Mike

Welcome to the real business world where troubled businesses abound. Distressed business owners and executives need to understand turnarounds and transformations in order to face the challenges in this competitive global market. Corporate turnarounds and transformations are no longer ad hoc. Instead they have become an integral part of daily corporate life with dynamic changes in the economic, political and technological arenas. Business turbulence is here to stay. Yet, there are many myths pertaining to turnaround and transformation.

Myth 1: One common myth held by companies is that they are not vulnerable to financial crisis: „My company is doing well. It will not fall sick.“ Akin to getting AIDS, some patients previously adopted the attitude: „This will not happen to me.“ But when it does happen, be prepared to hear this from the doctor. „Sorry, we cannot help you.“ Many companies have annual medical examinations and health screenings for their employees but are negligent when it comes to their own check-ups. Companies should go for regular health check-up. The key to successful turnaround is early intervention and understand the early warning signs of a sick company.

Myth 2: Management of troubled companies often goes into a state of self-denial. „We have seen this before. This is a little hiccup in the economy and our business is seasonal. Nothing has gone wrong.“ This is a myth. The situation frequently gets worse before it gets better. Such denial is insidious, resulting in delays in the necessary remedial actions during the early stage of under-performance. This is why oftentimes by the time the companies‘ woes are publicly known, they are already basket cases. Proper treatment can only be administered after the acknowledgement that there is pain.

Myth 3: „Our creditors and banks are chasing for payments, we have a credit squeeze and firing of our staff must continue till cash flow improves.“ Yes, troubled companies need to cut cost to the bones without injuring the muscles and the vital organs. However, it is a myth that the primary role of a turnaround manager is merely to be ruthless and fire people in order to reduce overheads. Downsizing is like amputation which has negative side effects and can further worsen the staff morale.

Myth 4: You may be the lucky one as your company is not in the critical life-and-death situation but merely seeking market expansion. „China, India and SE Asia are high-growth markets and they appear a safe bet for us to expand and invest the business there.“ For instance, many companies in the West face intense competition and shrinking domestic market and surmise that a way to turn around their fortunes is to venture into high growth regions in Asia. It is a myth that it is a safe route to success doing business in Asia. Though the business opportunities are great, there are many pitfalls and differences in business practices that these companies ought to be mindful about in venturing into high growth Asia.

Myth 5: Yet, it is unfortunate that business schools today rarely teach the subject of „Corporate Turnaround“. Many of these business graduates eventually work for troubled companies and are inadequate to handle the real-life corporate situations. It is a myth that textbook knowledge will suffice in helping these executives manage a corporate turnaround situation which is much more esoteric and complicated. The turnaround executive has to be a dictator, crisis manager, visionary, entrepreneur, coach, spiritual leader all roll into one.

Myth 6: „Firing shall continue till morale improves“ The media have fuelled this myth by portraying the turnaround manager as Rambo, the macho man in the movies of the same name, who destroyed everything blocking his way. For example, the media nicknamed turnaround leaders like Jack Welch, the former chairman of General Electric (GE) as Neutron Jack; Al Dunlap, the former chairman of Sunbeam Corporation, the Chainsaw Al; and Magaret Thatcher, the former Prime Minister of United Kingdom, the Iron Lady. Both Welch and Dunlap fired thousands of employees in their turnaround endeavours. Magaret Thatcher privatized Britain Inc, the state-owned enterprise, resulting in loss of thousands of jobs.

Myth 7: The theories on change management are fairly straightforward and a lot of common sense. Yes, it is true that turnaround and transformation go back to basic principles. However, sometimes common sense is not too common. If it is, there will not be so many business failures today. Be mindful that in a turnaround environment, often times, the manager is put into a difficult position and he has little time to think clearly or refer to business books for guidance. Making the right timely decision and executing the decision are what matter.

Successful change management using transformation and turnaround should be holistic and based on addressing both strategic and operational issues in the short and long term. Comprehensive turnaround plans should seek not only to cut costs but to grow revenues and change the corporate well-being in order to facilitate and manage changes.

Also, there is no single right style of leadership in a change management environment. Turnaround executives have to be benevolent dictators, crisis managers, visionaries, entrepreneurs, coaches, spiritual leaders all roll into one. With so many hats to wear, a turnaround executive may appear schizophrenic exhibiting multiple and at times contradictory qualities. In some tough turnaround situations, the turnaround executives may even need to possess the supernatural skills such as selling a stethoscope to a tree surgeon or resurrecting the dead. As a result, business schools are often relegated to producing textbook executives who are unable to cope with the realities in the marketplace where many sick and troubled companies abound.

About the Author:

Mike TengDr Mike Teng (DBA, MBA, BEng, FIMechE, FIEE, CEng, PEng, FCMI, FCIM, SMCS) is the author of the best-selling business book “Corporate Turnaround: Nursing a sick company back to health”, in 2002. In 2006, he authored another book entitled, “Corporate Wellness: 101 Principles in Turnaround and Transformation.” Dr Teng is widely recognized as a turnaround CEO in Asia by the news media. He has 27 years of experience in corporate responsibilities in the Asia Pacific region. Of these, he held Chief Executive Officer’s positions for 17 years in multi-national, local and publicly listed companies. He led in the successful turnaround of several troubled companies. He is currently the Managing Director of a business advisory firm, Corporate Turnaround Centre Pte Ltd, which assists companies on a fast track to financial performance. Dr Teng was the President of the Marketing Institute of Singapore (2000 – 2004), the national body representing some 5000 individual and corporate marketing professionals in Singapore. Dr. Mike Teng is a member of the Turnaround Management Society and regularly publishes in the Turnaround Management Journal.

 

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There is plenty of trouble in today’s economy, and few industries have been spared hardship. Turnaround opportunities abound for those who have the knowledge and fortitude to go through the process. The rewards can be plentiful and the failures catastrophic.

The process of turning around a troubled entity is complex and made more difficult by the multiple constituencies involved, all having different agendas. Lenders want their invested capital returned, preferably with interest. Creditors want to get paid for goods and services. Original investors want and hope for recovery of their capital, while distressed investors want to buy in at 20 cents on the dollar and then turn a profit, some by trading the credit and others by turning the business positive and then selling. Owners want to avoid guarantees and recoup some of their equity. Employees want to retain their jobs and benefits. Directors want to avoid risk and litigation. Other stakeholders want their interests protected. These varied desires often can be at odds with one another and hamper the turnaround effort.

Let’s address the turnaround process as if all constituents favor proceeding through to the end, when a restructured entity emerges, although clearly other scenarios can be envisioned.

The High Cost of Mismanagement

Many causes contribute to business failure. According to a study conducted by the Association of Insolvency and Restructuring Advisors, only 9% of failures are due to influences beyond management’s control and to sheer bad luck. The remaining 91% of failures are related to influences that management could control, and 52% are rooted in internally generated problems that management didn’t control.

Businesses fail because of mismanagement. Sometimes it is denial, sometimes negligence, but it always results in loss. Mismanagement is most often seen in more than one of multiple areas:

* Autocratic management and overextension.
* Ineffective, non-existent communications.
* High turnover and neglect of human resources.
* Inefficient compensation and incentive programs.
* Company goals not achieved or understood.
* Deteriorating business and lack of new customers.
* Inadequate analysis of markets and strategies.
* Lack of timely, accurate financial information.
* History of failed expansion plans.
* Uncontrolled or mismanaged growth.

Will Rogers said, „If you find yourself in a hole, stop digging.“ It’s good advice for directors and managers with responsibility for leading a company and very good advice for lenders and investors contemplating investing more capital into a troubled entity. This is an opportunity for distressed investors having the „dry powder“ to invest at bargain rates, the stable of leaders to affect a turnaround, and the knowledge and chutzpah to take on these challenges.

The Role of Turnaround Specialists

To engineer a successful turnaround, a company needs someone with clear thinking to quickly assess opportunities, to determine what is wrong, to develop strategies that no one has tried before, and to implement plans to restructure the company. The problems are rarely what management indicates they are, but rather are usually two or three underlying, systemic ills that often can be fixed. You can’t focus on the symptoms; you must find the real causes. Management has allowed these problems to exist and bring the company to its depressed state. Therefore, management is not equipped to manage the turnaround.

When these circumstances are present, turnaround specialists are often an excellent choice. They bring a new set of eyes trained in managing and advising in troubled situations. These experts are either practitioners or consultants. Turnaround practitioners take management and decision-making control as chief executive officer or chief restructuring officer. As an alternative, turnaround consultants can advise management, perhaps the same management that failed before.

Businesses fail because of mismanagement.

Sometimes it is denial, sometimes negligence, but it always results in loss.

The key to turnarounds is building enterprises in which future buyers want to invest. Investors and buyers look for businesses that:

* Create value and exhibit consistency from period to period.
* Have a high probability of future cash flows or have a history of performance and improvement or the promise of cash.
* Possess a market-oriented management team with a focus on producing revenue.
* Are able to sell and compete; to develop, produce, and distribute products; and to thrive and grow as indicated by a track record or demonstrated changes in the right direction.
* Exhibit a fair entry valuation and realistic return potential.
* Have exit options (a high return on investment, or ROI, realized at time of resale).

