– An appeal to learn from past crisis, competitors and the best

After the attacks of September 11, 2001, airlines got into serious trouble and were forced to cut costs and routes all over the world quickly. Some airlines in the US that did not have enough financial resources went into Chapter 11 protection in order to cut costs faster than would otherwise be possible. One of the companies that survived this difficult time without such protection was American Airlines.

The US airline market has been consolidating for several years, which is a healthy development. Until recently, there were four big US carriers, which is probably too many for the size of the market, as there might only be two that can operate profitably in the long run. This consolidation is an international development, although it will probably take longer in Europe because some airlines are governmentially backed (AirFrance/KLM, Alitalia) and because Europe consits of many countries with different laws, which stretches the merger process. Still, there are signs that, even in Europe, the consolidation process has begun. Hungarian Malev and Spainair are bankrupt, Olympic is almost there, Alitalia has never been very profitable, and Air Berlin survives only because Ethiad is backing it up financially. In the long run, we will see some substanitial consolidation that might end in Lufthansa’s and AirFrance/KLM’s dominating the European market.

Even though all big US airlines seem to run into trouble at one time or another, their  management does not seem to learn from the industry’s mistakes. Compared to non-US airlines like Lufthansa, Singapore, and or Emirates, American’s finances are much worse.

Currently, AMR, the group to which American Airlines and American Eagal belong, operates about 900 airplanes, serves more than 250 airports in about 50 countries, and employs about 88,000 employees. In December 2011 alone, the company lost US$ 904 million.

Once a strong airline that survived this serious crisis on its own account, American was forced to file for chapter 11 protection in November 2011. Since it did not use its time and financial power to restructure the company to make it more competitive, its competitors have lower costs and can operate more profitably. What followed had to happen since American didn’t adapt to its competition’s lower cost structure. The fleet is much too old, maintenance costs and labor costs are too high to compete efficiently. Therefore they filed for Chapter 11 at the beginning of 2012.

In this case, leading the company into Chapter 11 made sense, as it will allow management to renegotiate employees’ contracts, which would otherwise be difficult given the traditionally strong unions in the airline industry.

Possible ways out…

US Airways has been looking for a partner for a while because it is at risk of not being able to keep up with other airlines that have merged over the last couple years. A merger could bring significant advantages in terms of providing routes to customers and cost reductions. Currently, US Airways is competing with American on numerous routes, lowering earnings for both of them.

A merger with Delta could be difficult because both American and Delta are (along with United Continental) among the three largest airlines in the US. A merger would probably not be allowed by US Department of Justic (DOJ).

A takeover by TPG would draw the DOJ’s attention, and such a takeover would call for some significant restructuring and a risky turnaround plan. However, if it stays alone, American will not be able to profit from the economies of scale it would if it merged with another airline.

American’s current CEO, Tom Horton, does not believe that a merger with another airline would benefit American or its shareholders, but I tend to disagree. The stakeholders would certainly profit from a merger if it lifts the airline into first or second place in the list of the largest US airlines. Costs could be cut significantly because most routes are not exclusive to American but shared with a competitor; a merger would end the price war on routes on which the merger partner currently competes with American. Furthermore, less ground personal would be needed, because fewer planes would be necessary to serve the same route; redundancy would be eliminated. A merger would probably be the best strategy for laying off the most employees and chapter 11 does make this step easier than ever. It would be a dramatic step but it would mean the best chances for surviving.

If American continues to go it alone, it will still have to cut costs and workforce without benefiting from the advantages of a merger. It would need to retain redundancy with other airlines with which it shares routes, and it would need to invest sustantially in marketing activities lower its fares, or invest in higher quality service than the competition in order to compete. Furthermore, there would still be no getting around laying off employees—perhaps not as many as would be laid off with a merger, but the remaining employees would have to agree to wages that are likely to be lower than the competition’s wages. In any case, all possible strategies would be more cost-intensive than a merger. Even if American could implement a cost structure with lower wages than those of the competition, it would still not be profitable for a long time because of its high-interest debt, a disadvantage that the competion does not share.

So far, I have not seen American pursue a strategy that clearly says how the company plans to survive its competition and compete in the long run in a highly competitive industry. So far, the actions Horton has taken and the statements he has made lead me to believe that his strategy is mainly about cutting costs. To my knowledge and experience, to achieve a sustainable turnaround it is necessary to pursue a strategy that is different from the one that got the company in trouble in the first place (if there was one…) and different from the competitors’ strategies. American will have to be better than the competition, and being better is not only about having lower costs. This is a critical part of American’s task going forward, especially if the company does not want to merge.

Horton’s current plan is to lay off 13,000 employees (15% of the total workforce), including 2300 flight attendants, and to cut costs by at least 20 percent, or about 2 billion USD. 1.25 billion in savings will result from cutting wages and laying off employees.

This kind of cutting of personnel probably means that there will be fewer attendants on the planes as well and fewer personnel on the ground. However, I cannot help but wonder how Horton expects to keep up the airline’s level of service—an important factor in a highly competitive environment—with fewer employees (and more unhappy ones, if wages are cut). Some cuts will have no effect on service because routes will be canceled and planes not be needed, but there will also be cuts where the customers see and feels them. I find this strategy to be questionable in the current situation. In my opinion, there will need to be cuts in the workforce, but there must be compensation for these cuts on other sides, such as by using a much modernized fleet. This compensation for customers is a necessity American won’t be able to get around if it wants to stay alive.

The key question here is this: how can American keep up the high maintenance requirements of its old fleet with fewer employees who are likely to be demotivated because of salary cuts. I predict that the good employees in some areas will leave the company to work  at the competition’s hangar next door, so I see no way that American can keep up the old fleet at the substantially lower costs it would need. Some airline veterans might remember the AirTram ValueJet case, in which lowering maintenance costs, paired with demotivated employees, led to one crash and another near-crash. Therefore, I see it as absolutely necessary to replace the old fleet, possibly by leasing new planes that require less maintenance, less fuel and that can be operated with fewer employees. There are however also signs that the management has learned from some mistakes; in July 2011 American ordered 260 new jets from Boing and Airbus, some of which will be leased. This is a first important step toward reducing costs and improving the customers’ experience at the same time. Whether the orders are kept under chapter 11 and whether the planes are available in time is another question.

