EBITDA (operating margin) had declined over recent years, turning negative, indicating that the company was absorbing liquidity without generating enough profit to cover operational expenses and investments. Reversing this trend was necessary, but traditional consulting would have had an excessive financial impact on the already strained economic situation of the company.
Performance-Based Consulting Model: Strategies for the Revitalization of SMEs
We partnered with the client company through a contract based on increasing EBITDA, thereby avoiding immediate high consulting costs.
The renewable three-year contract provided clear and transparent access to the company’s financial situation to define a strategy for restoring a positive operating margin. Weekly meetings were held to discuss various business topics, monitor progress, and make necessary adjustments. Based on our analyses, we developed and continue to optimize targeted interventions in Governance, Commercial Management, particularly export, cost optimization in manufacturing, and human resource development.
Redefining the Competitive Formula and Its Levers
Offering business or management consulting to an SME means becoming its partner and jointly paving the path to excellence.
The company’s considerable potential was hindered by a competitive formula that needed refinement and by a management that limited its ability to generate income. The interventions discussed in this business case were planned and implemented in successive steps over the first three years of support. The growth process is still ongoing.
Key collaboration aspects included:
- Governance
- Commercial management
- Cost optimization in manufacturing
- Human resource development
Special attention was given to redefining the competitive formula and its drivers. Regarding VALUE, the goal is to maintain and enhance the value of the products and services the company offers, already perceived as high by the target market. For COSTS, the directive is to adopt a lean model to ensure competitive optimization, making decisions to lessen the importance of costs as a competitive factor.
For COMMERCIAL aspects, the strategy was to strengthen management for key customers, including rapid prototype production, developing new clients especially abroad, and establishing commercial agreements with press manufacturers.
Governance
One of the first steps involved addressing corporate governance, as the main barrier to growth lay in management and organization. A Star Team, a small group of key company personnel selected based on experience and strategic skills in administration, sales, and production, was formed. Together with the Star Team, we defined clear management processes, responsibilities, and objectives for each area. Each member developed a personalized career plan aimed at motivating and guiding them towards professional growth.
The next step involves building a competency matrix to map and evaluate the specific skills of each employee and collaborator. Based on emerging insights, a reorganization of human resources has begun, with specific training courses to be implemented as needed. The goal is to optimally structure the company, assigning roles and responsibilities that align with each resource’s skills and aptitudes.
This phase, still ongoing, will conclude with the implementation and sharing of a corporate welfare plan for all personnel.
The Costs
Main interventions included:
- Revision of cost structures for better quote preparation and pricing adjustment
- Cost control of projects against quotes
- Optimization of the use of external design and manufacturing resources
- New management system integrating project management with administrative management
- Energy efficiency improvements by replacing high-consumption plants and equipment with low-consumption solutions
- Design of a new heating/cooling system
- Potential installation of a photovoltaic system, taking advantage of tax incentives
- New packaging systems leading to reduced paper and packaging consumption
The Market
To expand the foreign market without increasing the number of employees, an agreement was proposed with a company specializing in commercial development in relevant sectors, particularly focusing on Northern European markets. This allowed the development of new international sales channels, focusing on already developed products and promoting them to new potential clients. Another strategic decision was to form agreements with press manufacturers, allowing for cost-effective partnerships and supply standards. Normally, the end customer of a press also purchases the necessary molds separately. With a special agreement, we agreed with a press manufacturer to make joint offers, mutually beneficial:
- for suppliers to acquire new orders
- for the customer to receive a complete system, avoiding potential conflicts of responsibility in final product setup
This approach also partially overcomes the challenge of customer loyalty; customers who purchase a press equipped with molds from one mold maker are likely to return for further needs.
To consolidate the company’s position in the markets, production is gradually expanding from the traditional sector (sheet metal and plastic molds for the automotive and electromechanical sectors) to the promising sector of molds for medical and pharmaceutical equipment.
Supply Chain Integration
The supply chain also underwent interventions, bringing high-value-added operations in-house and moving less impactful ones externally. This decision was made after careful analysis of processes, their costs, and their impact on product quality and final price.
The Increase in EBITDA and Revenue Growth
Since the start of internal consulting, the company has seen:
- an 8% increase in EBITDA within the first year
- a further 8% increase in EBITDA, bringing it into positive territory by the second year
- an additional 3% increase in the third year
- a 30% increase in revenue over the first three years of the project
The competitiveness of Italian SMEs in the markets is often hindered by internal organizational issues rather than problems with their products or services. Supporting them, helping them achieve excellence, means aiding the entire economic fabric.
Federico Barbic – Partner ŌdeXa