There is a process of recovery and investment in a turnaround. It is based on the fundamental premise that management is lacking when companies are in trouble. Turnaround specialists must conduct fact-finding to assess the situation and then prepare a plan to fix the problems. They must implement the planned courses of action by funding the process and building a team to carry it out, then monitor progress and make changes where necessary.

Stages in the Turnaround Process

The turnaround process has five stages:

* Management change.
* Situation analysis.
* Emergency action.
* Business restructuring.
* Return to normal.

Let’s look at each stage individually to understand the objectives and what should be done by each function within the company. The timing is important to coordinate what’s happening between functions. Stages can overlap, and some tasks may impact more than one stage.

The process is designed to first stabilize a situation, which is done by addressing management issues, assessing situation, and implementing emergency actions. The restructuring process begins with preparations during the emergency action phase. Positioning for growth starts with restructuring and grows when the normal stage is reached.

Management Change

It is very important to select a CEO who can successfully lead the turnaround. This individual must have a proven track record and the ability to assemble a management team that can implement the strategies to turn the company around. The best candidate most often comes from outside the company and brings a special set of skills to deal with crisis and change. His or her job will be to stabilize the situation, implement plans to transform the company, and then hire a replacement.

It is essential to eliminate obstructionists who may hamper the process. This move could require replacing some or all of top management, depending on the deal. It will undoubtedly also mean replacing some of the board members who did not keep a watchful eye.

Management must address issues related to the major stakeholder groups: executives, function managers, employees, lenders, vendors, customers, and others. To accomplish a turnaround, a company must make a concerted effort to change how it operates. Most turnaround companies have a lack-of-sales problem that necessitates a change to jump-start sales and drive revenue. There must be information that all can rely on for decision making. Production management must support and make what the market wants to purchase at competitive prices. Management must nurture the critical human capital resources that are left within the company, while at the same time holding them accountable for results.

Changing management is synonymous with changing the philosophy of how a company is run to achieve results. Communication with all stakeholders is paramount throughout all stages of the process. Set goals that achieve stakeholder objectives, then apply incentive-based management to motivate the proper results. Tie everyone to the same broad set of goals and emphasize how functions can complement the performance of related departments.

Situation Analysis

The objective at this stage is to determine the severity of the situation and whether it can be turned around. Questions to ask include:

* Is the business viable?
* Can it survive?
* Should it be saved?
* Are there sufficient cash resources to fuel the turnaround?

This analysis should culminate in a preliminary action plan stating what is wrong, how to fix it, and which key strategies can turn the entity in a positive direction. There should also be a cash flow forecast (at least 13 weeks) to understand cash usage.

Identify effective turnaround strategies. Operational strategies include increasing revenue, reducing costs, selling and redeploying assets, and establishing competitive repositioning. Strategic initiatives include adopting sound corporate and business strategies and tactics and setting specific goals and objectives that align with ultimate stakeholder goals. Too often, goals are misaligned with the ultimate direction and lead to confusion, wasted time, false starts, and employees sent in the wrong direction. Understand that many of the good employees have already left the company. Managements have to work with the „second string“ in the interest of time and build as they go.

Understand the life cycle of the business and how it relates to the chosen turnaround strategy. Document key issues so that all parties will understand what you are trying to accomplish and will pull in the same direction. Identify which product and business segments are most profitable, particularly at the gross margin level, and eliminate weak performers and nonperformers. Make certain that all functional areas are working to support the goals of their counterparts. Selling work with flexible delivery times can fill valleys in production cycles, which reduces costs per unit. Producing only what sales staff can sell to meet customer demand will increase sales and gross margin.

Turnaround strategies often are affected by local government policy considerations and regulations. In the United States, the Worker Adjustment and Retraining Notification (WARN) Act requires 60-day notice of massive layoffs, which certainly impacts cash flow. In many countries in Europe and the Far East, stringent rules govern payment of wages after layoffs, as well as dealings with local authorities; some regulations even prioritize which workers can be laid off. When government policy favors labor and employment is not „at will,“ there will be complications.

Emergency Action

At this stage, the objective is to gain control of the situation, particularly the cash, and establish breakeven. Centralize the cash management function to ensure control. If you stop the cash bleed, you enable the entity to survive. Time is your enemy. Protect asset value by demonstrating that the business is viable and in transition.

You must raise cash immediately. Review the balance sheet for internal sources of cash, such as collecting accounts receivable and renegotiating payments against accounts payable. Sell unprofitable business units, real estate, and unutilized assets. Secure asset-based loans if needed. Restructure debt to balance the amount of interest payments with the level the company can afford.

Lay off employees quickly and fairly. It is much better to cut deep all at once than to make small cuts repeatedly. Remaining employees are more likely to focus if they believe their jobs are secure.

Rightsizing the company means much more than laying off employees. Correct underpricing of products, prune product lines to only those that are profitable and meet demand, and weed out weak and problem customers. Sometimes too much overhead is applied to support customers that aren’t paying their fair share of that service. Emphasize selling more product at profitable rates. Reward those who change the situation; sanction or release those who don’t.

Business Restructuring

In this stage, the objective is to create profitability through remaining operations. Stress product-line pricing and profitability. Restructure the business for increased profitability and return on assets and investments. This is the point at which the focus should change from cash flow crisis to profitability. Fix the capital structure and renegotiate the long- and short-term debt.

Ensure reporting systems put in place are operationalized to show profitability at each revenue center, cost center, profit center, cash center, incentive center. If employees can’t see it, they can’t manage it.

Incentive-based management drives employees to get involved smartly and manage to the goals all ascribe to. Create teams of employees to identify and rework inefficiencies and promote profitability.

There are only two ways to increase sales: 1) sell existing product to new customers, and 2) sell new products to existing customers. If you want growth, do both.

Return to Normal

The goal at this final stage is to institutionalize the changes in corporate culture to emphasize profitability, ROI, and return on assets employed. Seek opportunities for profitable growth. Build on competitive strengths. Improve customer service and relationships. Build continuous management and employee training and development programs to raise the caliber of your human capital.

This could be time to restructure long-term financing at more reasonable rates now that the company is stable and on a path to growth.

The odds of a successful turnaround increase dramatically if a turnaround phases-and-actions plan is implemented and followed. Create a plan that is specifically adapted to your unique situations, then turn it around.

john_collard320x380-252x300John M. Collard is Chairman of Strategic Management Partners, Inc, an Annapolis, Maryland-based turnaround management firm specializing in interim executive CEO leadership in small and mid-sized business, asset and investment recovery, investing in distressed troubled companies, and equity capital advisory. He is an inductee into the Turnaround Management, Restructuring, and Distressed Investing Industry Hall of Fame. He is Past Chairman of the Turnaround Management Association, a frequent author and speaker.(410) 263-9100 http://www.StrategicMgtPartners.com

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Why?

It is an inquiry we do not make often enough. „Why?“ is the simplest form of a question, yet when it is asked, it cannot help but be thought provoking. „Why“, „what if“ and other forms of critical evaluation promote discussion and lead to improvement in our decision-making process. Even so, we all too often elect not to use these words from of our repertoire. Instead, they are often replaced by, „sounds good to me“ or some other form of passive acceptance. We should reflect on the importance of this elegantly simple but powerful trigger for critical thinking and make sure we do not allow „why“ to become part of a forgotten business vocabulary. This article explores the importance of critical evaluation in strategy planning and asking, „Why?“.

Our life lessons and common sense should be applied within our business lives, day in and day out; never left at the door when we get to the office. Just think about it. Whether it is selecting which grade of gasoline to buy or trying to determine what the difference is between the regular and the „extra strength“ brand variation that costs $.75 more — we use critical evaluation in our lives constantly and are good at it. Where we are less proficient is leveraging this skill to its fullest potential – all the time. To do so we just need to program it into the decision-making process to occur systematically so we benefit from our cognitive talents in all aspects of our lives.âEUR¨

Our strategic planning process should be leading us through a critical evaluation framework that drives better decision making. The process should automatically be challenging the status-quo of the organization in order to drive better performance through a constructive current-state critical evaluation.

  • We’re losing market share. Why?
  • Our costs containment strategy is not working. Why?

Exploring such questions ultimately leads to more questions to contemplate. „Is the status quo the right answer?“

The strategic planning process should structure critical evaluation and drive questions about current problems in the business or organization and provoke innovation and creativity channeled into addressing performance. Likewise, the strategic planning process should also challenge our collective ideas for the future state vision.

  • Is this the right next move? Why?
  • We’re not closing new business. Why?
  • Are these ideas worth pursuing? Why?
  • Is changing it a good idea? Why?

Propagating Mediocrity
Critical evaluation challenges us to think and improve. All ideas need to be challenged in order to weed out potentially risky or harmful strategies and operational tactics that could have long-term detrimental impacts on the business. Ask, „Why?“

Many times our instincts tell us that something just doesn’t feel right. Do we stop to analyze why, or think about the situation and try to determine what it is that is bothering us about it? Most of us will mull it over until the bothersome element begins to crystallize in our minds and we can then take appropriate action. Conversely, we can sometimes go with a spontaneous „gut feel“ – another over-used skill that can get us into trouble. If our gut is sending us a strong message, shouldn’t we in turn be asking ourselves „why“?

