During the past several years, large and small businesses
alike have been forced to wage war on cash flow crisis by enlisting the assistance
of a relatively new
breed of soldier – the turnaround manager. These companies have recognized
that prudent leadership in times of distress differs from the skills of long-term
leaders who manage well under profitable growth conditions.
Effective turnaround and crisis managers possess unique skills, which enable them to take charge during tough situations, reverse decline, and lay groundwork for a permanent change of course. Deeply entrenched in financial and operational crises, a company must turn to a turnaround professional who is capable of structuring and then executing such an engagement. The many aspects that go into the turnaround process could, therefore, be likened to a series of battles with the ultimate goal of restoring corporate value.
Traditionally, turnaround managers have been viewed as ruthless cost cutters. While deep expense side contractions are commonly necessary during the early stages of a recovery process, the professional crisis manager approaches costs from a surgical, rather than across-the-board, standpoint. Recovery and long-term survival depends upon a capable arsenal of personnel and assets in areas such as research and development, marketing and sales, and operations. Short-term cost reduction programs often cut into the corporate fabric necessary for long-term survival. The best crisis managers deploy the most advanced analytical tools available, and effectively collaborate with all constituents, most importantly the key employees, to retain the critical resources and capital for recovery. This holds true especially within the industrial and high-tech sectors where the loss of key employees will often accelerate a tailspin beyond control.
While work on the early stages of a crisis manager’s intervention is focused on regaining control and managing cash and creditors, a desired outcome plan is concurrently developed with the company ownership. The classic approach to corporate crisis management divides the intervention into five discrete stages;
 management change,
 situational analysis,
 emergency action plan implementation,
 business restructuring, and
 return to normal.
Analysis of a traditional turnaround process typically recognizes these five elements in this linear sequence with some overlapping from one phase to another. The problem is that while the traditional turnaround manager systematically works through these stages, a significant deterioration of corporate revenue base often occurs.
The objectives within the financial and operational projections, which are developed during the situational analysis, will soon become obsolete and elusive unless the declining customer base is efficiently nurtured from the first intervention date. The existing clientele, necessary for recovery, often perceives the level of risk of continuing the relationship with the entity in crisis excessive and, therefore, may transfer all or a significant portion of their business to the competition.
Our initial objective is to stabilize the customer base by:
[a] restoring the credibility in the marketplace by sharing the restructuring plan with company’s key customers, and
[b] deploying an effective public relations campaign with the emphasis on assurances of uninterrupted flow of goods and services to all customers. The parallel approach, i.e. revenue, or customer-base stabilization in concurrence with the expense
contraction, liability reduction and non-core asset realization, requires the use of sophisticated crisis management tools and experience.
What makes a recovery more likely and sustainable, and what distinguishes our approach, is the effective work on return to normal, or rather, desired outcome phase, from the first day of our executive leader- ship in tandem with the crisis management process. Examples of desired outcomes are saving the company as a going concern or sale to a strategic or financial buyer with much of the corporate value restored. As late-term decline experts, our framework for the recovery may be an out-of-court workout or a bankruptcy process as a last resort.
When an organization is in trouble, it is imperative that a strong leader steps in, takes charge, provides clear direction, executes and implements.
The interim chief executive does not recognize pet projects, product lines, organizational politics and, therefore, is not limited by past associations and loyalties. Another element of an interim manager’s effectiveness stems from the ability to negotiate with creditors who typically have abandoned any credibility with past management. An experienced outsider with a viable restructuring plan can often restore credibility and negotiate deep discounts with the creditors. The individual battles fought by the turnaround manager form a coherent recovery process with the ultimate objective of value restoration to accommodate the desired outcome.
The good news is that a proven crisis manager can often reverse a decline and enable a troubled company to become viable and profitable again.
©2004 Peter Vapaamies Ltd.