Over the last few years I have analyzed and plotted turnaround strategies for over 150 insolvency and corporate crisis cases. None of them reached a sustainable turnaround without a clear strategy that set the company apart from its competition, and almost no case survived by cutting costs alone. In my opinion, American needs a clear, holistic turnaround plan that is communicated clearly throughout the company and that leads to a strategic advantage in the industry. Otherwise, American might survive in the short term, even if must merge with a competitor to do so, but it will fall back into trouble in a few years.

To be continued…


About the Author:

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Dr. Christoph Lymbersky is a Certified International Turnaround Manager (CITM) a corporate turnaround and restructuring strategies specialist and as a top management consultant responsible for corporate restructuring programs at Detecon International. As a distinguished turnaround leader, he also serves as the director of the Turnaround Management Society, an international non-profit organization of turnaround professionals, consultants, and academics dedicated to advancements in the corporate restructuring, transformation, and turnaround industry.
Recently Dr. Lymbersky has published the International Turnaround Management Standard a guided system for corporate restructurings and transformation processes.

Schlecker Drogeriemarkt

In 1975, Anton Schlecker founded a new kind of store in Germany, a shop system that was revolutionary at that time: the drug store chain Schlecker. Two years later, Schlecker had a hundred stores, and seven years after that, Schlecker opend its one thousandth store in Germany. The rapid expansion was due in part to the stinginess of Anton Schlecker, who saved every penny he could and reinvested it into the business. This financial strategy  led him to greate success but also eroded his empire from within, even though it was expanding at great speed.

This is the story of the fall of Anton Schlecker’s empire of seven thousand shops with thirty thousand employees, but I would not write this article if I did not believe that Schlecker’s empire could be rescued. There is no question about the urgency of a rescue plan: currently, Schlecker loses about €20 million every month, so deep cuts will have to be made, as it is too late to adopt a strategy that simply avoids further declines in profits or market share. It is also too late for heavy investments and higher credit lines. It is time to determine what went wrong, what can be rescued, and what makes economic sense.

From 2006 to 2011, Schlecker lost about 6 million customers and then lost another 2 million in 2011 (Wirtschaftswoche and GfK). This was not because the customers  of what was once  the biggest drug store chain in Europe suddenly didn’t need shampoo, toothpaste, or soap; rather, many chose to shop at the competition’s much nicer shops (Rossmann and Mueller), while about 25 percent went to Germany’s discount grocery stores Aldi and Lidl. Germany’s discount grocery stores are famous for their extremely low prices and good management.

How did Schlecker’s decline develop? What led Anton Schlecker to watch his empire run straight into insolvency? Schlecker’s stores were once the friendly neighbourhood  drugstores where people went after work because they could not get what they needed at the discounters or because it was on their way home. This customer model explains why Schlecker was the drug store with the smallest shopping carts (Hamburger Abendblatt 30.01.2012). However, Schlecker’s stores today are very small stores with half empty shelves. The lighting is poor, cardboard boxes lie about on the floor, and many of the stores are dirty.
Six years of continuous decline without any visible or positive changes to the stores’ strategy might suggest some serious management failures. Either the management was incapable of taking countermeasures when the decline first appeared, or the measures they did take were the wrong ones. Let’s take a look at what happened during the last six years.

The crisis’ roots lay in Anton Schlecker’s determination to increase the number of shops and to lower the prices. Even while Schlecker was losing millions, he opened more and more stores. Many Schlecker Stores were so close to each other that they cannibalized each other’s sales.
Lowering prices makes sense, and Schlecker’s buyers have a reputation of being very aggressive with vendors, which is part of their job. However, while prices received primary attention, other important details went lacking. Dark, crowded shops with very tight aisles mean customers who come in, finds what they need, and leave as soon as possible. While other discounters and chains increased their focus on the customer over the last ten years, Schlecker did not. Other stores tripled the number of lights in their stores, widened their aisles, painted their ceilings white, and added music. As a result, customers sometimes spent hours in the store. No one would voluntarily spend hours in a small Schlecker store. They focused only on convenience and price and fell behind when the competition created a pleasant shopping experience.

News about low salaries and mistreatment of employees also damaged Schlecker’s once positive image. Some shops did not have toilets for the employees or a telephone for emergencies. The union Verdi sued Anton Schlecker for paying his employees less than they where supposed to be paid (FAZ  26.03.2012) (FAZ 14.03.2012) or failing to pay employees for sick days. These policies had to have a negative effect on the motivation of Schlecker’s employees, but even the customers aligned with the already underpaid workforce by avoiding the stores.

Despite the efforts of aggressive buyers, Schlecker’s goods were often more expansive than the competition, which, in combination with the “customer-unfriendly” stores, further eroded sales. A DVD rental store or a gas station might sell ice cream for three times the price of a grocery store, but their sales are driven by the convenience attendant to combining the ice cream purchase with a gas purchase. Schlecker’s pricing strategy led to some products’ being extremely unprofitable while other rarely sold at all (FAZ 29.02.2012). Unprofitable products were not discontinued or were discontinued too late. Aldi and Lidl have a very experienced product management team that puts together only what is profitable and replaces unprofitable products very quickly. Hiring some experienced managers could be a solution to the problem but only if top management gives the product management the freedom to decide on its own. This strategy would have addressed another issue, which was that many commonly needed goods were not available in Schlecker’s stores, resulting in unhappy customers who are less likely to return than they would be if the store stocked what they needed. Schlecker had a serious problem with not enough useful goods on the shelves, too many goods that were not useful, and too many empty shelves (FAZ 14.03.2012). Not having the goods customers need erodes the convenience strategy, as the last thing a customer who is on the way home from work wants is to have to make two stops for one item.

Many Schlecker shops are in small villages, and these shops are often not very profitable or barely break even. In these villages, Schlecker is sometimes the only store, and it is important that it supply the most necessary items for the community. It is also the center of communication for the villagers, so it has the potential to increase shopping time if the store is comfortable. However, these shops have very small shopping carts and a limited selection. The customers, often older people who cannot go very far, buy small amounts but regularly. By driving out to these villages and asking customers their views, a Turnaround Management Society employee found out that the customers would buy more if Schlecker would supply other goods besides drugs, such as basic groceries, books, wine, drinks, and DVDs. If Schlecker provided these goods in country regions, they could be more profitable, gain customers, and provide an important service to these communities. To accommodate for the communities’ need to exchange information, they could even offer fresh coffee.

