2009_Position_Restructuring_for_Sustainability

Restructuring for sustainability 1

Restructuring for sustainability

New directions and mobilization


Window dressing?

The more difficult times get, the more managers tend to hide

realities. Some of them describe their business environment in

beautiful pictures, while others try creative accounting. In

financial or enterprise crises managers are especially challenged

to prove their sense of reality.

Ability to differentiate

Realistic managers recognize quickly and clearly when a company

faces a strategic dilemma or a bottom line problem or a liquidity

crisis. Companies, whose executives can’t differentiate, or

hesitate to make tough decisions, risk bankruptcy. Although we

face a financial or economical crisis now, many companies will

find the root-cause of their disastrous situation within their own

strategy and organization.

The attitude of hoping for better times instead of managing the

crisis leads quite often to turnaround measures, which are more

drastic than they would have been if management had reacted

immediately.

Holistic approach

A holistic flight plan for restructuring is required which includes

detailed measures, responsibilities, bottom line results and cash

flow potentials, but with clearly defined milestones. Without

such a holistic approach, a company risks putting in place inter-

nally-contradictory measures, and/or losing the overall objective

of the restructuring process.

Restructuring for sustainability

Sustainable restructuring can be successful only if a

management team has the capability to execute restructuring

measures while at the same time working towards a joint vision.

Such a team of leaders must be able to master the instruments

of restructuring while simultaneously performing a collaborative

culture and a communication style in which all employees are

motivated to move forward.

Executive professionals of mmc AG have supported companies

and their managers in crises. This exposé illustrates in several

case studies the specific key success factors which led to a

sustainable turnaround.


Strategic dilemma

Although earnings and cash flow are still satisfactory, existing

business models can no longer cope with market requirements

and the changing competitive environment. At this stage

management often struggles to recognize that the success

factors of the past will not hold for the future.

Profitability crisis

Profits and cash flow get worse, sometimes hidden by balance

sheet cosmetics or other creative accounting measures. Profit-

ability targets and RoCE objectives are missed more than once.

Quite often management sticks to old concepts and initiates – at

best – cost cutting exercises.

A systematic route cause analysis does not exist.

Liquidity crisis

The company has lost almost all room for maneuver. Liquid fund

shrink, which makes the profitability situation even worse. The

company is in a vicious circle.

Clear indicators to differentiate

between the stages of crises

Restructuring

■ The later the more drastic …

Loss of market share

Decreasing free cash flow and margin

Low innovation

Better competitive products

Lack of quality

Loss of revenue and profit

Increasing debts

Downgrading

Employee turnover

Decreasing investments

Worsening structure of receivables

Changing suppliers

Increasing credit costs and quota of short term financing

Bad debts

Credit cancelations

Illiquidity

Strategic dilemma Crises of

profitabilityCrises of liquidity

Insolvency

Indic

ato

rs


Measures for restructuring initiated too late

Quite often, management recognizes a crisis only if money is

short. The room for maneuver is vanishing. The problem zones

are very obvious:

Management:

hesitation to take real actions, combined with unreadiness

for change.

Equity:

decreasing equity combined with vanishing financial

security and increasing risks.

Cost structures:

struggling with too-high breakeven levels and overcapacity.

Sub-optimal restructuring concepts:

micro-management instead of holistic approach.

Product and price policy:

unprofitable products, unrealistic targets, disastrous

pricing quality.

Strategy:

dreams instead of consequent implementation, forced by

lack of planning, missing facts and numerical support,

unclear responsibilities.

Leadership and Communication:

unclear objectives, unclear leadership responsibilities,

nonprofessional and inappropriate communication, wrong

(or no) involvement of employee councils.


Addressing Quick-Wins

Measures for quick wins must be worked out and decided

immediately. They may have a direct influence on the strategic

path to profitability and to liquidity.

Convincing business plan

A thorough restructuring plan integrates all measures in an

operational, strategic and financial concept which describes how

to convert the joint vision of the re-directed operation into

reality.

Professional restructuring team

Top management has full responsibility for the restructuring

exercise. However, it is wise to get experienced professional

support in order to achieve restructuring targets in a timely and

systematic manner.

