underperforming. You can do so comparing the client performance with its past performance, or benchmarking competitors on that area.
6. Identify the reason for the problem. Usual areas to consider are:

• Internal (customer, competitor, supplier issues)
• External (client issues)

In this case you should identify in the first step that the reason for the problem is a lack of revenues for a specific product due to client issues. At this stage, you should receive information that you have to solve an efficiency problem of the client.

Step 2: Understand what is creating the inefficiency. There are usually 4 reasons for an efficiency problem (i) labour; (ii) technology; (iii) a structural increase in demand; (iv) specific client/supplier issue

Step 3: Find the proper solution for that inefficiency. Solutions would be related to the kind of problem you found: (i) increase the efficiency of labour (eg more incentives or training); (ii) increase the efficiency of technology (new investment); (iii) cover the structural increase in demand (eg: increase supply); (iv) fix the specific client/supplier issue

In your case of course you would end in the first option.

Best,

Francesco