Another reason for the crisis is very high rent in some areas; in this case, Schlecker can benefit from the struggling economy, as it may have an opportunity to renegotiate rents. According to the German law, the insolvency administrator can cancel rental agreements with three months’ notice even when the period of the original contract has not expired.

The primary issue—the source of the myriad issues listed so far—is the top management of the company, Anton Schlecker. Schlecker has a reputation for not taking criticism well or seriously. He and his wife Christa tend to run the empire using an imperial management style, and the good intentions and fresh view of employees were not regarded as constructive or taken seriously (Manager Magazin 4|12). Schlecker managed the company autocratically and did not accept many questions or suggestions from middle management. In the end, (which it seems the company is nearing), Schlecker lost millions.

It is interesting that the Schlecker subsidiaries in countries other than Germany are profitable, which could open a discussion about cultural influences or differences in how the subsidiaries are run. However, my suggestion, in keeping with the International Turnaround Management Standard (ITMS), a guided system for steering a company out of a crisis, is that, since the company is well on the way to insolvency, selling the profitable parts of the business to finance the restructuring of the crisis-shaken parts of the business may be a last resort  . The ITMS shows that this strategy can lead to a successful turnaround.

In March 2012, the auditors from PricewaterhouseCoopers (PwC) came to the conclusion that it will be difficult for Schlecker to find investors since too many shops are unprofitable. The insolvency administrator closed down 40 percent—2200—of the shops and laid off eleven thousand employees. However, PwC does not believe that the company can make the turnaround by this means alone.

Schlecker is far from a risk-free investment because of the need for change with an owner who avoids change. The shops need to be lifted to a higher standard through investments in furnishings and advertising. A name change, considering the badly damaged image of the company, would cost additional millions. However, I believe that a name change is not necessary. While Schlecker has a heavily damaged image, an investor that replaces the management, sets new standards for the employees, makes significant changes to the store design, and focuses on the customer can use the current public awareness to make these changes visible to the public. The press is currently closely watching Schlecker, and this attention can be used to market positive changes and change customers’ perceptions of the company. In addition, as long as they see these changes themselves, the employees will communicate the changes. Still, it all comes down to how much the investor wants to invest. If the investor has enough money to pay for the name change and position the company, a name change can be considered, but limited funds should be invested first in changes that the employees and customers can see and feel.”

Another problem for a possible investor are the employees that are not needed anymore. While laying off eleven thousand employees would save the company money immediately, dismissals protection claims would mar the company’s balance sheet for years to come.

There is one way to make the investment for outside investors more lucrative. A transfer company funded by the sixteen German states could save investors from these claims and allow positive cash flow right away. However, such a transfer company would require about €70 million to pay the employees 80 percent of their salaries for six months, in addition to job training to prepare them for other job opportunities. In Germany, as in other countries that bailed out banks in the 2009 financial crisis, the government is sensitive to the need to support failing businesses, although taking this action is up to the German states. Schlecker is present in all of the German states, so all of them could share the burden of raisubg the €70 million. However, the likelihood of this kind of coordinated action’s occurring is questionable.

It is the way of a free economy to let companies fail if they are not staying competitive and to let other companies take over their market share. In order to serve that market share, the surviving companies hire more people, so jobs are not lost as long as the market does not shrink or technological advances does not render the jobs unnecessary. Still, an efficient company can serve a bigger market share with fewer employees than a failing company can.

It is my opinion that Schlecker can be rescued, although it is already too late for any but drastic changes to the business, and the company will have to make use of the law to have a fair chance of survival in the long term. The ideas outlined in this article are starting points. There is little doubt that this case is a perfect example of a company run by a stubborn founder who was once swimming in success but who is not the right person to lead the company out of its crisis. No single top manager, no matter how initially successful, can handle every situation perfectly, but there is an experienced expert who can address any situation. Having such a consultant look at the business, get feedback, and help on an operational level is not a sign of weakness; it is good management.

About the Author:

Dr. Christoph Lymbersky (CITM – Level C) is a corporate turnaround and restructuring strategies specialist and as a top management consultant responsible for corporate restructuring programs at Detecon International. As a distinguished turnaround leader, he also serves as the director of the Turnaround Management Society, an international non-profit organization of turnaround professionals, consultants, and academics dedicated to advancements in the corporate restructuring, transformation, and turnaround industry.

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1. Dr. Lymbersky how long, on the average, does a turnaround take (possibly broken down into decline stemming and recovery)?

That can vary a lot. At Detecon, they schedule 4 to 10 months for a restructuring project. However, careful consideration must be given to the exact situation of the specific company. It is very rarely possible for a company to master a major crisis in only 4 months. Size of the company is another factor which must be taken into account. Provided that its existence is not in acute jeopardy, a large company may work on a restructuring/turnaround for 1.5 years.

The projects we supported within the framework of the Turnaround Monitoring Program at the Turnaround Management Society lasted an average of 5 months until the turnaround began to have an impact and another 9 months until it was completed, i.e., positive results were reported over three quarters in succession.

However, the figure of 18 months which is frequently mentioned for the initiation of a turnaround is in my view much too long for a company which is in crisis. In my experience, a turnaround should have been completed within 18 months. Eighteen months for a turnaround to begin to have an impact is far too long, especially with respect to financial resources, which have often been completely consumed in crisis situations. But this is also a question of the definition of a turnaround, particularly with respect to its conclusion.


2. What characteristics or performance indicators are taken to decide that a TA has been concluded – and concluded successfully?

There are both qualitative and quantitative factors which can be used for this purpose. In my view, the lack of one of these components can possibly lead to the wrong targets being set during a turnaround or mean that the turnaround cannot be concluded holistically. At the Turnaround Management Society, we considered a turnaround to be concluded when a company realized a profit in three consecutive periods (usually quarters), the causes of the crisis had been analyzed and eliminated, and a strategy had been drawn up which adapted the company to avoid the mistakes which had been made and armed it to meet future expectations. There are different quantitative factors for the analysis of companies which are heavily dependent on seasonal business. In these cases, the time period chosen for the analysis must take the seasonal circumstances and financial fluctuations into account.


3. What costs are involved in a TA (according to expenditures or as a share of the realized turnover)?

Let me relate this question to the direct financial costs for the company concerned. The costs for society and the stakeholders are difficult to estimate if they are included in the calculations and are much higher than the direct expenses for the company.