This is as true in conjunction with our day-to-day routines as it is in strategic planning. Too often we „accept“ mediocre suggestions without truly using critical evaluation to poke at the notion. It is just as damaging to excuse oneself from the decision process by deferring to weigh-in with an opinion or looking away when faced with the opportunity to evaluate data and impact a decision. Stepping forward to contribute is a valuable leadership trait and organizations need leadership.

Critical evaluation is our filtering mechanism to protect us from poor choices. Mistakes will still be made, but with our filter working at 100%, some poor choices will be avoided and bad ideas stopped. The filter is our protection from simply accepting and blindly trusting in consensus or the person speaking the loudest.

In our business world, we not only have the obligation to filter – but also to question, challenge and improve. Despite Enron’s „ask why“ tagline, it’s clear that the question wasn’t being asked and answered enough. If only the risky decisions had been averted and the unethical behavior questioned. Instead, a company has disappeared off of the map, and many lives were damaged or ruined. Many bad ideas and poor decisions can be effectively filtered out through systematic critical evaluation.

The Power Duo: „Why“ and „What If“
The same is true for seemingly „good“ ideas. During strategic planning, good ideas can be made better when challenged and defended. Without critical evaluation applied, how do we know it really is a „good idea“?

Consider the current disaster unfolding in the Gulf of Mexico with the sunken BP deep-water drilling rig. It would seem logical that „actionable“ contingency plans would have been in place for the „what if“ scenarios. Unfortunately for the Gulf States and BP, whatever contingency plans that may have existed prior to the explosion and massive oil spill, have failed to have an impact thus far. The company would have benefited from more „what if“ planning. Better yet, what would BP’s situation have looked like today if better planning efforts and controls had been in place to begin with? Could the disaster have been avoided entirely and lives saved?

The planning process for our business must force such evaluation to take place, systematically. When a thorough planning process is followed, future-state vision and key outcomes go through a critical evaluation and are reviewed against the same evaluation criteria we should be applying to our current-state result.

  • Are we satisfied that this the best it can be, at least for now? Why?
  • What if we’re wrong on our assumptions?
  • What are the scenarios we should plan contingencies for?

Why this and not that?: The Refinement of Strategic Key Outcomes
Good leaders become great by asking, „why?“ They test for weakness in concepts, the conviction behind the ideas and the depth of analysis behind the suggestions.

Our strategic planning processes must provide that same framework for critical evaluation. It must help us select amongst the options available in formulating strategy and provide us with guidance that is true. A good planning process is like a compass that helps us find „true North“ and avoid getting lost in the woods.

The planning process should serve us in the identification of the best strategic options. As part of the process, it should aid in the relative valuation of potential strategic outcome choices and help us to prioritize our options from greatest to least beneficial.

Timeframes and Decision Gates: Analysis Coupled with Action
A structured planning process is required to pull us through to the planning conclusion, keeping us from getting lost along the way. To do so effectively, the process must couple the required critical evaluation with the necessary rigor to maintain momentum and take action. Analysis paralysis would likely result in the absence of a process built around established timeframes and decision gates. In strategic planning, at a minimum, we need to take action based on:

  • Competitive analysis
  • Return on Investment data
  • Contingencies / mitigation plans
  • Fully vetted assumptions

Established timeframes and decision gates within the process allow deferring taking action on our ideas until the „last responsible moment“. At the same time, the process continues to drive progress towards the goal of completing our planning effort. Once we’ve reached the decision point, our choices will be based upon a superior body of analysis and more thorough understanding of our options.

The Rewards of Critical Evaluation
Our economy needs businesses to thrive. To do so, we as business leaders must continuously strive to mature our organization’s strategic decision process and planning acumen. Our business cultures must encourage free thinking and reward those who constructively challenge, innovate and participate in making our models more successful by asking „why“.

 

Joe-D-Evans_579512Joe Evans serves as the President and Chief Executive Officer of Forte Solutions Group (FSG). Forte Solutions Group provides specialized business consulting services through two operating divisions.

You can contact Method Frameworks at 877-317-5264 (877-31PLAN4. Check our articles and blog often at www.methodframeworks.com to get many more planning tips and information about our Plan4 process.

 

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Strategy misalignment is subtle and sometimes difficult to spot. Yet without a properly aligned corporate strategy, you are likely to introduce a serious dose of chaos into the organizational environment.

Corporate strategy is the blend of strategic goals that support the mission and vision of an organization. When a corporate strategy is aligned, the key outcomes (strategic goals) of the organization are united with operations and execution tactics. In other words, all parts of the organization’s eco-system (the sum of internal and external functions of an organization’s environment) are moving in the same well-defined direction. When strategy is misaligned operational initiatives are out of sync with the strategic goals of the organization, mission drift occurs within the operations of the business,

It is critically important to identify strategic misalignment early since misalignment can lead to chaotic reactions. Uncorrected, problems compound quickly and lead to serious issues within the organization.

How do you know if your corporate strategy is aligned?

Look for these symptoms:

Financial Projections are Missed

While missed projections can be traced back to an array of different issues, often the root cause is strategic misalignment. Why? Remember that strategy alignment is the union between operations/execution and strategy. If misaligned, you can imagine the types of non-strategic efforts that can occur at a grass roots level in the organization as managers and workers attempt to find their own direction. Over time you’ll find deadlines are not met within operations, product launches or service lines are delayed, and all of this directly impacts projected revenue streams.

Growth is Stalled

When organizations begin to misfire due to misalignment, initiatives required to support and sustain profitable growth get into trouble. It’s not that the leadership and rank-and-file employees don’t want to see growth occur. It is that, despite their best intentions, they cannot sufficiently coordinate efforts on their own to right the ship. Unfortunately, spotting this symptom is difficult in situations where governance is already lax or missing altogether. Righting the course of the business requires the efforts of all parts of the organization, but they must be working in concert together to do it. Such a feat requires the ability to align strategy and execution through and through.

Reactive Spending and Duplicity of Initiatives Occur

When strategy is misaligned, company divisions can drift into a self-directed mode that stray further and further from corporate goals. Reactive spending and duplicity of initiatives might occur as a result of lackluster quarterly or annual results being posted. In other cases, it could be part of a chain reaction, due to inter-dependent initiatives fighting for limited resources. These unsynchronized initiatives begin to impact each other and desperation sets in, creating a vicious cycle of time and resources being consumed.

Cultural Erosion and Morale Problems Appear

We’ve already mentioned the chaos that occurs with strategy misalignment. This chaos takes a toll on leaders and workers of the organization who share in a profound dislike of organizational chaos. As a result, morale suffers. If you notice an erosion of the corporate culture and morale problems, consider that your strategy may be misaligned.

Revenue and/or Profitability Decline

The bottom line impact of strategy misalignment inevitably falls to the bottom line. While revenue and profitability can decrease for a variety of reasons, most of these reasons trace back to misalignment. Profitability suffers as a result of any of the symptoms presented here, such as when new services or products are delayed in roll-out because the initiatives to bring them to market are unsuccessful.

How to Address Strategy Misalignment:

Just as it takes time and effort to see results from strategy, re-instilling strategy alignment and correcting misalignment requires time, work and discipline. The situation didn’t occur overnight, and won’t disappear overnight either.

Bi-directional planning (bottom-up and top-down) and appropriate plan governance can align corporate strategy and prevent the symptoms that can negatively impact an organization. We will discuss in greater detail how to address strategy misalignment in articles.

by Joe Evans

Joe-D-Evans_579512Joe Evans serves as the President and Chief Executive Officer of Forte Solutions Group (FSG). Forte Solutions Group provides specialized business consulting services through two operating divisions.

change

Trendy Business Concepts Have a Dark Side

Coded language serves the purpose of making things sound better or worse than they really are. This is going to be a journey through the lexicon of some of the ‚buzz words‘ we have been hearing during the past two decades:

Total Quality Management (TQM), empowerment, downsizing, restructuring, customer-driven, cross-training, change management, ISO certification and environmentally conscious organizations are some of the most common coded language expressions.

TQM means the exceedingly difficult task of convincing senior management of the importance of doing things differently than they have become comfortably used to. Second, if you succeed at selling them the idea, you now have the very much more difficult task of getting them to act according to the new line of thought you have persuaded them of. This is truly challenging because you are asking them to work harder by paying attention to details they never concerned themselves with in the past. Third, they will ask you what is the reward they will get for doing their job ‚right‘ from now on. Finally, they will have to be more than fully prepared to do all that TQM demands of them in order for them not only to ’sell‘ it to their subordinates, but to model the appropriate behavior themselves.

What if senior management doesn’t buy into the TQM culture? Replace senior management or drop the subject until they retire.

EMPOWERMENT means helping your subordinates to free themselves of you. Meaning that they should be able to do most of what is required of them without waiting for your instructions at every step. If you view this as a loss of ‚power‘ or ‚control‘ don’t try it. If you don’t see all the possibilities of how this would help free your time so you can really do ‚management‘ then stay away from Empowerment Programs.

