Uturn

CEOs and CFOs often feel like they are following in the footsteps of Don Quixote when they try to restructure business operations in Europe. In theory, the formula for a restructuring in Europe is the same as the US – control cash, adjust pricing, renegotiate contracts, reduce employees, eliminate poorly performing divisions or products, accelerate collection efforts and restructure the balance sheet. In practice, implementing those actions in Europe can seem like an impossible dream.

Too often, European management or advisors will raise an unending series of roadblocks and reasons as to why they cannot implement change. To complicate matters, when they do decide to act, they often lack the urgency demanded by the deteriorating situation. A half-hearted or botched attempt at a turnaround can further cripple the business, alienate customers and demoralize employees.

To create lasting change in a distressed European business, turnaround efforts must go beyond goal setting and conference calls with European management asking for progress reports. The initial focus should be:

1) getting complete buy in from ALL the stakeholders your company and
2) retaining operationally skilled turnaround managers that have experience with the business and legal challenges of Europe.

All turnaround professionals know that getting buy-in from stakeholders is the most difficult part of any turnaround. In addition to insuring that internal company constituencies are aligned with the restructuring goals, substantial effort must be made to insure that shareholders, lenders, employees, vendors and, most importantly, customers, understand and embrace the turnaround plan.

Finding a manager who can trim expenses or improve a specific process is not terribly difficult. Finding an operationally gifted manager who can quickly envision and produce dramatic, enterprise-wide improvements in Europe can be. Companies that lack someone with this skill set should recruit from outside. Whether hiring a full time employee or a turnaround expert, you should look for an experienced hands-on manager who can document strong operational results in situations in which he or she personally led the restructuring efforts. The 3 keys to a successful European turnaround are:

1. an effective management and financial control system,
2. a comprehensive employee plan and
3. cross-Atlantic business alignment.

Developing and implementing a carefully crafted management and financial control system is critical to the long-term success of an operational restructuring. An effective management control system begins with written strategic and operational plans that are specifically designed for your European business. It must go beyond ordinary financial controls and include clear ownership for revenue generation, new organizational charts and job responsibilities with no operational holes, procedures for measuring activities and results, accountability and reward systems that encourage employees to act in the best interests of the company.

This management and financial control plan should not go on your bookshelf to get dusty. It must be continually communicated throughout the organization until it is embraced as the centerpiece of the new structure of the business.

In Europe, things work differently. You can’t layoff employees easily. If a decision has been made to terminate employees of a European business operation-perhaps in connection with an overall workforce reduction or a plant closing-careful consideration must be given to applicable laws in all jurisdictions, which can vary widely and differ substantially from U.S. laws.

Although the United States subscribes to the idea of employment at will, most European countries do not. Generally, U.S. employees can be terminated for any reason or no reason at all. In contrast, the statutes in many European countries afford employees significant protection from termination, regardless of whether they are union workers or not. Employers often cannot terminate an employee without citing reasons enumerated in local regulations. Virtually, all countries require that severance or similar payments be made to terminated employees, in some cases for a year or more.

Any European employment strategy must be designed to insure that the employees that are critical to insuring the future success of the business are not only retained, but given the tools and incentives to succeed. Naturally, a restructuring creates stress and anxiety in an organization. The fact that most of the decisions are being made in the US, often create a sense of impotence amongst European employees. It is important to confront that problem by having open and constant communication between the turnaround manager and the European employees. With dogged persistence, you can turn the tide and eventually get the local employees to support the goals of the turnaround (and understand the consequences of failure).

Developing or maintaining a harmonized global business strategy is difficult during a turnaround. If you add the complexities of multiple countries, cultures and languages, the challenge can be monumental.

Executives facing an operational turnaround often develop the plan to align their global strategy in the US and then leave it to the local country management to implement it. This can be a big mistake!

In some instances, the local management created the problem in the first place and are not prepared to solve it. If the US parent is leading the company‘ restructuring plan, then you should have US turnaround managers leading the reorganization efforts of your struggling European subsidairies. This seems obvious, but in our experience it is rarely done – which is part of the reason so many US executives get so frustrated with the pace and results of European turnaround efforts.

It’s a fact. Successfully completing an operational turnaround of your European subsidiaries is harder than restructuring your US operations. In Europe, it takes more imagination and persistence – two things that Don Quixote knew well.

Paul Najar is the co-founder of Mayfair European Advisors which specializes in helping US companies operational turnarounds, merger integrations and market entry and a noted speaker on the European Debt Crisis.

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In all business turnaround situations there are certain steps that are commonly taken to change the fortunes of a failing business.

The owner of a less than successful business may require professional expert help to arrest the business demise and to create value for the organization. The task of managing the required change may be beyond the owner’s skill set or too much emotional sentiment may exist that may preclude the owner from taking the tough ‚business saving decisions‘.

Is there a standard process to be adopted in business turnarounds?

All business situations are different and, therefore, merit different approaches and emphasis on different aspects of the work. However, there are some steps that are generally considered in many successful business turnaround situations and ten of the most relevant are given below:

1. Review and Assess the Present Situation
In a business turnaround it is important to understand fully the starting position. It will be important to gather objective and anecdotal data in order to review the situation and to determine the causes, as well as to comprehend the immediate effects, of the issues impacting the business.

