Cost simplification and restructuring for competitive advantage

Manufacturers and service contractors alike are turning to restructuring solutions to meet the needs of the evolving market. 

In a market environment where the Government is increasingly concerned with enhancing the acquisition process to achieve cost savings, contractors face the growing need to diversify offerings, streamline operations and cut costs to maintain a competitive advantage. The result is an almost unprecedented increase in restructuring activities within the Government contract industry. Manufacturers and service contractors alike are turning to restructuring solutions to meet the needs of the evolving market. Whether the restructuring is internal — a reorganization or realignment of business units or segments — or external — an acquisition, merger or spin-off — operational decisions are made to either augment service offerings or achieve cost savings. Too often, however, the focus on how best to achieve the expected benefits is lost during the execution of the restructuring.

Well-planned and thoughtful execution of restructuring activities can help contractors avoid unintended consequences and costly mistakes, and better position an enterprise to maximize the intended results. For example, with decisions to consolidate or eliminate departments, segments or indirect cost pools, analyzing the quality and composition of the backlog portfolio and the upcoming bid pipeline can provide meaningful insight into what actions to take. Such an analysis can provide insight into impacts on existing and forecast program performance and allow your restructuring changes to enable your business to go to market efficiently and effectively.

Meaningful areas to consider as part of restructuring activities include:

• Assigning knowledgeable, dedicated resources to the coordination and execution of restructuring efforts 
• Developing a communication plan that provides consistent and frequent messaging on restructuring efforts to internal and external stakeholders — including leadership, program teams, external auditors and contracting officers 
• Assessing cost accounting practices and indirect rate structures to determine whether the rate structure is consistent with the industry and customer expectations 
• Evaluating support functions, including home office, shared services and business functions for possible redundancies and opportunities for cost saving 
• Maximizing cost recovery through the use of external restructuring contract provisions
  
• Understanding the impacts of changes to cost accumulations and allocations to manage administrative requirements associated with changes to cost accounting practice 
• Planning, implementing and validating the use and interface of process automation and system changes for the future state structure(s) 
• Assessing the impact of potential process, system and control changes on approved business systems 
• Evaluating the overall negotiation position of the new enterprise as it relates to its vendors and supply chain 
• Measuring the impact of any existing or planned transition support agreements on cost recovery 
• Verifying that planned changes are understood by estimators, pricers and others responsible for developing price proposals

When properly assessed, these and other considerations can provide companies with an operational- and regulatory-based pathway to achieve the broader objectives of the organization. They also enable a company to position itself to go to market with a leading-class business model and a cost structure that will allow for more competitive proposals, a growth in market share, enhanced margins and improved operational efficiencies consistent with its strategic plans.