In addition, the costs for external consultants must be added to the expenditures required to keep the company alive. These advisors can either be remunerated directly, i.e., according to daily or monthly rates, or by participation in the company. A participation results in costs to the company after the turnaround, but expenditures are lower during the phase critical for cash resources.


4. What do you judge the frequency of the appointment of interim managers to be? (Practice shows that corporate consultants – as the name says – usually act only as external consultants)

At TMS, we have many members who are interim mangers and who act as CROs, but we also have corporate consultancies. It is striking that corporate consultancies work primarily for larger midsize businesses or corporate groups. So in cases where an entire team is required, the tendency is to take advantage of the existing structures and experience of a consultancy. Interim managers are more likely to work as CROs within their networks or to assume positions within a team. Some freelance consultants are highly experienced and specialized, making them the best solution for small companies in a crisis situation.

Answering this question exactly depends on whether a turnaround manager, by definition, is actually granted the authorizations necessary to bring about change actively and comprehensively in the specific company or whether his or her activities are restricted to the analysis of the company and the drafting of a concept. In the latter case, the person is more of a turnaround consultant who may support the implementation.

In my view, CROs with comprehensive authority in the company are utilized much too rarely in turnaround situations. Mastering a crisis situation as efficiently as possible for the shareholders also requires fast decision-making channels, centralization of the decision-making authority, and implementation rights applicable throughout the company. In Germany, the insolvency administrator is usually the only one to be given the rights needed to bring about changes as quickly as possible. Consultants can only make recommendations and are then by and large released from their responsibilities; it is difficult, if not impossible, for them to ensure the correct implementation of their proposals.


5. What are the greatest challenges during the conduct of a TA? (communication (banks/associates/suppliers), analysis of the company in crisis, etc.)

This is really dependent on the company itself. In companies which are managed by the owners, the owners themselves may become a challenge. Pride and the fear of a loss of authority and respect are often obstacles to efficient restructuring. Good turnaround managers must be able in this case to draw on an excellent understanding of human nature so that they can find a way to alleviate the owners’ fears, create trust, and yet still be able to carry out their measures efficiently. The option of a shadow manager would be one possible solution here, provided that the turnaround manager is not too concerned with promoting his or her own reputation.

Generally speaking, however, I would say that the communication with stakeholders is a very important, even critical point. Regular and honest communication can strengthen trust enormously. It is not necessary for communication to contain success reports in every message. The communication of smaller setbacks can also promote trust. What is important here is to describe what will be done next and what possible solutions there are. Communication should be regular, solution-oriented, and honest. As a rule, every stakeholder has his or her own agenda. In the ideal case, every stakeholder is open about it, but in actual practice this is often not the case. The task of the turnaround management team here is to collect background information and to uncover hidden objectives or intentions. If the stakeholders dig in their heels, it is extraordinarily difficult to lead a turnaround to success. But all of the participating parties should keep in mind that the failure of a company is not good for anyone who is directly involved. We have determined in isolated cases, however, that one stakeholder actually did profit from the insolvency of a company. Under these circumstances, unity and determination of the other stakeholders must be generated as quickly as possible. Statistically speaking, shareholders benefit more from a company that survives because a part of the claims can then be settled; if it fails, the value of the company is usually inadequate to satisfy the claims of the creditors.

The comprehensive analysis of a company before the turnaround is equally important, although it is also very difficult to realize. Reliable data for the evaluation of a company’s position are frequently non-existent in the company, which means it is important to have experts from the particular sector as well as due diligence experts on the team as this can simplify the assessment enormously.


6. In what phase of a crisis does a TA usually come into play? (I believe in a liquidity crisis)

Unfortunately, that is true; a liquidity crisis, even insolvency is regrettably often the starting point of a turnaround. But this is also a part of the definition of a turnaround, and therefore a statistical problem, that turnarounds occur only when the crisis situation is far advanced. I would tend to use the terms restructuring or transformation rather than turnaround during a crisis of success or strategy.

But the point here is that many turnarounds are initiated too late, namely when the financial resources are quickly being depleted and stakeholders cannot be persuaded to provide additional funds. Owner-managed companies in particular are confronted with consultants or external managers for the first time, often after decades, and for many owners this is tantamount to admitting they have done something wrong or are failures. But this is not the case, quite the contrary, it is completely normal that a manager does not have the expertise to cope with any and every situation and so must turn to others for advice in special situations so that precisely this situation can be mastered as effectively as possible.


9. What are the major reasons for the failure of a TA? (From this basis, what conditions lead to a successful TA?)

Turnaround management is still a very young field in business administration and was largely ignored by academics for a long time. But academics often have a good overview of events that are taking place in industry and can analyze developments and aggregate information and successful strategies. The Turnaround Management Society, in cooperation with turnaround managers and academics, has developed the International Turnaround Management Standard (ITMS), based in part on the “Successful Turnaround Strategies Database” of the TMS. The information in this database reveals the following to be the most frequent causes of a crisis:

  1. Lack of a structured process during the turnaround
  2. Treatment of the symptoms instead of the causes of the crisis
  3. The turnaround is conducted from the perspective of only one business unit (mainly that of the financial unit), which means that some units which may in fact harbor the causes of the crisis are not given consideration.

These causes can be avoided with the aid of the International Turnaround Management Standard. If this standard is used by more consultants and companies as a guiding structure, significantly fewer turnarounds will end in failure.


The Interview was done 16th, January 2012 by E. Kindt from the FOM University of Hamburg, Germany.