DOWNSIZING means taking the ax and chopping all the deadwood or redundancies out of your organization. Stated more simply: „Kicking out as many persons as you can possibly manage without, from your organization.“ This is designed to squeeze labor costs to the minimum and boost profit margins to the maximum. The benefit of the exercise is in adding an important indicator for the further attraction of stock holders. For employees it means working longer and harder and with the constant fear of being the next to go: a special formula for insecurity and stress.

RESTRUCTURING means confusing the hell out of everyone by changing things, persons and processes around every day. It also means discovering that a lot of the old staff don’t have the competencies and skills you need for your new structure, but you can’t fire everyone or hire a totally new staff. What do you do? Design an organizational structure to meet the capabilities of the manpower you have or one that meets the needs of future business plans?

CUSTOMER-DRIVEN means you fully recognize that there is so much competition in your kind of business that your customers can easily find alternatives to your service. This helps to wake you up to the fact that you no longer enjoy the monopoly you thought you had, so you had better lean over backwards to keep your customers happy and therefore out of the hands of your competitors. It is an expensive place to be because it imposes certain constraints such as the need to be always taking initiatives that keep you ahead of others, a very costly business.

CROSS-TRAINING (MULTISKILLING) means recognizing the limitations of maintaining minimal staffing levels and preparing to meet the resultant risks, by ensuring that every staff member is able to replace another in case of illness or other cause for absence. Stated differently: everyone should be able to replace the other because they all know each other’s jobs. This requires that management runs a continuous job rotation program to ensure that each member of staff gets to do as many other jobs as possible during the course of a year. This requires extra work and detailed record keeping on the part of management.

CHANGE MANAGEMENT requires long term, integrated planning and execution. It begins with the identification and understanding of the sources and nature of resistance to change you will encounter in any given organizational entity. It requires a lot of seemingly contradictory skills: patience with people as well as impatience in the delivery of tangible results; long-term thinking in the achievement of super ordinate goals as well as short-term thinking in the achievement of a series of small ‚wins‘; excellent communication skills in persuasion and selling of ideas as well as extreme confidentiality with regard your influence and incentive plans. Don’t start such a process unless you define your time scale in terms of years and have the full understanding and backing of those directly concerned.

ISO CERTIFICATION means attendance of more meetings and documentation of more details than you have ever done in your entire life before ISO. If you are not a patient group with at least a few excellent listeners, analysts and writers don’t ever think of ISO. The process of certification is costly both in human effort and in the upgrading of facilities and premises. The process will also touch all of the above mentioned concepts in one way or the other.

ENVIRONMENTALLY CONSCIOUS ORGANIZATION means practicing what you preach when it comes to keeping the environment clean. For example, you can no longer afford to put up a real pine fir ‚Christmas tree‘ that has been cut from a forest; you can not have a chimney belching black smoke or other toxic fumes into the atmosphere; you can not have open drains pouring fluid, chemical wastes into the streets or into the rivers or sea; you can not have piles of rubbish or ’scrap‘ acting as health hazards or eye-sores in or near your organization. You must be prepared to put your money into your deeds before you speak of environmental protection.

This brief journey should help you ask the right questions so you can judge more accurately what process you are getting into and how far you are able or willing to go to realize the goals you hope to achieve.

Fay-F-NiewiadomskiFay Niewiadomski founded ICTN (International Consulting & Training Network) in 1993. ICTN provides complete management services to its clients who are among the leading regional and multinational players. Furthermore, she has worked with CEOs, Board Members, Presidents and Ministers of Government and other Leaders to help them meet the challenges of change within their organizations through creative problem solving, management interventions and powerful communication strategies. Prior to founding ICTN, she researched the subject of „Managing Change through Needs-Based Assessment‘ in large Lebanese Organizations“ for her doctoral work at the University of East Anglia in the UK. Additionally, she also held various university positions as a professor at AUB and LAU and as Dean of the Faculty of Humanities at NDU.

 

bank

Debt restructuring refers to the reallocation of resources or change in the terms of loan extension to enable the debtor to pay back the loan to his or her creditor. Debt restructuring is an adjustment made by both the debtor and the creditor to smooth out temporary difficulties in the way of loan repayment. Debt restructuring is of two types, and there are many ways to carry out the restructuring process.

Debt Restructuring: Types

Debt restructuring is of two kinds, depending on the terms and the cost to the debtor.

1) General Debt Restructuring
Under the terms of general debt restructuring, the creditor incurs no losses from the process. This happens when the creditor decides to extend the loan period, or lowers the interest rate, to enable the debtor to tide over temporary financial difficulty and pay the debt later.

2) Troubled Debt Restructuring
Troubled debt restructuring refers to the process where the creditor incurs losses in the process. This happens when the Debt Restructuring leads to reduction in the accrued interest, or due to the dip in the value of the collateral, or through conversions to equity.

How to Plan Debt Restructuring:

1) The crediting company should prepare a roadmap for the debt restructuring process. The strategy should include the expected time to be taken to recover the debts, the terms of loan repayment, and watching the financial performance of the debtor.

2) The decision of the financial institution regarding Debt Restructuring depends on whether the debtor has invested in the company, holds shares with the company, or is a subsidiary of the company.

3) If there is conflict within the company’s board of directors regarding the process, then it is advisable to ask for help from a third party. However, third party mediation is not needed if the debtor is a subsidiary of the company.

4) Making a cash flow projection is also important to the Debt Restructuring process. It is advisable not to include uncertain cash flow estimates in the plan.

5) The debtor’s financial situation should also be considered while making a Debt Restructuring plan. The debtor’s ability to repay the loan depends on his or her financial management, so the financial company needs to look into the debtor’s roadmap for repaying the loan. If the debtor is another company, then changing the key people associated with it, like the director, board of directors or chairperson might help.

If you are planning to go for Debt Restructuring, as a creditor or borrower, you can approach a small business consultant for help.

Debt restructuring depends on many factors like the debtor’s financial management, the projected cash inflow, the relation between the debtor and the creditor etc. Debt Restructuring is meant to help both the parties. It involves compromises made by the creditor as well as the debtor to ensure that the loan is repaid in full to the creditor without too much of a financial loss to the debtor.

Alexander Gordon is a writer for http://www.smallbusinessconsulting.com

 

 

Compass Pointing the Way to Leadership in Business

WASTA: Curses and Cures
In this exploration of WASTA, I will do three things:

  1. Look at the true meaning of this activity that takes its toll on businesses throughout the world.
  2. Examine the impact it has on the human capital of a business, the curses.
  3. Suggest some cures that have been successfully implemented in the real world of business.

THE TRUE MEANING
WASTA is really an acronym that stands for the „Willing Acceptance of Subordination, Tyranny and Abandonment of personal will.“ More directly, it means that when you accept or use WASTA you have given up a part of your personal freedom. Freedom means the ability to say ‚no‚ to things that compromise your personal integrity. WASTA also means you accumulate debts. Nothing comes free. WASTA is a form of currency that operates in exactly the same way as financial debts. When you use someone’s WASTA you will have to recon with payback time. Payback means that you either return the favor or lose the ‚friendship‘ and ’support‘ of your ‚dear friend‘.

The very act of asking for WASTA is an admission of your inadequacy, weakness, or inability to get something done legally. Therefore, the minute you accept it, you have given the party offering the WASTA power over you. It is like taking a rope, tying a noose around your own neck and then giving the end of the rope to someone else to pull or release as they please. „Too extreme!“ I hear you object. Let me help you visualize a situation.

The business of obstructing other people’s business has been developed to a fine art. Even the most basic services are made to seem incomprehensibly complex, tortuously bureaucratic and interminably lengthy. Nothing is possible without a ‚middle man‘ and generous amounts of ‚grease‘ to get you through the quagmire of antiquated procedures. This is the ‚leverage power‘ that those who make a living from WASTA use. It is a trap for the innocent, the anxious, the fearful, the incompetent, the greedy and the guilty. It is your own vulnerability that gives those who offer WASTA, power over you and ownership of a part of your soul and your freedom. It is also what causes investors to look elsewhere.

The subject of WASTA is wide and complex, and since I am not writing a book, I will limit this discussion to the use of WASTA for employment purposes. I do however need to discuss it against the backdrop painted above to show why some individuals or companies may be more susceptible than others.

CURSES: THE IMPACT ON THE HUMAN CAPITAL OF A BUSINESS

What happens if for some reason or other your company decides that WASTA, is after all a way of and they want to play things that way? Also, what if they confuse WASTA with sound business planning and marketing strategy and use WASTA as a survival mechanism? You do me favors, so I do business with you. The result is that your company will be ‚blessed‘ with employees with varying degrees of incompetence. These persons could be at any level in the company, from doorman to senior manager.

Curse # 1: Everybody will know who the new employee’s WASTA is and will immediately divide into camps, for, against and indifferent. This will limit this person’s effectiveness from the start.

Curse # 2: Depending on the strength of the new employee’s WASTA, he or she may ignore the authority of his or her supervisor if the supervisor does not have a more powerful WASTA. It becomes ugly if the WASTAS are from opposing sides. Overall, the result will be a breakdown in the ability of the supervisor to control his or her team or department. There will almost certainly be a drop in initiative taking.

Curse # 3: Other employees in the same department will notice the insubordination of the new employee and this will lead to questions such as: „What is the point of working hard or doing a good job since other people can just be parachuted in and get paid for doing very little?“ If the new person’s salary is higher than the existing salaries, watch out for major de-motivation and falls in productivity.

