It’s easier to cure the ills afflicting corporate bodies before they end up in the emergency room – but typically it takes either imminent or actual receivership before the turnaround experts are called in.
By then company health is so poor that the chances of pulling through are compromised. It’s the last chance to put things right before administering last rites – and inevitably there are failures.
“Most times, you’re going into crisis environment whereas if you’d been engaged six months earlier you’d have had great chance to fix the problems,” laments turnaround specialist David Auchterlonie.
That said, the California-based founder and CEO of The Scotland Group (a firm that specialises in helping out businesses in distress), has racked up plenty of successes. Since its inception 17 years ago, Auchterlonie’s firm has provided interim hands-on management services for 120 companies and had to initiate bankruptcy proceedings for just three.
He cites the skills needed to turn company around as:
* strategic thinking;
* understanding the value propositions of the business;
* having very strong financial orientation;
* being leader.
That last is certainly not least. It’s probably the most important skill, says Auchterlonie – and not just in the sense of injecting shot of new motivation and inspiration.
“It’s also listening. You have to listen because the employees understand the problems, the customers understand the problems, so do the suppliers. I like to walk around the shopfloor the first day of the assignment and ask people what they think. They’ll tell you everything that’s wrong with the company on that first day.”
Poor leadership is part of what got the company into trouble – alongside issues such as product profitability, customer relations, market competitiveness, excessive inventory etc. One of the most common problems, says Auchterlonie, is misunderstanding of the profit drivers in the business.
“What are the metrics that drive profits? Is it customers generating most sales but at least profit? Is it product line that sells really well but at very slim margins?”
He has bit of checklist of potential problem areas to probe and turnaround model that is process, rather than company, specific. There are usually five stages to this.
1. Situation analysis – includes diagnosis of the malaise, whether the business is viable or the business model makes sense, whether sufficient management resources are available, and what the strategy is for long-term profitability/health.
2. Management change – who takes charge and who could impede the turnaround.
3. Emergency action – generating cash flow to ensure short-term survival and provide the opportunity for longer-term strategies to be implemented.
4. Business restructuring – renegotiating debts, sorting credit lines, looking at business systems, key reporting indicators, training needs etc.
5. Return to normal – the patient is declared well and handed over to permanent CEO.
“That’s the person who comes in after all the heavy lifting’s been done and looks like hero,” says Auchterlonie wryly.
Depending on size and complexity, the process typically takes from three to six months – and it’s service now available in New Zealand. Auchterlonie was in Auckland recently to help launch McCallum Petterson Management Services (MPMS).
Based on The Scotland Group model, MPMS is new division of financial intelligence specialist McCallum Petterson set up specifically to offer interim management services to ailing companies.
The new company’s managing director Nigel Foster explains that it’s timely move not just because there’s market need for such service but because there’s an available skill pool to draw on.
“There are number of talented people here who’ve had demonstrably successful careers to date but who don’t want full-time work. They’re interested in having more independent lifestyle but seek challenge in what they do and seek circumstances where they can have an immediate and substantial impact.”
MPMS has more than 15 such people to call on spread across Auckland, Wellington and Christchurch and they’ll get full support from MPMS in work that Foster describes as often “lonely and demanding”.
But, urges Foster, don’t wait till the receivers are knocking on the door – companies that drop into down cycle have much better chance of rescue if they cry “help” sooner rather than later.
“The speed with which business can return to robustness and the options open to it for the future are so much better in cases of early intervention.”