Consequent controlling of implementation

Successful restructuring requires full transparency and full

control along all milestones.

Involvement of all relevant stakeholders builds

trust

Most stakeholders are highly influenced by changes caused by a

crisis. Therefore it is important to involve stakeholders in

developing restructuring measures; otherwise there will be a

loss of trust. The key for trust is proactive communication;

internally and externally.

“Unwritten rules” of real communication and real behavior often

contradict--as a parallel world--the official set of rules. Leaders

must be able to cope with such unwritten rules also in crises.

Only the combination of strictly executed

restructuring and strong leadership capa-

bilities will help

Leaders of a company in a crisis must master the required meas-

ures for restructuring as well as prove that they can influence a

collaborative culture positively. “Positively” means to have a clear

and compelling view for the future.

Thorough identification of root causes

Successful restructuring requires some basic rules. The root

causes for the crisis must be identified quickly and be approached

as strictly as possible.

■ Act on restructuring needs and leadership issues simultaneously

Leadership: Re-Teaming: Enabling leadership and

unlocking management potentials Developing a joint vision Committing to high-level leadership

principles

Culture: Identifying the „Unwritten Rules of

the Game“ Forming an appropriate innovation

culture

Communication: Professionalize communication with

all key stakeholders

Leadership Issues

Liquidity: „Liquidity Office“ for central cash

management Management of receivables, payables

and assets Open communication with shareholders

Consolidation: Cost cutting and personnel measures Tighten up the range of products To plug the origin sources of deficit

Realignment: Strategy Organization Processes

Restructuring Needs

Sustainable

Recovery


Balance outside-in and inside-out

Both viewpoints are important: The external, “neutral” view and

the view that the management takes. Differences play a major

role in re-aligning the company.

Evaluate product and customer product profitability

A pre-condition for a successful and sustainable restructuring of

a company is a reliable view of the profitability status of

business units, customer segments, products, and services.

Analysis of marketing and sales quality

Intelligent price policy and consequent sales initiatives can

result quickly in significant bottom line effects.

Benchmarking

Benchmarking within the industry is also an effective proven

tool to highlight further potentials for raising efficiency. Often

Chief restructuring officers or operating partners find blueprints

for lean management organizations through comparisons with

best practices.

Deficits in strategy and organization

In interviews and workshops, professionals can evaluate the

degree of transparency, commitment and alignment regarding

strategic direction. A dashboard with clear financial and

qualitative targets helps to follow up implementation milestones.

If followed up continuously on a weekly basis, this quite often

starts a productive management process among the leadership

team.

Quick Scan

Understand root causes

The first important starting point for executives who have

ownership and responsibility for a restructuring program is to

understand clearly all root causes which led to the crisis. At the

same time, it is extremely important to align expectations

between management and main stakeholders and financial

investors.

■ Design restructuring programm systematically

Ensure Liquidity

Manage Profitability

Re-direct Strategy and Positioning

Adapt Organisational Structure

Change Management Position / Coach Management“

2-6 Weeks Up to 18 months

strategic

operational

Quick Scan Konzept


Case study

European leader in fruit juices

Problem:

The business in France consisted both of branded business as

well as of a significant amount of private label sales.

Private label business required a high degree of resources

and investments at the cost of the branded business

The challenge for the company was the complexity of the

interdependencies between the both business segments.

The European strategy was to focus purely on the branded

business in order to establish market leadership. The objective

was to sell the private label business including production facil-

ity.

Approach:

Execution of the restructuring program with the following

work streams:

Divestment of the French private label business and

the attached production facility: mmc AG identified

potential investors and coordinated the negotiations

and the elements of the final contract

Master plan for the supply chain organization of the

branded business

Restructuring the organization of the branded

business

Result:

mmc AG helped the client successfully to sell the French

private label business and the attached product facility to

a strategic investor. This created the foundation for the

further success of the branded business.

Together with the client´s management, mmc AG´s

professionals led the remaining production site (for the

branded business) to best-in-class positioning, and

transformed it into a highly effective operation.