Curse # 4: Spiteful behavior will develop towards the new employee. This will lead to ’slow downs‘ and /or ‚blockages‘ in the workflow as colleagues express their unwillingness to cooperate with this person along with an unconscious or conscious desire to cause them to fail.

Curse # 5: If this new person takes a post that one of your more competent employees had his or her sights set on, that person will start updating their CV and looking for opportunities outside of your company or outside the country. When competent people leave, they take valuable knowledge, skills and customers, both internal and external with them. Key staff turnover results in direct and indirect financial losses to your company.

Curse# 6: The bonds of loyalty between employee and company, if they existed, will be weakened and if already weak will be broken. Lack of loyalty could mean an increase in self-serving behavior: longer lunch breaks, frequent visits to the washroom, increased sick days and overall absenteeism, lateness, formation of cliques, abuse of company property, resources and facilities and even, in extreme cases, theft.

Curse # 7: Investment in staff development and training could yield poor returns due to the fact that people develop a belief that progress is not based on ability but on WASTA. The ’smart‘ ones will benefit from the training but will use it to move to other companies or seek overseas jobs where they believe they stand a fair chance for progress and advancement based on their abilities.

Curse # 8: Not being able to attract and keep the most qualified staff, or, losing them to competitors.

Curse # 9: Creating a work ethic based purely on money. Employees and employers sell out to the highest bidder. Don’t expect employees to make sacrifices for you if they see that they don’t really matter to you. If you sell them out, they will sell you out too.

Curse # 10: Not building a business on solid foundations. If your business is built on doing favors to key clients so they will do business with you, where will that put you if you fall out of favor or if the client takes his business elsewhere or just has an accident or dies or something like that?

The net result of a work environment where WASTA is used as a means of employment, promotion, bonus allocation, performance appraisal, selection for overseas training or other Human Resource Management function is one of low productivity. You may be sure that the people who will leave first are your most competent staff.

Those who will stay until retirement are not necessarily your most loyal, but those least able to compete in an open job market, i.e. those who came in by WASTA or those who know they are no longer employable and are waiting for their indemnities.

The other employees who will stay are those who have their own agenda or are building up a business of their own and are using the company as an insurance policy until they are ready to break away. Just imagine the level of creativity and productivity you will get from such a workforce, and ask yourself if using WASTA is really such a smart investment for your business? In place of the one or two contracts you will get, you will be losing millions of hours in productivity and who knows how much in direct and indirect theft of resources.

Your business should be built on solid foundations. Businesses built to last offer products and services that customers need and want. I don’t believe any of the businesses that have built up superior reputations and brand names have to do favors by employing incompetent staff so they can get business. It is the other way around.

CURES
Cures are tough in cultures steeped in the WASTA mentality since time immemorial, but not impossible. There are short-term and long-term cures and both must be addressed if we want to build sound businesses.

The Short Term

Cure # 1: Clean up your act, past and present. „People who live in glass houses can’t throw stones.“ Make sure that you are legally and morally covered on all fronts. It gives you incredible power and self-confidence when facing opposition.

Cure # 2: Work continuously on developing your personal skills and competencies as well those of your workforce. That way you will retain good people and be able to pick and choose from the best when you need new talent, since your business will have a reputation for excellence. This will make it hard for people to approach you with a WASTA for a loser.

Cure # 3: Avoid becoming indebted to people who will then have power over you by asking for the favor to be returned in unsuitable ways.

Cure # 4: Say ‚No‘ by saying ‚Yes‘. Have clear job specifications for all positions and jobs in your company, so that when approached for a WASTA, you can say, „I will be happy to accommodate you if you have someone who meets these specifications.“ Even better, be proactive and approach the WASTA owners by giving them first choice in providing the profile you need.

Cure # 5: Use professional recruitment techniques in all phases of recruitment and selection so that you don’t expose your company to unnecessary aggravation. These services can be developed within your own company or outsourced.

Cure # 6: Make it clear that if you do hire someone who has a WASTA, they will have to comply with company requirements like anyone else. Be sure that you have a rigorous trial, training and testing period before new employees are confirmed in their positions.

Cure # 7: Ensure that your internal systems are set up so that the opportunities for abuse are limited. Appraisals, bonuses, salary scales, promotions, etc. are all subject to abuse. These should be redesigned for transparency and based on measurable indicators. If the effect of behavior or performance cannot be measured, then it is not having an impact on your business and should not be used for reward or compensation.

Cure # 8: Outsource services that you do not want internal staff to get involved in, so that no group gets power over other groups by having privileged information. Ensure the neutrality, objectivity and trustworthiness of the outside party.

Cure # 9: Use modern market and consumer research to understand what customers need and want and build your business on solid foundations. Ensure you get the right people to implement the plan. Put them in the right places and develop and keep these people by using tried and tested business practices that have helped businesses grow around the world.

Cure # 10: Get over the idea your area of the world is a place where business cannot be conducted like in other parts of the world! If that were true, why is it the dream of almost every young male and female to get out of their current situation and go where they can be appreciated and valued for their accomplishments?

The long term cures are not the subject of this article, but I am sure they will present major challenges to Ministries of Education, Administrative Reform / Development, Social Affairs and many others worldwide who really have serious public awareness and education campaigns that must be addressed. If only we could emerge from the days of old and enter the new century.

Fay-F-NiewiadomskiFay Niewiadomski founded ICTN (International Consulting & Training Network) in 1993. She has expanded her capabilities in the field of management consulting, training and development as well as coaching and counselling. For over fifteen years she has been working with Team Management Systems Development International and is authorized by TMSDI, UK to accredit and support other professionals to use these dynamic psychometric tools. In addition to TMS, Fay is a master facilitator in Emotional Intelligence and is certified to deliver and coach executives with EBW-Emotions and Behaviours at Work Profile. Fay has presented nearly 2000 seminars and workshops, authored and published close to 300 articles on the business culture of the Middle East, training manuals and case studies. She is well versed in the use of NLP and is currently completing 100 hours as a Strategic Interventionist with the world acclaimed success Coach Anthony Robbins and celebrated psychologist, Cloe Madanes.

For more information on cutting edge, practically applicable training programs that better guarantee measurable results in the performance of people within the organization visit http://www.ictn.com.

Discover easy and proven techniques that will help you Guarantee Results by improving your leadership skills. CLICK this link http://www.ictn.com/english/free-articles.aspx?id=77 and receive your Free copy of Management Problems & Solutions.

 

Restructuring Kästchen

Modernization is an effective approach to making existing mainframe and distributed systems more responsive to business needs. To meet the demand for business innovation and agility, organizations are looking to improve the structure, flexibility and re usability of their business.

An article written in the Harvard Business Review entitled, „Managing Professional Intellect: Making the Most of the Best,“ provided reassurance that the problems faced by businesses in developed countries were very similar to the problems faced in third world countries today.

The points of leverage in organizations are the beliefs and worldview of their leaders and decision makers. The sense of purpose, vision and commitment of an organization’s leadership play a critical role in the results it can accomplish. However, it is essential to realize and accept the fact that if the organization is to survive it must change and evolve.

If an organization is going to develop, it must make many significant changes in the overall strategies, practices and operational tactics. And as it evolves, the leaders and the employees have to be able to align with the organizational changes or the restructuring process will not be successful.

To be quite simplistic, an organization has to be viewed as a dynamic system, and like any other system it will not work when all the involved components are not working together smoothly and efficiently. This basically means that any change to the organization must be mirrored by a realignment within the workforce. This is the only possible way to effect change successfully.

However, it is essential that modernization of any type has to be approached from a risk and benefits perspective. Another reason to modernize would be to reduce the overall support and operational costs. This is only justifiable if the savings from modernization exceed the cost of modernizing. Additionally, any change effected by an organization must include a carefully developed plan for enabling the human element of that organization to understand, be willing and able to implement the changes required. Otherwise the cost of the modernization will deliver no return on investment for the organization and may in fact, add additional costs to the initial investment.

When looking to identify where change needs to take place it is a fact that organizational restructuring can help management gain insight about the best ways to align the available human resources with the needs of the company to ensure the highest level of performance and thereby deliverable to better guarantee current and continued success, profitability and a strong a healthy future within the organization.

The ability to innovate and be creative in the use of knowledge and information to problem-solve has been cited many times as the key to competitive advantage in any organization. However, there is a difference in modernizing an organization that is relatively young and an organization that has been in operation for many years.

CAN MODERN PROBLEMS BE SOLVED WITHIN AGING ORGANIZATIONS?

Many organizations in the world today proudly announce, „We are in the process of restructuring our organization!“

I sometimes wonder if it wouldn’t have been more accurate for them to say, „We are in the process of creating a mongrel that will have no clear identity.“

Restructuring is a very stressful and time-consuming exercise the outcome of which will not take shape immediately. It is an activity that goes to the very roots of the organization, because it shakes the foundations on which the parent organization was built. It asks whether or not the assumptions made by the founders of the organization still hold. It asks uncomfortable questions about the optimal size of the organization. It questions the degree of transparency of the financial management of the organization.