Management accounts, the sales order book, financial arrangements, internal controls, customer service levels, quality and leadership skills are typical areas that will require evaluation and a view taken on.

2. Develop Plans and Business Strategy
After assessing what is required to be changed for the business turnaround to be successful, it will be necessary to develop robust plans and strategy that will achieve success.

Without doubt it will be necessary to comprehensively document the actions to be taken, the timings, the financial impact of those actions and to obtain ‚buy-in‘ from the business owner.

The benefits of writing the business plan include that of a reference against which actual results can be measured and an indication to third parties that the proposed business turnaround plan has been carefully evaluated and is a viable proposition that should be supported. This will be an important and relevant form of communication to investors, staff and others who may need to know what the businesses future plans are.


3. Communicate With Key Employees
For the business turnaround to gain momentum it will be necessary to meet with managers and key personnel. The current business affairs should be explained and the consequences of not taking corrective action should be made known. An outline of the proposed actions to be taken should also be communicated and a request for comments should be sought.

Whilst it may not be possible to answer detailed questions it will be important to elicit the concerns of this group and address them as positively as possible.

Members of this group will critical to the success of the business turnaround. They will be charged with taking the planned actions and delivering the results; consequently it will be imperative that the group act as a team and are committed to the future plans.


4. Communicate With Other Employees
It will be necessary at the earliest opportunity to meet with all employees or their union representatives, particularly if job losses are planned.

A prolonged period of uncertainty, fuelled by rumour and counter rumour, will not be beneficial to the business and whilst bad news may not be easy to deliver, the communication of it in a timely sensitive manner is desirable.

The meeting will also be the opportunity to provide an insight into the future business plans and the part the remaining employees will play.

5. Meet the Bank
The bank and other parties with a financial investment in the business should be advised of the business turnaround plans. If possible meetings should be arranged to discuss the plans and to seek assurances of continued, and maybe, more support for the business.

6. Meet Customers
Dependent upon the severity of the situation within the business it may be necessary to reassure key customers of the business turnaround plans and the benefits that will accrue for them.

This action should be considered mandatory if the cause of the business demise has been poor customer service, poor quality product or any other matter not meeting the expected/agreed customer satisfaction levels.

Begging for a second, third or even fourth chance to ‚get things right‘ may be embarrassing but remember: no customers – no business. Learn from past mistakes, do not promise what cannot be delivered and ensure internal systems, processes and communication channels are raised to a standard that will seamlessly allow business to be conducted in a timely and efficient manner.


7. Meet Suppliers
If the business has failed to settle payable accounts on time, even the murmur of business turnaround activity taking place may result in suppliers imposing draconian payment terms that may jeopardize the business turnaround recovery plan.

If support for the turnaround plan has been gained from the financial institutions and investors, it will be advisable to actively seek meetings with vendors to outline the plans and to seek their continued support.

Re-establishing trust will be critical. Negotiating new or even the continuation of existing, payment terms from a weak position will be difficult, however, all promises made should be honoured or if failure is imminent inform the vendor in advance of how any debt will be discharged.

8. Conserve Cash
Review and improve if necessary the credit management procedures. If possible negotiate extended payment terms to suppliers; examine thoroughly all unused assets of the business and liquidate if necessary.

Options that may be available include selling unused buildings, renting out spare office space, selling unused plant and office equipment, disposing of excess or redundant stocks, factor sales debt and if unavoidable make excess employees redundant.

In addition the elimination of all unnecessary overhead cost should also be actioned.

9. Implement New/Update Systems and Procedures
A thorough review of existing systems and procedures will be required to meet the goals of the business turnaround plan. Implement change if necessary; it will be noteworthy to recall that a continuation of old practices will almost certainly result in the same old results.

Positive and profitable change may be required and this should be communicated to employees, so that they understand their roles in the new business environment.

10. Monitor, Measure and Take Action
Throughout the business turnaround process, results should be regularly measured against plan and corrective actions taken if required. Key performance indicators (KPI) should be determined that will give a snapshot of the business performance and be available on a daily, weekly or monthly basis.

The KPIs should include financial and non-financial measures and reflect the important aspects of the business that will determine success or failure.

Finally it will be desirable to pro-actively communicate the turnaround progress to all interested parties – employees, customers, suppliers as well as the financial institutions.

Provided sound business management principles are employed, results measured and positive trends reported, control of the business should be re-established. However, the business turnaround work should not be considered as a one-off. The experienced gained during the turnaround process should be adopted to avoid a repetition of the earlier mistakes made.

David Willetts is a qualified accountant (FCMA) and works through DAW Consulting [http://www.dawconsulting.co.uk] providing specialist financial and management support to business owners. Part time finance director, mentor, business consultant, NED and financial management consultant are typical roles undertaken to help owners take control of and plan their business whether in start up, growth or exit phase. Learn more of how DAW Consulting [http://www.dawconsulting.co.uk] can help your business.