The Turnaround Management Journal is available for print and some old versions are available as a download. If you want to order printed copies or the current edition please visit

Turnaround Management Journal 02/2011

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In this issue:

Introducing the International Turnaround Management Standard
by Dr. Christoph Lymbersky

The Importance of Post-Merger Integration
by Dr. Mike Teng

Value Creation Model: Built To Sell
by John M. Collard

Managing People And The Process Of Change
by Mark Blayney

Are Your Communication Strategies Really Engaging Employees?
by Marcia Xenitelis

Strategies Behind Crisis Management
by Dr. Stephanie A Parson

Crisis Management – or Managing a Crisis
by Clive Simpkins

Never Waste a Crisis – A Real Leadership Opportunity
by Henrik von Scheel

Member Interview with Marc Wagner

12 Reasons Why People Resist Change
by Torben Rick

Crisis Management – Expert Strategies For Turnarounds and Liquidations by Lee Hiller

Crisis Management and Business Continuity by Ebi Akpeti

BP Crisis Management: Being a Good CEO Doesn‘t Make You a Good Spokesperson
by Jem Thomas

Toyota Recall Crisis by Alice

Increase Performance Through employee Engagement by Torben Rick

World Class Corporate Crisis and Communications Teams by Tony Ridley


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In this issue:

SAAB`s Questionable Turnaround Practice by Dr. Christoph Lymbersky

All Leaders Are Not Created Equal by John M. Collard

How Can We Define Leadership? by Nauka Shah

CVA, an Insolvency Rescue Procedure by Mark Blayney

Change Management Tips Used By Turnaround Companies by Dr. Mark D. Yates

How To Engage Employees With Technology Based Change by Marcia Xenitelis

Strategies For Managing Change – 9 Failure Reasons That You Can Avoid by Stephen Warrilow

Transformational Leadership Theory – By Attila the Hun – How NOT to Apply It to Change Management by Stephen Warrilow

The RASCALS Principle by Eugene Rembor

10 Priorities for Every Leader by Rabison Shumba

Strengthening Corporate Health – 18 Principles by Dr. Mike Teng

Member Interview with Eugine Rembor by Dr. Christoph Lymbersky


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Experienced management is one of the most important factors behind the success of any business. Many managers have ample enthusiasm and energy, but often lack the knowledge and experience needed to sidestep easily avoided mistakes. As a result, far too many companies get into trouble and can die before ever reaching their potential market value.

If you have an extraordinary innovation, opportunity, or even a unique situation an interim executive can help launch, grow, or turnaround your venture by temporarily filling one or more key management roles in your company. Whether they serve as your interim Chief Executive Officer (CEO), Chief Restructuring Officer (CRO), Chief Operating Officer (COO), Chief Financial Officer (CFO), Chief Selling Officer (CSO), Chief Manufacturing Officer (CMO), Chief Whichever Officer (CXO), General Counsel, or in some other senior executive role, they can stand by your side as an experienced executive with a vested interest in your long-term success.

Interim C-level executives are experienced managers who have launched and grown successful ventures. As your partner, they roll up their sleeves and work towards laying the groundwork for a successful venture. They work hard, because they succeed only if you succeed.

In a typical engagement, the Interim Executive will form an executive management team (often using some existing resources) and take over much of the managerial control of the situation, allowing you to focus on what you’re best at: investing in other companies, managing other ventures, product innovation, etcetera.

Interim Executives are typically hired by private equity investors, board of director members, corporate council, and sometimes the management team or CEO. Headhunters are often used to locate these Interim Execs for special situations. Hiring a new Interim CEO will take board and/or investor action to make the change.


What is Interim Management?

Interim Management is the providing of senior C-level management resources on a temporary basis to organizations that require an immediate, short-term need. There are a number of factors that appeal to companies when considering Interim Management services, including responsiveness, experience, objectivity, project duration, and the list goes on.

Interim Managers have become a powerful resourcing option in today’s fast paced business environment. The key benefits that an Interim Manager brings on assignment to a company can be summarized as [chart]:

Benefits of Interim Management Summary:

Action/Skill à Benefit

Speedy Deployment à Talent on scene in days, Flexible Term

Experience Means Results à Highly qualified and experienced resources

Objectivity à Fresh perspective

Accountability à Delivery of objectives

Effectiveness à Board-level reporting gives authority to effect change

Commitment à Get control, put plans in place, find their replacement, and leave when the project ends

Speedy, Responsive, Flexible Deployment of Resource

Interim Manager talent can be in place within days as opposed to weeks or months, which is essential when time constraints are critical. Interim Management is a quick solution to bring resources on-board, deploying those who are fully and properly skilled to deliver the service required.

The very nature of Interim Management means the greatest flexibility from a client perspective including the extension, expansion, or termination of the services. There is no impact to succession planning because Interim Managers are not permanent resources within the organisation, therefore their position does not pose any threat to internal resources and associated succession planning processes. There is also no impact to permanent headcount because Interim Management provides a solution when clients are constrained on permanent headcount, but still must deliver business objectives.

Experience Means Rapid Results

Interim Managers are highly qualified, experienced, and able to produce as soon as they arrive on scene. Due to their skill level and expertise, these resources will be fully productive in a matter of days. This over-qualified tendancy is well suited for project work because it focuses on achieving results and gives clear definition of key milestones, regular progress reports, and measurement of performance.

An Interim Manager is more than qualified for the position they are taking on and therefore are often stepping down in responsibility. The Interim Manager has past experience of similar challenges to the ones that they are about to face. In addition to enabling them to have an immediate effect and be productive from the outset, this experience ensures success. They will transfer their skill and experience to your team.



Interim Managers provide a fresh perspective and are free to concentrate on what is best for the business. Interim Mangers are free from any previous involvement in company processes, staff relationships, office politics, or career advancement goals. An Interim Manager identifies problems and implements new solutions that may not be visible to company insiders because they are too close to the issue.


Interim Managers will take full, direct, and primary accountability for the assignment including delivery of objectives, budget control, resource management, ontime delivery, etcetera, in accordance with the scope of the assignment.

Rather than adopting a purely advisory role, as would a management consultant, an Interim Manager becomes the responsible and accountable line manager who will take ownership and manage a business or implement a project to success.


Operating at or near board-level gives an Interim Manager the authority to effect significant change or transition within a company; unlike a temp, they’re not just there to manage the status quo. Interim Managers are hired as agents of change to make things happen quickly and because they bring skill-sets that probably are not available within the company.


An Interim Manager is committed to an Interim career and each assignment is never just a stop gap until a suitable permanent position is found. Good interims embrace the challenges of different and difficult assignments, take great pride in maintaining the highest standards, and realize that the next job is dependent on the success of the current assignment.

Good interims will get control of the situation, put plans and resources in place to run the company, find their replacement if necessary, and leave when the project ends or the company is turned around.

There is value to the Interim Manager Process: bring expert management, get results quickly, operate in a flexible environment, all while allowing you to go about the business that you do well. Interim engagements are by definition for a period of time and staffed by a non-employee, therefore avoiding labor laws that apply to employees. This is an advantage in many parts of the world where labor laws are very strict regarding benefits and burdensome severence policies, in contrast to the at-will nature of the United States.

