How to Turnaround a Company

Transcription

1 Empowering Companies to Achieve Sustainable Growth How to Turnaround a Company Whitepaper Turning a company around can be a difficult task; it involves all the aspects of the organization, can take several years and requires the right point person for getting it done. A turnaround is composed of several intertwined tasks, get them right and you re on the path to a successful turnaround, get them wrong and you flounder in no-man s land or even worst die a slow and painful death. The Didsbury Road, Unit 24 Kanata, Ontario K2T 0C2

2 COMMUNICATION Start early; be consistent, truthful and transparent. No one likes handing out bad news, but I can tell you from experience, if you say nothing staff will assume defeat and failure. They will do this from a lack of communication as they piece together information from the grapevine in their minds, the worst possible scenarios. The CEO should remind and reiterate to everyone the corporate vision and with senior management set financial goals and measurable endgame objectives. Senior management will take these goals and objectives and formulate two major plans, the execution plan which is based on a diagnostic of the company and the communication plan which is used to promote sustainable growth. From that point forward the communication plan should be followed to ensure employees, suppliers and yes even customers understand what is going to happen and why. This is one of your best risk mitigation strategies by ensuring everyone knows the why, where and how to get on the path to success. REDUCING COSTS Part of the overall execution of the turnaround the company needs to initially focus on reducing costs by eliminating gross redundancy and waste prior to putting in place any future growth plans. All aspects of the operations need to be examined to determine where savings can be found, IT, Production, Material and Inventory, Marketing, Sales, Personnel, everything must come under the magnifying glass. Each and every department/group is looked at and two questions should be answered: 1. If I was offered to purchase this department or group today, would I? 2. If a new COO was hired today would he or she sell off, shut it down or do something else? Page 2 of 8 Copyright 2014, The of Ottawa Inc., all rights reserved. This document or any please contact The of Ottawa Inc.

3 Why ask these two questions the reason is to establish objectivity in your decision making process. As you make reductions you must remain objective since all of your decisions will affect people and in some cases thousands of people. IMPROVING the BOTTOM LINE The end result of the turnaround should be to improve the bottom line therefore this becomes a major part of the overall execution as the end-game objectives will be to exit the turnaround with and leaner and more efficient organization. Therefore the complimentary action of eliminating gross redundancy and waste is to use a microscope to eliminate unseen waste while improving productivity. One of the best known microscopes is a process referred to as performing a Kaizen. A Kaizen involves an integrated project team made up of all levels of the organization to identify process bottlenecks and choke points at any level within the organization. Once they re identified the team performs experiments in order to remove these bottlenecks and choke points, thus eliminating unseen process and material waste, while increasing productivity. Therefore a Kaizen by definition is the process of working smarter not harder. DIAGNOSING A COMPANY FOR A TURNAROUND CEOs, CFOs, COOs and Consultants all have their own methods for diagnosing if a company is in need of a turnaround. What I like to do for any company is to determine if the business is in balance, I do this by examining business health indicators; Forecasting, Key Performance Indicators (KPIs) and Financials. If a company is balanced then we can concentrate on sustainable expansion of products and services. If a company is out of balance then it s on a path for a turnaround. Page 3 of 8 Copyright 2014, The of Ottawa Inc., all rights reserved. This document or any please contact The of Ottawa Inc.

4 The operation of a car is a good way to describe how a balanced business should function. Your high beams are your forecasting tool looking out into the unknown giving you clarity of where to go. Your KPIs are your dashboard letting you know if everything is operating within acceptable parameters. Your rear view mirrors are your financial system letting you know where you ve been and what s coming up behind you. Like a car all of these functions must be integrated and work together to ensure safe passage from where you are, to where you want to go. This is what refer to being in balance and how your company should function as well. FORECASTING or High Beams Have you ever tried to drive your car using someone else s high beams to show you the way? The thought of this is absolutely foolish yet I ve seen executive level managers in countless companies adopt this scenario. When asked if they forecast their business future, the answer is we have Business Development (BD) for that. When I drilled down into the BD group I found annual sales targets and budgets based on a previous year s results with a reasonable uplift. This is not to say they don t use sophisticated CRMs with sales funnels and analytics and attend all the industry events, tradeshows, and conferences and advertise in the best places. What I usually don t find is any strategic planning that looks at product and service horizons influenced by socio economic changes. Therefore BD forecasting without strategic planning that takes into account socio economic influencers is like driving with someone else s high beams, you re going somewhere just not sure where that is, since your depending on some other driver. Page 4 of 8 Copyright 2014, The of Ottawa Inc., all rights reserved. This document or any please contact The of Ottawa Inc.