When these questions are directed at management, who also happen to be the owners, things can become uncomfortable. When departmental operations are minutely scrutinized, many individuals can feel personally threatened. The level of discomfort is directly proportional to the intensity of hostility and resistance expressed towards the restructuring project as a whole.

Restructuring is such an ambitious and challenging undertaking, that it is impossible to examine all aspects of it in the context of this column. Changing the physical appearance and the interior design of the organization is costly, but easy because carpets, furniture, walls, and even the company logo are without feelings and have no voice. By far the most difficult aspect of restructuring is the part dealing with people. Their fears and insecurities surface during this process as never before. Everyone seems to be functioning on a short-fuse and voices and tempers are always on the rise.

Many companies still run on a strictly vertical structure and have a patriarchal management style.

Those who are used to this approach assume that this is something you accept as part of reality. You do the minimum, follow the rules, bow to authority, and forget about the whole experience when you step out of the company. Many owners of such businesses want to change because they see the writing on the wall very clearly: „adapt to the realities of the new millennium or die.“

Now the owners want staff to take on more responsibilities, manage as if the company belongs to them, etc… But these employees have been conditioned to a completely different set of values and practices. They are paralyzed if they do not receive clear instructions or ‚do/don’t do‘ directives. The frustration on both sides mounts. The owners begin to hire new-blood as a way of breaking the inertia of dependency exhibited by older staff.

The new breed of employees may have a foreign education, has 2 to 8 years of work experience outside the organization; probably have not lived the culture existing in the organization; have taken for granted a certain type of organizational structure and working relationships related to it, and are comfortable with ‚high-tech‘ information processing in decision support systems, communications and transportation. These individual run the risk of acting with an air of superiority towards the organization and towards the people in it.

Visualize the two categories of employees facing each other within any organization you care to imagine. Think of how individuals will feel: jealousy, resentment, anger, fear, frustration, intolerance and even active hatred will surface. Add to this volatile mixture the strains and stresses of restructuring the organization and you have a good idea of what to expect when you launch such a process. So what do you do? Avoid it? Postpone it? You cannot, so what do you do?

First, you prepare yourself for the worst. Second, you recognize the fact that you will be making some of the toughest decisions of your whole business career during this period. Third, you brace yourself to cope with unusually high stress levels for the coming two to three years. The worst period will be during year one. You will also need to face the fact that you will not be seeing significant, tangible rewards in the immediate future and that you may have to rethink and change course several times during the process as you test things and people out. You simply cannot forecast the impact on human chemistry in different sections of the organization.

So what can an organization do to facilitate the change necessary to sufficiently and effectively modernize itself?

Recruit the best: „Venture capital firms, recognizing talent and commitment as the most critical elements for their success, spend as much time selecting and pursuing top people as they do making quantitative analyses of projects.“

„Force intensive early development:… for most professionals the learning curve depends heavily on interactions with customers, where they work under the watchful eye of an experienced coach.“

„Evaluate and weed. Professionals like to be evaluated, to compete, to know they have excelled against their peers. But they want to be evaluated objectively and by people at the top of their field.“

„Boost professionals‘ problem-solving abilities by capturing knowledge in systems and software. Electronic systems replace human command-and-control procedures. They also can eliminate most of the routine jobs, free up employees for more personalized or skilled work, and allow tasks to be more decentralized, challenging and rewarding.“

„Overcome professionals‘ reluctance to share information. Information sharing is critical because intellectual assets, unlike physical assets, increase in value with use.“

These points offer a brief glimpse of many valuable insights shared in the HBR article. It is well worth looking for the issue and reading the entire piece.

What are the symptoms that organizational restructuring is necessary?

* The morale of staff is deteriorating.
* Workforce productivity is deteriorating and/or stagnant (staying the same).
* Customer satisfaction is declining and/or fewer new customers are doing business with the organization.
* Employees performance shows increased mistakes or gaps when trying to meet customer requests.
* New competencies (skill sets) are needed to meet organizational and customer expectations and requirements.
* There seems to be confusion in what individuals, departments, teams, etc… are responsible for and what these groups or individuals will be held accountable for.
* Deliverable results seem to be unclear.
* Departments, functional areas or parts of the organization are significantly over or understaffed and may not have sufficient resources to meet organizational requirements.
* Performance appraisals are somewhat biased.
* Communication channels within the organization are inconsistent, inefficient or entirely too cumbersome to be reliable.
* Technological changes required by the changing markets create resistance and/or barriers to the workflow.
* The turnover rate is increasing.

These are just a few examples of symptoms that may point to an urgent need to restructure parts or all of the organization.

However, it is very important to understand that restructuring without a well thought out, well designed plan will, in most result in larger and more dangerous problems than are currently be experienced.

An organization may have great business strategies and ideas but not have a clearly defined plan on how to effect the organizational restructuring process. It is essential to design and facilitate a clear definition of the different roles, showing what is required from each individual, the inter dependencies and channels of communication that will be implemented during and after the restructuring process. This better ensures that all investments made to facilitate the restructuring will deliverable a measurable return on investment.

Fay Niewiadomski founded ICTN (International Consulting & Training Network) in 1993. ICTN provides complete management services to its clients who are among the leading regional and multinational players. Furthermore, she has worked with CEOs, Board Members, Presidents and Ministers of Government and other Leaders to help them meet the challenges of change within their organizations through creative problem solving, management interventions and powerful communication strategies. Prior to founding ICTN, she researched the subject of „Managing Change through Needs-Based Assessment‘ in large Lebanese Organizations“ for her doctoral work at the University of East Anglia in the UK. Additionally, she also held various university positions as a professor at AUB and LAU and as Dean of the Faculty of Humanities at NDU.

Fay-F-NiewiadomskiFor additional information on how to improve performance and increase productivity through people, decrease cost and better ensure growth and sustainability, visit http://www.ictn.com.

Discover easy and proven techniques that will help you Guarantee Results by improving your leadership skills. CLICK this link http://www.ictn.com/english/free-articles.aspx?id=29 and receive your Free copy of Management Problems & Solutions.

 

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The following is reprinted with permission from Higher Life Magazin who interviewed Dr. Lymbersky and published the article in March 2014

A Name to Watch out for in Corporate Restructuring: Dr. Christoph Lymbersky

The corporate restructuring industry is growing very rapidly, bringing with it more and more self-proclaimed experts and professionals. However there are still some names that stand out.

The turnaround and restructuring industry is led by a few individuals who are not very well known to us “normal” people, but they are famous within their industry. Amongst them are John M. Collard, Jay Alix, David Lovett, and Donald Bibeault. These guys walk into the offices of huge multinational corporate CEOs as if they are best friends with them. Often, they may well be. They are the trusted advisors of presidents and top-level executives; of chairmen of global players and even directors of international consultings firms. They are the management elite and stay in the background as much as possible.

Someone who is getting getting more and more attention lately is Dr. Christoph Lymbersky. He is already very known in the academic world since he published a framework for corporate turnaround projects that leads to more successful and sustainable turnarounds. His book, The International Turnaround Management Standard, is one of Amazon’s bestsellers. Before its publication a lot of the research focused on the causes of decline and specific aspects of corporate restructuring, with some books looking at how to manage a turnaround process. Dr. Lymbersky, however, combined project management techniques with hundreds of best practice cases to develop a system that can lead virtually any company through a crisis situation and that targets every possible reason why turnarounds fail.

Today Dr. Lymbersky is consulted by the senior management of international corporations such as Deutsche Telekom, banks and mid-sized companies about corporate restructuring projects and strategic turnarounds. Many clients, especially those in need of his turnaround management advice, wish to remain anonymous and, having met Dr. Lymbersky in Frankfurt, Germany, this year, I bet they remain anonymous for ever.

This true expert comes across as considered, serious and very well educated. He doesn’t show off, he listens and he doesn’t say much, but when he talks it is straight to the point and well thought through, just as you would expect from somebody who dines with CEOs from around the world and handles difficult situations with a steady hand.

For six years now Dr. Lymbersky has been the managing director of the Turnaround Management Society, a not-for-profit organization that he has grown from an unofficial academic network to be one of the world’s leading consultant networks for turnaround managers and interim executives. “I still believe that the professional industry can profit from the research carried out in the academic world, and vice versa. Our whole Society is build around the principle of giving and taking. Every member contributes to the Turnaround Management Society in some way, and in turn every member profits from it. This is a principle that works to everybody’s advantage. The members know each other personally and support one another,” said Dr. Lymbersky, who created the turnaround management certification program, the “Certified International Turnaround Manager”, and who also publishes the Turnaround Management Journal. And because that is not enough, he recently bought Restructuring-Experts.com, an online network for turnaround, restructuring, and transformation consultants and works as a senior management consultant for Detecon International an ICT consulting firm.

After the meeting I was certainly impressed, but I‘m not the only one. My research shows that he has also impressed the world’s leading experts in corporate turnarounds such as Donald Bibeault and John Collard.

Donald Bibeault, who published the most popular book about the restructuring industry, Corporate Turnarounds: How Managers Turn Losers into Winners, said that he is “very pleased that Dr. Christoph Lymbersky and his colleagues have created the International Turnaround Management Standard to perpetuate and enhance the research and intellectual underpinnings of the turnaround management profession.”