Hire that Interim CxO.


The Author:

John is a Certified Turnaround Professional (CTP), and a Certified International Turnaround Manager (CITM), who brings 35 years senior operating leadership, $85M asset and investment recovery, 40+ transactions worth $780M+, and $80M fund management expertise to run troubled companies, run troubled portfolios and recovery funds, and advise company boards, litigators, institutional and private equity investors.  John has on many occasions parachuted in as the Interim CEO or senior executive to turn around a trouble entity.  John was inducted into the Turnaround Management, Restructuring, and Distressed Investing Industry Hall of Fame, honoring those individuals whose outstanding contributions have increased the stature and respect of our industry. John is Past Chairman of the Turnaround Management Association (TMA).  John is among the Regional Manufacturing Institute’s Constellation of Stars 2010, honoring those individuals whose outstanding contributions have advanced the Maryland Manufacturing industry, and saved jobs in Maryland. John is the 2010 Business Leader of the Year, awarded by Prince George’s Chamber of Commerce.

The Firm:

Strategic Management Partners, Inc. ( 410-263-9100)  is a turnaround management firm specializing in interim management and executive CEO leadership, asset and investment recovery, corporate renewal governance, private equity advisory, and investing in underperforming distressed troubled companies.  SMP helps clients restore value to troubled companies, prepare entities for ‘cash out’ at maximum value, recover assets for fund investors, support litigation, and invest private equity into distressed opportunities.  The firm has been advisor to Presidents Bush (41 & 43), Clinton, Reagan, and Yeltsin, World Bank, EBRD, Company Boards, and Equity Capital Investors on leadership, governance, turnaround management and equity investing. SMP is celebrating 20+ years of service to its clients. SMP was named Maryland’s Small Business of the Year, and received the Governor’s Citation, Governor Martin J. O’Malley, The State of Maryland as a special tribute to honor work in the areas of turning around troubled companies and saving jobs in Maryland.  Turnarounds & Workouts Magazine has twice named SMP among the ‘Top Outstanding Turnaround Management Firms’.  American Business Journals named SMP among the Most Active Turnaround Management and Consulting Firms in Baltimore, Washington, and the Mid-Atlantic Region.  Global M&A Network Turnaround Atlas Awards named SMP as Boutique Turnaround Consulting Firm of the Year.

Strategic Management Partners, Inc.: turnaround managers ready to run troubled companies, recover assets from investments gone bad, advise boards of directors and investors on company viability in distressed situations.  We provide strong interim and operational leadership, strategic planning, financial, defense conversion, sales and marketing acumen developed building organizations in large and small companies, including President of public & private middle-market companies providing solutions to Commercial, Federal, International markets. Enterprises range from start-up to $100+mil. Industry expertise: Manufacturing; Job Shop; Engineering Services; Computer Processing/Services/Software/Integration; Communications; Defense Electronics; Aerospace; Federal Government Contracting; Systems Integration; High-Tech; Finance; Marine Services; Real Estate Development; Construction; Fabrication; and Printing.


John M. Collard, CTP, CITM – Level D, Chairman

Strategic Management Partners, Inc.

522 Horn Point Drive

Annapolis, MD 21403

Telephone 410-263-9100  Facsimile 410-263-6094

E-Mail: or


The Turnaround Management Society (TMS) awarded John M. Collard, Chairman of Strategic Management Partners, Inc. its coveted Certified International Turnaround Manager (CITM) – “Level D” qualification at its highest level. “Mr. Collard and his company have done an enormous contribution to the field of turnaround management, achieved numerous successful and sustainable turnarounds for their clients and supported the Turnaround Management Society. Mr. Collard is a well-respected, highly regarded member of the turnaround management community and we are proud to award him the CITM title,” said Mr. Christoph Lymbersky, Executive Director of Turnaround Management Society at an award ceremony 1st February 2011 in Hamburg, Germany.

To set a high standard for turnaround management professionals, the Turnaround Management Society has developed the International Turnaround Management Standard™ (ITMS), and an education program for practitioners and academics in turnaround management. The Certified International Turnaround Manager program acknowledges the achievement and credentials of professionals who have atained mastery in the profession.

Mr. Collard was awarded the highest “Level D” of the CITM program. A Certified International Turnaround Manager must have demonstrated intense and expansive knowledge of: Early warning signs of crisis, crisis prevention, financial, strategic and operative strategies, crisis communication procedures, process improvements, funding in crisis situations as well as the International Turnaround Management Standard (ITMS) and the industry. To reach “level D” the professional must in addition have 10 or more years of work experience in the area of crisis management / turnaround management. Mr. Collard has exceeded all requirements, proven his knowledge, and worked over 25 years in achieving successful and sustainable turnarounds for his clients.

The Turnaround Management Society is an industry specific organization for Turnaround Management. Its members are turnaround professionals, distressed debt investors, and academics actively practicing in the field.

It is the objective of the Turnaround Management Society to bring together the knowledge of turnaround management academics and the experience of turnaround management professionals. The TMS provides a link between academics who are engaged in research and the professional community that seeks research outcomes and provides academics with professional insight, guidance and feedback.

John M. Collard, Chairman, Strategic Management Partners, Inc. ( said, “I am honored to become a Certified International Turnaround Manager and to be part of the Turnaround Management Society. While these are uncertain times for business, there are opportunities for growth with constructuctive guidance. A stuborn global economic recovery, unprecedented changes in government policies around the world effecting how we will do business in the future, and limited availability of capital are pressing business issues that we must all face and conquer. We must focus on building companies in which investors and lenders want to invest their precious capital. Turnaround managers bring a unique set of skills to deal with these issues and create value.”


Strategic Management Partners, Inc.

John M. Collard, Chief Executive Officer       1+410+263+9100

TMJ Image

The “Turnaround Management Journal” is the first and so far only regular publication in Turnaround / Crisis Management that contains articles from academics and practitioners alike. The journal contains eleven quality articles from authors around the world. Unlike other publications in this area the TM Journal focuses on articles and not on advertisements. In each journal there will be interviews with turnaround professionals as well as a focus on different aspects of the turnaround process. The current edition is available over and soon other distribution channels as well.