Case study

European market leader in access technolo-

gies, ladders and transport boxes

Problem:

Crisis in profitability of the German business unit.

Leadership crisis while shareholders lost trust in

management.

Approach:

Quick Scan

Requested departure of CEO – interim management

provided by mmc AG

Restructuring program

Power workshop with leadership team

Introduction of the restructuring program

Strategy concept for profitable growth

Result:

Management buyout after value-building

(RoE = 27% p.a.)

Growth between 2005 and 2008 (CAGR):

Sales: +5.6% p.a.

EBITDA: +16% p.a.

Interim manager became the current CEO


Case study

European market leader in light domes,

continuous roof lights and smoke and heat

extraction systems

Problem:

Profitability crisis in German business unit

Leadership crisis with loss of trust by shareholders

Approach:

Quick Scan

Requested departure of their head of sales - Interim man-

agement ensured by mmc AG

Power workshops

Development of a leadership team

Strategy concept for profitable growth

Result:

Growth in the following 4 years (CAGR):

Sales: +11.6% p.a.

EBITDA: 24.7% p.a.

Leadership team empowered to manage cooperatively on

an international basis (Europe) and to professionalize

processes

Creation, by two business units, of a more-robust busi-

ness model: system integration and customer service /

maintenance

Interim manager became the current CEO


Case study

Leading manufacturer of printed circuit

boards (PCB)

Problem:

3 years after a catastrophic fir, the loss-of-profit fire

insurance expired: liquidity crisis not unlikely

Overcapacity in production and overhead

Industry consolidation

Departure of CEO

Approach:

Quick Scan

Business coaching of new CEO as well as entire leadership

team

Series of power workshops for a strategy development for

enlarging business base upstream and downstream

Synergy workshop with potential alliance partners (both

Asian and European candidates)

Moderation between board and workers council

Result:

Turnaround successfully achieved in 9 months, positive

EBIT

Breakeven-level reduced

Strategic access to two more business segments

(“prototyping” and “low-cost-countries”)realized


Case study

Manufacturer of electronic elements

Problem:

Increasing working capital (days of sales outstanding;

inventory levels)

Increasing accounts receivables write-offs

High interest costs

Approach:

Aligned operating procedures for accounts receivables for

all international sites

Benchmarking for raw material and finish products

inventories

Improved customer service with shorter lead times

Result:

Optimization of balance sheet; increase of equity

ratio from 40% to 44%

Increase of RoS about 1%-point.


■ Experts in Restructuring

Markus Gross Hans-Werner Klein Dr. Rüdiger Kraege Michael Mollenhauer

Expertise in

Restructuring

Restructuring in several

industries (construction

supply, retail, aluminum

industries)

Corporate

communication in change

management situations

Restructuring of companies

active in consumer products

and automotive supply

References for successful

restructuring and turnaround

management projects

Career in

Industry

Since 1990 in CEO-functions

for several manufacturer and

retailers for constructions

supply

Management director of

internet agencies of

McCann-Erickson

CFO- and CEO-functions at

BRITA-GmbH and Tengelmann-

Group

Head of controlling at Nestlé

Germany

Background in

Top-Management-

Consulting

Interim Management in

turnaround situations as well

as marketing, sales and

innovation management

Program responsibility

for development and

implementation of

communication

strategies

Business Coach

A.T.Kearney, mmc AG

25 years consulting background:

Arthur D. Little – Partner

and managing director

Germany

A.T.Kearney – Partner and

global leader of consumer

and retail practice

CEO of mmc AG


■ Who we are…

mmc AG …

a management consulting and commercial evaluation specialist

specialized to enhance operational performance

senior teams with industry experience and high-end consulting background

mmc AG is founder of STRATORG ALLIANCE GROUP, with teams in Chicago, Frankfurt / Wiesbaden, Milan and Paris.

Mollenhauer Management Consulting AGSchlichterstr. 18 · D-65185 Wiesbaden Tel.: +49 (0) 611 36009-0 · Fax: +49 (0) 611 36009-199 [email protected]; www.mmc.ag

2009_Position_Restructuring_for_Sustainability

Documents

Transcript of 2009_Position_Restructuring_for_Sustainability