5 KEY PERFORMANCE INDICATORS or the Dashboard If you looked at your dashboard on the way home from work and it was full of red lights and warning symbols would you continue on without help, probably not. In comparison most businesses measure sales and revenue on a monthly, quarterly and annual basis not realizing they re full of red lights and warning signs. However more than just sales and revenue, an organization should use its dashboard of KPIs to checks to see if the operation is working within set parameters? As an example by having KPIs for measuring conversion, sales and growth rates, corporate culture, management experience, knowledge transfer efficiencies, process adoption and customer centricity, you have a more complete dashboard. Without these KPIs you won t see the operational warning signs such as bottlenecks, choke points and bureaucracy happening and could continue on without help. FINANCIALS or the Rear View Mirrors When driving we use our rear view mirrors to see where we ve been and what s coming up on us. The equivalent in business is your financial system and statements. Although your income statement will let you know if you had sufficient cash on hand to meet your obligations it s your balance sheet that will let you know how safe you are from an unforeseen event. I ll use the balance sheet to determine the strength of a business equity, liquidity of the assets and how growth was funded for the past two to three years. I ll use this information along with a capital stack to define how an unforeseen event could be funded. Unforeseen events such as growth opportunities, changes in market conditions are all things that can come up on you and you need a good rear view mirror to catch them before they overtake you. Page 5 of 8 Copyright 2014, The of Ottawa Inc., all rights reserved. This document or any please contact The of Ottawa Inc.

6 So to summarise the way I initially diagnosis a business is to determine if it its balanced, on the other hand if you see one or more of these warning signs get help now, rather than later: Forecasting is used primarily as a prediction of the future sales of existing products without horizon planning and socio economic impact; KPIs either don t exist or are focused solely on the results of a sales funnel; and The balance sheet assets are shrinking and liquidity is getting harder year over year SUSTAINABLE GROWTH Sustainable growth is where the company wants to be by the end of the turnaround. Regardless if the company sells products or services to have sustainable growth there is absolutely one thing the company needs and that s customers. Therefore the very simple solution to sustainable growth is customers. Since it s all about the customers let s start with a few facts about customers: An average company loses between 10 30% of its customers annually McKinsey It costs 6 7 times more to acquire a new customer than to retain an existing one Bain & Company Most companies spend 55% of their marketing budget to acquire new customers and only 12% on customer retention McKinsey Page 6 of 8 Copyright 2014, The of Ottawa Inc., all rights reserved. This document or any please contact The of Ottawa Inc.

7 The probability of successfully selling a new product to an existing customer is between 60 70% or 5-20% to a new customer. Marketing Metrics A customer is 4 times more likely to defect if their problem is service related Bain & Company If we can conclude anything from the list above it s that one major change that should come out of your turnaround is better service for your existing customers. For the remainder of this paper I will focused on a method for defining products and services that meet your customers needs so that when they make a purchase there first comment is this is what I always wanted, it s like they read my mind. A CUSTOMER CENTRIC MODEL This model assumes that you intend to build upon an existing customer base with new products and services. The first step in the process is to rank all your customers in a Pareto Chart where 20% of your customers produce 80% of your revenue. The next step is a scenario exercise by placing each of your highly ranked customers at the centre looking out and defining their Pain, Needs, Requirements, Wants and Desires (PNRWD). By doing this you profile your customer. With your profile in hand do the following to create a product and service map that is linked back to them: A list of the top ten PNRWDs with a description for each one, a rule of thumb is you should have 80% pain, needs and requirements or issues and 20% wants and desires or pleasures; Describe a unique solution on how to resolve each issue or how to achieve each pleasure; Each solution is then decomposed as a series of corresponding products and services; Page 7 of 8 Copyright 2014, The of Ottawa Inc., all rights reserved. This document or any please contact The of Ottawa Inc.

8 For each one an economic decision is made to determine the best approach : Build, Buy or Partner; and Using the new product and service matrix, complete the process by doing strategically analysing them using tools such as horizon planning, scenarios analysis, SWOT, environmental scanning, technology roadmaps, modeling and simulation to rationalize and optimize the list of products and services you sell or will sell. By following this process you define where the bulk of your revenue comes from and a detailed profile of each category of customer. Armed with this information and your newly created product and services report, you should now avoid being blindsided by your competition or an unseen competitor, identify disruptive technology trends and hopefully future landscapes for your business. Post turnaround, these are all fundamental for sustainable growth. This report should also be used by various executive branches such as Finance, Operations and Business Development to documents their corresponding strategies and plans. This way each one of those strategies and plans relates back to a specific issue or pleasure for the customer regardless if it s done today or in the future. About the Author: Alan McCafferty, Senior Consultant alan.mccafferty@myscg.ca Alan was educated in several Canadian and US, Universities, Colleges and Professional Schools in Engineering, Business, Integrated Logistics Support (ILS), Change and Risk Management. His career has been in Aerospace, Technology, Defence, Services and Healthcare. Alan believes in a systemic approach while using a broad spectrum of opinions and ideas from in and out of the box to deliver strategic solutions consistent with the culture and vision of an organization. About The : A leading Strategy and Operations Management Consultancy Founded by industry veterans with accomplished track records in Banking, Technology, Operations, Manufacturing and Media from world class companies An experienced team with a strong balance of "real world" insight and strategybased training Page 8 of 8 Copyright 2014, The of Ottawa Inc., all rights reserved. This document or any please contact The of Ottawa Inc.