Humpty Dumpty sat on a wall
Humpty Dumpty had a great fall
All the king’s horses and All the king’s men
Couldn’t put Humpty Dumpty together again

This past week I attended a conference of business leaders desiring to take their business to the next level. On the second day, I met a leader who lives in Pensacola, Florida and we began to discuss the oil spill and its impact to the local area. As the leader shared personal photos taken of the beached oil, like many of you, we began to discuss strategies for cleaning up the oil and most importantly its long-term impact on the Gulf Coast, the seafood industry, the tourist industry, the wildlife and possible long-term impact of such a disaster.

And yes we did discuss the politics of the matter – in that this should not have a “we versus them” political spin because it is a “WE” issue. WE are all impacted (or will be impacted) by this disaster… and perhaps for generations to come. After our discussion, I began to wonder how many businesses go into any type of depth in building a disaster recovery/crises management strategy on an organizational level as well as on a project-by-project level?

You’re probably wondering what disaster recovery/ crisis management has to do with Humpty Dumpty. Think about Humpty Dumpty being that great project… that great idea… that great solution which will propel your organization so far ahead of others in your industry that they will need to spend years just trying to recover from your advancement. Or the idea which has such a global impact that everything will be better because of the implementation of that idea! Or that new product/service which will increase your stock value by 200%.

This is Humpty Dumpty sitting on the wall – setting the standard for extraordinary greatness! Then something happens within or beyond your control which causes Humpty Dumpty to fall and this fall impacts others on a grand scale.

The question becomes – did you pull together the best of the best (All the king’s horses and all the king’s men) to discuss Humpty Dumpty’s fall before he fell (strategic) or as a consequence of his falling (tactical)? Very few business leaders conduct an in-depth program on crises management/ disaster recovery/risk management associated with the various projects/products/services they desire to introduce into the market. Of course there are many reasons for such actions; however, present history tells us that failing to have a disaster recovery/crises management plan in place can have negative long-term effects on your business as well as the global economy for generations to come.

Leaders must plan for crises, that is, any dangerous events threatening injuries, deaths and financial trouble which could deeply damage or even close your company. However, if you can muster specific abilities, you can better equip your organization to overcome a crisis.

Recent crises and disasters included events that many once thought impossible. These calamities included terrorist attacks, natural disasters large enough to take out a major city and/or industry, cyber-attacks and corporate fraud. Today’s organizations must adopt a mindset of being ready when – not if – a crisis strikes. Crises occur more frequently now; they have become part of doing business. No industry or organization is safe, but you can spare your organization the most serious consequences by drastically changing how it plans and handles crisis management.

Comprehensive risk management goes through stages which require advance planning and proactive investments. First, prevent and mitigate a disaster’s damage before any risk occurs. Then prepare a robust response. Third, build recovery infrastructure. Fourth, offer an adequate response by addressing the damages sustained during the event – remember to take responsibility for your organization’s part in the crises. The fifth stage, proper recovery, requires rebuilding infrastructures to provide for the general welfare. The final stage, lessons learned/adjusting other strategies, based on what occurred, what does your organization need to do to prevent this from happening again?

Below you will find Before the Fall Strategies and After the Fall Strategies your organizations can implement to ensure you are able to put Humpty Dumpty back together again.

Strategies for Disaster Recovery/Crises Management before the Fall

1. Risk forecasting – The field requires more precise prediction techniques.

2. Communicating risk information – Most people assume that low-probability disasters will not affect them. Enlarging the time horizon for disasters helps your employees better assess how they could be harmed. To help the owners of a production facility with a 25-year life span understand their flood risk, show them data indicating that the chance of a “one-in-100-year flood” happening during that 25 years is greater than “one-in-five”. Presenting the possibility as a “one-in-100 chance” in a single year is not as compelling.

3. Economic incentives – Cash can motivate people to protect themselves from disaster, for example, cutting the insurance premiums of Mississippians who buy flood protection.

4. Private-public partnerships – Disasters affect public and private organizations, so they should unite in advance to create mutual emergency strategies and defense plans.

5. Resiliency and sustainability – Organizations must determine if they will be able to continue to function after a sudden disaster. This question also pertains to nations, notably developing countries burdened with “low-quality structures, poor land use, inadequate emergency response,” and so on.

Mitroff (2005) recommends that business leaders go through the following Spinning the Wheel of Crises exercise with their leadership/project teams before releasing a new product or service: The physical prop for this exercise is a large wheel which spins until it hits a flexible needle, which slows and then stops the wheel’s motion. Once it stops, discuss the possible crises which could occur and what actions need to be in place to prevent such a crises and/or what actions should be taken after such a crises occurs. This tool should be part of every project manager’s toolkit for success. Each segment of the wheel lists a major area in which crises occur:

1. Economic – This crisis affects the economy
2. Informational – Information gets lost, by break-in or computer error (for example, Y2K, the millennium bug)
3. Physical – A crisis affects your buildings, equipment or products
4. Human resources – Labor issues, fraud or criminal acts generate a crisis
5. Reputational – Rumors and defamation hurt your organization
6. Psychopathic acts – Violence, product tampering or criminal behavior strike
7. Natural disasters – Hurricanes, fires, floods or mudslides breed crises

To ensure your organization covers all of its bases, combine elements (for example combine items #4 and #7); what plans need to be in place to ensure a quick and maximum recovery?

Strategies for Disaster Recovery/Crises Management After the Fall

Risk-related decision making involves weighing probabilities and benefits versus losses, creating an accurate statistical analysis and considering alternative actions. Follow these principles for perceiving, assessing and managing the risk of extreme events:

1. Appreciate the importance of estimating crises – While such calculations are filled with uncertainties, organizations need good information to deal with risk

2. Recognize the interdependencies associated with the crises – Every risk is connected to outside circumstances. Such linked dependencies create dynamic and evolving uncertainties which can mutate depending on events. Keep your risk forecasts up-to-date

3. Understand people’s behavioral biases when developing crises management strategies – People must acknowledge their prejudices to make mitigating them possible. For instance, leaders may put off dealing with possible catastrophes due to a stubborn form of denial called not in my term of office (NIMTOF)

4. Recognize the long-term impact of the crises/disaster – A catastrophe can create enduring change

5. Recognize transboundary risks by developing global strategies – In disasters, national boundaries are moot. The 2004 tsunami killed people in 11 countries