John M. Collard, who has been a consultant to President Bush (both Junior and Senior), President Clinton, and Jelzin on corporate restructurings and who has proved himself a true expert over the last 40 years, wrote about him that: “The International Turnaround Management Standard is a brilliant rendition of strategies and actions that can be applied to the turnaround process. Dr. Lymbersky has done a marvelous job of bringing together methodologies for practitioners.”

When reminded of these statements, Dr. Lymbersky smiled and said, “There are a few people I truly look up to, and John, Donald, and David Lovett are certainly amongst them.” They are part of the world’s silent elite—the turnaround industry, a group that he certainly belongs to as well. But there is one thing that distinguishes him from the others: he is European. Over the last 40 years the world of corporate restructuring has looked to the USA; now Europe has a rising star in turnaround management as well.

I’m sure we will hear a lot more from him in the future. The industry needs true leaders who lead by example and set a standard, not only for industry practice but for other restructuring consultants and students who want to save jobs in the future.

The full article is published in the Higher Life Magazin in March 2014. The interview was done by Mira C. Jones of the Higher Life Magazin

Media Contact
Higher Life Magazin
001838974578392
mira.jones@higher-life-magazin.com
John collard

The turnaround specialist offers a new set of eyes, skills and understanding of troubled situations to independently evaluate a company’s circumstances. The turnaround specialist very quickly must face a series of questions that existing management may never have asked, such as: What is the purpose of this business? Should it be saved? If so, why? Are those reasons valid?

The turnaround specialist must gather information, evaluate it for accuracy and analyze it quickly so that those initial questions can be addressed openly and honestly. That process generally focuses upon the following issues:

* Is the business viable?
* Is there a core business?
* Are there sufficient sources of cash to fuel a recovery?
* Is existing management capable of leading company?

The specialist should discuss those questions openly with his client, and if it is determined the answer to any of the above questions is „No,“ the parameters of the engagement should be reexamined. Should a specialist still be engaged? What kind of plan is needed to otherwise minimize the losses and to maximize the value of the business for the benefit of his client.

The process of recovery undertaken by the turnaround specialist involves several stages.

Fact-finding. The turnaround specialist must learn as much as possible as quickly as possible so that he can assess the present circumstances of the company.

Analysis of the facts. The turnaround specialist should prepare an assessment of the current state of the company.

Preparation of a business plan outlining possible courses of action. Depending upon the engagement and who his client is, the specialist will seek client input to determine which of alternative courses of action should be undertaken.

Implementation of the business plan. Once the course of action has been chosen, the specialist should be involved to put the plan in place whether as interim manager or as a consultant to management. This is the time a specialist begins to build a team both inside the company and from outside resources.

Monitor the business plan. The specialist should keep vigil over the plan, analyzing variances to determine their causes and the validity of the underlying assumptions.

Stabilization and transition. Assuming liquidation is not a cornerstone of the business plan, a specialist should remain involved in an engagement until stabilization is achieved and to assist a business in transition of management if necessary.

Turnaround specialists immediately focus on cash flow since it is often a cash shortage that causes troubled businesses to seek help. The specialist’s first goal is to stabilize cash flow and stop the hemorrhage. The specialist performs a quick analysis of the company’s sales and profit centers and of its asset utilization.

In many cases, these factors indicate that the business may have lost focus of its core. To remedy cash shortage, turnaround specialists generally analyze which assets are available to generate a quick infusion of cash and which operations could be terminated thereby stopping the cash outflow. These are difficult decisions since they intrinsically involve down-sizing the company and eliminating some jobs. On the other hand, it has the effect of saving the good parts of the company – and many jobs.

After the specialist has been engaged and a business plan designed, the specialist plays many roles. Since many troubled businesses often lose much of their credibility with lenders, trade suppliers, employees, customers, shareholders, and the local community at large, retaining a turnaround specialist is often the first sign to outsiders that the company is taking positive steps toward both recovery and rebuilding damaged relationships. The turnaround specialist usually serves as a liaison or intermediary with these outside constituencies to calm troubled waters and to present bad news as a preamble to a plan for recovery.

Because management’s credibility is often strained, the specialist actively assists in the preparation of a viable business plan and advocates its approval and adoption by the various constituency groups whose cooperation is necessary for implementation. The turnaround specialist is experienced in negotiating both with lenders and with trade suppliers in the midst of a crisis. The turnaround manager brings their personal integrity, their own credibility, and their track record to the table in contrast to that offered by existing management, which finds itself in a downturn.

The turnaround specialist often directs communication for the troubled company with outsiders and company employees. The job of the turnaround specialist is to determine what is in the best interests of the business objectively, regardless of any other agendas. The turnaround specialist must take into account the objectives of the assignment and approach difficult decisions without the weight of historical expectations on his back.

The effective turnaround specialist is a teacher and knows that it is critical to success that a capable management team with acute awareness of its goals must be left behind. If management is deficient, the turnaround specialist has the very delicate task of communicating that message, identifying appropriate roles for existing managers and facilitating a transition.

Special skills the turnaround specialist may also bring to the engagement include knowledge of sources of de nova financing and familiarity of trade relationships necessary to assure the flow of product the company needs to fuel its recovery.

Business Ownership’s Resistance to Turnaround Specialists

Given difficult questions that a troubled business must face, there is often tension between owners, management, employees of the company and the turnaround specialist. One main problem is that businesses in trouble will often postpone action because their own owners no longer can tolerate jarring change and an uncomfortable transition to something new. Despite statistics indicating otherwise, owners and management may generally believe that its particular situation fits within those minority cases in which decline is attributable to uncontrollable external factors.

A variety of misconceptions and myths abound, which make businesses leery about hiring a turnaround specialist.

The turnaround specialist has „no heart“. He does not care about employees, long-time suppliers or bank with whom the company has been doing business for many years. He is cutting employees and telling creditors that they are not going to be paid. Do not forget that the specialist is goal oriented and recognizes that his job is to make hard decisions. The turnaround specialist is an experienced negotiator with creditors to whom he tells the truth, be it good or bad and relies upon his credibility to build the consensus necessary to build for the future.

The turnaround specialist does not understand the company’s corporate culture. This is a legitimate observation, but it does not follow that without history on his side, the turnaround specialist is not capable of bringing order out of chaos and adding value to the client. One of the most appealing aspects of a turnaround specialist is that he brings a new set of eyes to a situation as well as an experienced and knowledge base of managing businesses through the turnaround process.

The company’s employees have no loyalty to the turnaround specialist. Just remember that management, labor and the turnaround specialist have a responsibility to the organization to work together for the common good, and any power struggles will ultimately hurt the company and the turnaround effort.

The turnaround specialist does not know the client’s particular business or industry. The skill the specialist brings to the table is his management ability, his ability to marshal resources and maximize the value from those diverse resources. If the business requires special expertise, the turnaround specialist should assist in attracting that expertise. Most importantly, these issues should be discussed prior to the engagement.

The turnaround specialist has a private agenda. The specialist is ultimately interested in purchasing the business, is using the business as a springboard into other ventures, or is there to maximize value to his referral source without regard to the other stakeholders. These issues with particular emphasis on independence should be addressed pre-engagement and potential conflicts should be addressed in an engagement agreement.

The turnaround specialist will not have to live with his recommendations for change and probably will not even live in the community beyond the period of the engagement. As a result, the turnaround specialist is not accountable to anyone. In reality, however, the turnaround specialist is motivated to perform the best if the troubled company is used for purposes of future references or if the company reports the results of the engagement to the referral source. The turnaround specialist’s credibility and recommendations are the basis upon which lenders and trade suppliers will ultimately rely in deciding whether to offer support – and throw future business his way.

The turnaround specialist will steal ideas, techniques. If the company has proprietary property, it should legally protect itself. Otherwise, engagement agreement should cover points of privacy or proprietary content which the turnaround specialist must leave behind or be restricted through contract provisions similar to non-disclosure and non-compete agreements.

Remember to Be Cautious

Because the number of successful corporate turnarounds has been steadily increasing during the past few years, the increased visibility of the industry has attracted operators masquerading as qualified turnaround specialists. The expression „Ready, Shoot, Aim,“ rings all too familiar. Businesses seeking management assistance should be cautious to carefully consider each turnaround candidate.

Beware of the turnaround specialist who refuses to supply references. Since the profession is relatively young, there is limited general knowledge in the marketplace regarding the capabilities and backgrounds of turnaround specialists. Particularly, check with attorneys and CPAs with whom the turnaround specialist has worked and obtain as much specific information regarding the turnaround specialist’s actual experience as possible. The TMA has implemented a Certified Turnaround Professional (CTP) designation, which checks professional and client references, and requires CTP to pass a three-part rigorous examination before qualification.

Like any professional, the competent turnaround specialist will not guarantee results whether it be a recovery, new funds, a renegotiated loan, an equity investor or buyer, or any other guaranteed result. A guarantee of any result, other than a best effort, is a signal to keep interviewing.

If the turnaround specialist makes an effort to impress the company with his particularly close relationship with banks, trade suppliers, investor, or any particular resource the business may need, investigate that particular relationship further. Make sure that the turnaround specialist has adequate independence from other sources so that he can provide the company not only with his undivided attention, but also so that the company can be comfortable that his advice and leadership will be void of any possible conflicts of interest.