6. Overcome inequalities in the distribution and effects of catastrophes -Be ready to assist others in need

7. Build leadership for averting and responding to disasters before it is needed – Planning and preparing for disasters is far better than waiting until emergencies strike

Your post-crisis push is to get back to business; Barton (2007) recommends the following Pillars of Business Continuity:

1. When disaster strikes, you cannot possibly over-communicate with victims.
2. Be in 24/7 contact with shareholders, employees, customers, contractors and vendors.
3. Get your off-site IT recovery operations and emergency operations center up and running as soon as possible.
4. Make sure the staff receives full salaries and benefits. Give the incident commander authority to pay for “equipment, hotel rooms and consulting services” as needed.
5. Document everything, including damages. Plug in your insurance carrier ASAP.
6. One and only one spokesperson communicates. Employees should refer all questions to that spokesperson. Avoid policy infractions. Control rumors.
7. Designate psychological counselors and make them available for anyone affected.
8. Update stakeholders three times daily concerning all activities and progress.
9. Stay on top of all suppliers. Make sure they aid in the recovery in a timely manner.
10. Make sure the disaster is over before you declare it done. Consider “scenario testing” to ensure that things are again as they should be. Plan a “multi-tiered return to normalcy.
11. Assess event fallout. Establish accountability. Reward anyone who deserves it.

Now, what about “putting all the pieces together again” – we are living in a time where there is more information available to us in one day than our predecessors had to wait for years to receive. When your organization has trouble identifying solutions to a crises, do not hesitate to put the best brains together (inside and outside of your company and industry) to come up with the solution.

As an organization, your responsibilities include putting as many Humpty Dumpty’s together through creativity and innovation. And at the same time be proactive in your planning and have a through crises management/risk management / disaster recovery strategy in place just in case he does fall – being proactive in your planning allows you and your organization to survive through unplanned catastrophes/crises. Wisdom would say that your best creative and innovative ideas will come out of how you handle the crises and what you learned through resolving the issue which caused the crises/disaster.

When speaking to the business leader last week, I shared that my solution for the oil spillage crises would be to take the best minds from all the oil companies, colleges and universities, government and even the general public – put them in a room – and have them develop a solution to this crises as well as develop a standard operating procedure for ensuring that a crises like this does not happen again. This is how, together, we can put “all the pieces together again” and making Humpty Dumpty stronger and better than he was before!

About the Author

Dr. Stephanie A. Parson - EzineArticles Expert AuthorBusiness Strategist, Trainer, Author & Speaker, Dr. Stephanie Parson is the president of Crowned Grace International ( She and her team deliver over 35 Leadership: From Ordinary to Extraordinary™ (L:FO2E) workshops around the world. Workshops focused around their leadership methodology: Lead Self, Lead Teams & Lead Organizations. Over 2000 global leaders have attended one or more of Crowned Grace’s L:FO2E programs. Dr. Parson has also held executive level roles at Walt Disney World (Vice President), Parsons Brinckerhoff (Vice President & CIO), The Seagram Company (Director) and as a commissioned officer in the US Air Force. For more information, contact Dr. Stephanie and her team at or call us at 321.251.5236 or 866.544.6257.

Emergency/Crisis Management Planning needs vary with the industry, type of operations, and regulatory applicability; however, the following guidelines can be used for any situation:


The first step is to Identify vulnerabilities and hazards associated with your operation. No one understands your operation better than you. Ensure that emergency, business continuity, and security issues are considered and use this analysis to prioritize your plan development efforts.

  • You should consider the following topics, at a minimum:
  • What are your vulnerabilities to natural disasters? Depending on the geographic scope of your operation, you may be subject to hurricanes, earthquakes, tornadoes. floods, ice storms, or all of these.
  • How would your company continue to operate in the midst of a pandemic situation?
  • What are the hazards introduced by your operation, and who may be impacted from a fire, release of hazardous material, oil spill, or explosion? Consider various events involving similar types of operations involving other entities, not the fact that it may have never happened in yours.
  • In the event that your primary or corporate office becomes uninhabitable due to a fire, flood, hurricane, earthquake, power failure or other event, could your company to operate?
  • What are your security vulnerabilities?


The next step is to use the results of the Hazard Analysis performed above, and determine what plan types should be developed, and which should be developed on a facility level or corporate/enterprise-wide level. For instance, site-specific fire pre-plans may be valuable for buildings and storage tanks that contain flammable contents; business continuity plans may be applicable at the corporate level.

Example programs may include the following:


  • Emergency Response Plans (industrial operations), Emergency Operations Plans (hospitals, schools and universities), Emergency Action Plans (office building) describing site-specific initial response and activations procedures for potential hazards.
  • Fire Pre-Plans for buildings and process equipment, if applicable.
  • SPCC, OPA 90 Plans, RCRA Contingency Plans, SWPPP and other regulatory plans for facilities that store oil.


  • Crisis Management Plans describing corporate procedures for supporting operational emergencies, and for responding to corporate crises, including security, product liability, financial and other reputation issues.
  • Business Continuity Plans for corporate and regional offices
  • Pandemic Plans (often included as a subset of Business Continuity Plans)


Identify applicable regulatory requirements and ensure that your program addresses them, but remember that the primary purposes of the plans are to enable your company to respond effectively, and in the process, to ensure compliance. A common mistake is to organize plans specifically to meet the order of the regulations, when in fact, this may not result in the most logical or user-friendly format. Keep in mind that some regulations require a specific plan format or order of content, however, in many cases there is flexibility to organize the plan differently, as long as a regulatory cross-reference is provided and clearly identifies where each requirement is addressed.

Develop plans in a logical format that will be intuitive to responders who may not have had time to review them or training. A good test is to provide the plan to someone outside the organization and find out how long it takes for them to find key response information.

Ensure that plan content is comprehensive enough to provide tools needed for a response but is not so detailed that it reduces the effectiveness of the plan and results in more plan maintenance than necessary. Consider providing references and/or hyperlinks to detailed technical or regulatory information that may be needed but is too detailed to include in the plan.

Develop the content in a streamlined format with the goal of reducing the time required to read it. Bullet points and checklists are favorable to paragraphs of information.

To learn more about the important topic of Emergency Response Planning including specialty plans such as SPCC Plans, please visit

By Scott David Rodgers