A turnaround specialist who tries to impress the company with a „look how much our firm has grown“ sales approach is equating quantity with quality. The implication is that the firm has grown because the marketplace recognizes the quality of the work performed.

The issue of the turnaround specialist taking equity is a double-edged sword. Some turnaround specialists believe that taking equity or having an opportunity to receive an equity position with a client is a conflict of interest, which could impair their management judgment. Others believe that, as an equity holder, the turnaround specialist not only shares the risk but also must maximize shareholder value, and therefore, benefit all constituents, to receive the full compensation. This is effectively the same theory underlying stock option plans for management in many companies. Regardless of whether equity participation is good or bad, the company and the turnaround specialist should fully discuss equity participation prior to the engagement and define the potential role of equity, if any, in the engagement agreement prior to employment.

Investigate the turnaround specialist’s actual experience. Ask what portion of this business has actually been in turnaround situations rather than in other executive or consulting capacities. Although the number of turnaround specialists is rather small at this time, try to avoid providing a job in transition for an executive or a training ground for a consultant.

When discussing fees, provide specifically for what expenses are to be reimbursed and the level of reimbursement generally expected. Most importantly, do not let it become either a surprise or a source of disagreement. Again, cover as much as possible prior to the engagement in a written engagement contract.

Engagement Agreements

Always insist upon a written engagement agreement to outline the terms of the engagement. Provisions that should at least be considered include:

* The purpose of the engagement.
* General responsibilities of the turnaround team, the company’s management and staff.
* Time the specialist will devote to company. (What other commitments must specialist deal with simultaneously?)
* Specialist’s staff.
* Company staff.
* Specialist’s core of professional support for the business (attorneys, accounting firms, etc.).
* Terms of any equity opportunities for the specialist (The entire question of the turnaround specialist and equity is one of the more troublesome in this growing profession. It is critical that all parties understand the rules up front. For example: discuss equity kickers, the specialist as an equity participant, finder’s fees, etc.).
* Term of the engagement (Define the time period of the engagement).
* Fee arrangement, terms of performance bonuses, payment schedule.
* Project „deliverables“ (What the specialist is expected to deliver, even if it is only a best effort. A schedule of anticipated benchmarks where both parties may measure progress and satisfaction with the other.)
* Fee for acting as a broker in selling the business.
* Regular reporting mechanism (to assure communication between the parties.)
* Specialist’s follow-up responsibilities after the engagement is concluded.
* Termination provisions (includes notification periods, for both parties.)

Turnaround Financing For Financially Distressed Companies

While most owners of distressed businesses believe that access to more money would solve their company’s financial problems, turnaround specialists recognize that the shortage of capital is often only a symptom, rather than the primary problem facing a distressed company. Although sufficient and available financial resources are necessary to implement turnaround plans, a successful turnaround must first attack and solve the business problems which produce the cash crisis.

Financing is an integral part of a troubled company’s plan of reorganization. An effective financing plan will stabilize the cash position during crisis, provide necessary capital base to allow the company to return to profitability, and restructure the balance sheet so it can support the company into the future.

Financing strategies differ from situation to situation according to the liquidity and viability of the distressed business. Initially, turnaround specialists attempt to maximize the liquidity to provide sufficient time to evaluate the viability of the business. In addition, the turnaround specialist is likely to implement cost reduction plans and attempt to renegotiate the terms and covenants of existing financing arrangements to a level the company can live with during the recovery period.

When necessary, the turnaround-financing plan can involve a recapitalization, or a restructuring of the right side of the balance sheet. This involves changing the relationship between existing financial stakeholders through a combination of debt and equity conversions, exchange offers, stock rights offerings, and the addition of new financial stakeholders. Obviously, the more sever a company’s situation is, the more difficult it is to work out an arrangement with existing trade creditors, lenders, equity holders, and the harder it is to attract new stakeholders.

Turnaround financing specialists provide financially distressed companies a number of financial resources and expertise to draw upon. Capital resources and the range of services differ widely among lenders, equity investors, and purchasers of securities and claims of distressed companies.

Historically, asset based lenders have been a primary source of loans to distressed businesses. These loans are often made at premium rates while the lender requires an enhanced security position. With the increasing number of Chapter 11 bankruptcies, debtor-in-possession lending departments emerged in many large commercial banks and investment banks. Debtor-in-possession loans are made to a company after it files for bankruptcy protection. To encourage these lenders to undertake the risks, the law provides a super priority status for repayment of their loans.

Actually, because of this super priority status, some companies must file a bankruptcy case to provide the lender with the level of security it seeks. Ironically, many lenders prefer the control aspect of the bankruptcy process. Without court’s protection and supervision, in a non-bankruptcy environment, these same lenders may well lend to a distressed company but with restrictive covenants and fees that may seem burdensome. In addition, taking into account the higher fees and rates – coupled with other restrictions to be anticipated in a distressed situation – management flexibility is limited and higher interest rates often slow the recovery. Therefore, the turnaround-financing plan is only effective if viewed on a long-term basis, and if it ultimately helps the company achieve recovery.

When a distressed company is unable to find a suitable lender, management should consider turnaround equity investors who will infuse equity capital into the business. As one would anticipate, equity funds are also an expensive alternative. Equity investors typically require a controlling interest in the company in exchange for their capital and in consideration of the abnormal risk. Equity investors often specialize in particular industries, company sizes, investment minimums and maximums, and anticipate varying management roles. Since investors bring different capabilities to the table, management should determine whether the company would best be served by financial or strategic assistance.

Financial investors sometimes have turnaround management and bankruptcy experience and are able to assist management through the complexities of the reorganization process. Investments are often made at a significant discount compared to the business’s underlying asset value. While most financial investors remain involved only at the board of director level, they occasionally fill top management positions if necessary to protect their investment.

While some financial equity investors have funds committed and immediately available, others act as financial intermediaries receiving an equity position in the company as their compensation upon completion of the investment. These investors act as a „gate keeper“ between the financially distressed company and the alternative sources of financing. While many financial intermediaries are skilled financial advisors and have a wide network, management should be aware of possible conflicts of interest between the advice they receive from the financial intermediary and his compensation arrangement. Full disclosure should be sought to assure that the primary motivation for putting the deal together is not the fee involved.

Alternatively, strategic equity investors are identified by their specific industry or geographic requirements and generally provide specialized experience and knowledge with their investment. These investors often acquire financially distressed companies to consolidate with their existing companies and typically become involved in the management of the acquired business at a senior operating level. Since the passage of time usually works against a financially distressed company, the strategic investor may provide the company with a more timely, or occasionally, the only solution.

Regardless of the type of equity investor, the financially distressed company will often benefit from the increased negotiating leverage with its constituencies that a credible new investor brings to the turnaround. Once new equity funds are infused into the business, the company’s existing lender may be more willing to modify the loan agreement if they feel that their loan is protected from further impairment. Trade creditors may agree to credit terms more favorable to the troubled business if they believe that future payments have become more certain and if no trade creditors are being preferred over others. A local government may be more willing to provide tax concessions and financing if it believes jobs will be saved so that the business can continue to contribute positively to the local economy. Of equal importance, employees may be more willing to consent to concessions if they believe that the company’s survival is at stake, that their jobs are in jeopardy, and that they are an integral part of the recovery process.

Purchasers of securities and claims of financially distressed companies do not infuse capital directly into the business. However, management should be aware that these investors can have a tremendous impact on the company’s turnaround efforts through their purchase of securities and claims from the existing financial stakeholders. Investments are typically made in company’s debt, since in a bankruptcy, debtholders have a higher priority status than equity holders and are able to influence management’s reorganization efforts through participation on the creditors‘ committee. In some cases, these investors will infuse equity capital into the business as part of the plan of reorganization to increase the returns on their investments.

This growing number of investors look for opportunities to purchase securities and claims at significant discounts from financial stakeholders who prefer immediate liquidity rather than the uncertainty of recouping their investment over the long term. They believe that their investments will yield considerable returns upon the successful reorganization of the financially distressed business.

Experienced turnaround specialists have networks to assist their clients to find the funds necessary to fuel the recovery.

A Final Word of Advice…

Do Not Expect Miracles Overnight.

The turnaround can take years of hard work to achieve, the turnaround specialist can only be a catalyst to change. Owners must make hard decisions enabling the process to take place.

Ultimately, success of a turnaround rests upon the shoulders of a business‘ most valuable assets, albeit not shown on any balance sheet: its turnaround leadership, its owners and lenders, its management and its employees all dedicated to turning around the company. It is upon their effort, performance, credibility, and commitment that the turnaround specialists, lenders and creditors, and the marketplace, ultimately rely.

Good luck, good turning, and good results.
John M. Collard is Chairman of Strategic Management Partners, Inc, an Annapolis, Maryland-based turnaround management firm specializing in interim executive CEO leadership in small and mid-sized business, asset and investment recovery, investing in distressed troubled companies, and equity capital advisory. He is an inductee into the Turnaround Management, Restructuring, and Distressed Investing Industry Hall of Fame. He is Past Chairman of the Turnaround Management Association, a frequent author and speaker. (410) 263-9100 http://www.StrategicMgtPartners.com.