Drastic measures are sometimes needed during these times of volatile economy just to have your company survive. It is tempting to make across the board cuts in what is probably your largest expense category… human resources. Be careful with across the board the headcount reductions. A wrong move may mean a steeper drop in sales or an inability to invest in areas once the economy bounces back.
Tribal Knowledge
Tribal knowledge is that historical and company specific intellectual property that is key to maintain and growing your business. This can be specialized product development talent that has knowledge specific to your company and industry that once lost would be very difficult to replace, or it may be that special person in customer service that knows all past issues and has a great relationship with key clients or distribution channel partners. In any event, identify these key individuals and do what is necessary to retain them.
Retaining Key Employees
Retaining key employees can come in many forms including retention bonus program, increased communication and soliciting input from these key employees. A retention bonus that is tied to their performance along with the company emerging from this difficult economic position (probably late 2009 or early 2010) is a good way to preserving talent without adding additional cash flow burden on your company. Increased communication to all employees is important, but even more important to those key people with the tribal knowledge to move you forward. Utilize the knowledge by soliciting input from these key employees and bring them into the fold as a part of the solution to the current economic environment.
An Example
I was appointed CEO of a company in August 2001… that’s right, one month before 9/11. Not only did I need to maneuver in a difficult economic environment, but it was also a turnaround situation. The best strategy and tactics used during the turn-around revolved around retention of key employees and using the talent in this group to help with company performance improvement. The key employees came from all disciplines of the company and at all levels including senior management team to front line employees.
Communication to the entire employee base on a regular basis was key to keeping everyone engaged, but additional focused communication to the key employee group allowed me to utilize their skills and knowledge to manage small cross-functional teams to tackle the many tasks that needed to be addressed. This got the employees involved with key turn-around activities, and kept morale up even with reducing the total employee headcount by 40% during the first 90 days.
The end result of the turnaround was an increase in net profits from a negative $6 million to positive $800,000 in the first full year on sales of $38 million, and an increase in EBITDA from 15% of sales to over 35% of sales. I could not have done this on my own and enlisting the employees allowed us to accomplish this in a very short time frame.
Managing in a tough economy is not easy, but can be rewarding. Emerging from difficult economic times stronger than when you entered allows you to grow the business. As business owners and leaders, it is your responsibility to look out for the viability of your company. Take that responsibility seriously and manage expense reductions diligently to focus on the near term while keeping an eye to the horizon.
Larry Turner is CEO of Roundhouse Advisors, Inc. and has over 25 years experience growing, starting up, repositioning, and revitalizing organizations. Roundhouse Advisors is a business consulting practice focused on helping businesses increase enterprise value in all stages of company life cycle. For additional information visit www.RoundhouseAdvisors.com
Showing posts with label turnaround. Show all posts
Showing posts with label turnaround. Show all posts
Monday, January 5, 2009
Wednesday, November 26, 2008
Managing in Uncertain Economic Times
Turnaround… Tough Times… Terrible Economy. Call it what you will, in any case it takes a special focus to manage in a down turn and be able to emerge positioned to grow. I have managed organizations that required turnaround skills as well as hyper-growth, and there are challenges associated with both. Turnaround management skills require you to improve or stabilize financial results without putting the company in a death spiral.
The best turnaround management includes not only cost cutting, but more importantly increasing or stabilizing revenues. Any cost cutting effort without an eye to the revenues will only result in continued cuts in an attempt to improve bottom line, which in the end could destroy your company. A focus on the following areas is necessary when managing in uncertain economic times and/or a turnaround situation.
1.) Employees – Employees are your most important asset. Any headcount reductions need to be made swiftly and humanely, while reassuring those that remain of their importance to the turnaround effort. Try to orchestrate all near term headcount reductions at one time, this reduces the concern by the remaining employees of future reductions in force. When making decisions on employee reductions work to retain customer facing positions and any “tribal knowledge” workers. You will need the customer facing employees to help maintain and develop revenues, and the historical company knowledge (referred to as “tribal knowledge”) will be necessary to run your business in the short term and then again after emerging from the crisis.
A key area of managing your employee base during these times is communication. In fact, there is no such thing as over communication during difficult times. In the absence of information your employees will fill the void with what they think is happening, and most times it is untrue and detrimental to moving the company forward. Refer to the November 17, 2008 post in this blog for a complete discussion of employee communication.
2.) Suppliers – Communicate with your key suppliers to update them on your situation and status. Treat these relationships as key partnerships. During the discussion focus on your goals, timing and action plan. Use this as an opportunity to consolidate suppliers and leverage the increased volume with key partners to assist you with your turnaround effort.
3.) Customers – Customers are the lifeblood of your business, and you cannot risk your top customer’s hearing about any turnaround effort through the grapevine. They can and most likely will hear about any difficult time you are managing from your employees or through the internet. Be proactive and discuss your situation with key customers. Visit them in person when possible and reassure them that you are focused on emerging a healthier company prepared to serve them well into the future.
This is also the time to review profitability by customer and make the difficult decision of firing those unprofitable or marginally profitable customers. The client meeting is a good opportunity to discuss a price adjustment that brings them in line with your objectives or terminating the relationship. It will not be a comfortable discussion for you, but it is something that needs to be done and done quickly.
4.) Partners – Partners may be a dealer or VAR sales channel, joint venture partners, or banking/finance partner. It is necessary that you communicate openly and honestly about your situation along with the recovery plan in place. If you have not heard from your banking/finance partner yet, you will, so be proactive and present your plan of recovery along with time lines. It is good with this constituency to be very conservative in your recovery plan, so you feel comfortable the company can achieve the results even with any unforeseen issues that will arise.
5.) Focus on Cash Flow – Now is the time to focus on your cash flow. Have your finance group develop a rolling 13 week cash projection. Have a key management meeting revolving around cash flow to review progress and plan steps to improve the projection. P&L reviews are nice, but they are inherently poor for this activity, due to all the non-cash accruals embedded in the document. Focus on cash generation and cash preservation activities.
6.) Leadership – This is the time your company needs you most. Demonstrate confidence in front of your workforce, even if behind closed doors you and your management team are having violent discussions on the turnaround plan. Your employees need to see a common front from the management team, so they can confidently follow your leadership and the direction to improve company results. Once again, communication is key to building this confidence and providing regular feedback on the progress the team is making.
Turnaround management is not fun, but administered correctly you can emerge from difficult times poised to take advantage of opportunities. Take advantage of your advisory board as input to your plan, and hire an outside consultant to help with your efforts.
Larry Turner is CEO of Roundhouse Advisors, Inc. and has over 25 years experience growing, starting up, repositioning, and revitalizing organizations. Roundhouse Advisors is a business consulting practice focused on helping businesses increase enterprise value in all stages of company life cycle. For additional information visit www.RoundhouseAdvisors.com .
The best turnaround management includes not only cost cutting, but more importantly increasing or stabilizing revenues. Any cost cutting effort without an eye to the revenues will only result in continued cuts in an attempt to improve bottom line, which in the end could destroy your company. A focus on the following areas is necessary when managing in uncertain economic times and/or a turnaround situation.
1.) Employees – Employees are your most important asset. Any headcount reductions need to be made swiftly and humanely, while reassuring those that remain of their importance to the turnaround effort. Try to orchestrate all near term headcount reductions at one time, this reduces the concern by the remaining employees of future reductions in force. When making decisions on employee reductions work to retain customer facing positions and any “tribal knowledge” workers. You will need the customer facing employees to help maintain and develop revenues, and the historical company knowledge (referred to as “tribal knowledge”) will be necessary to run your business in the short term and then again after emerging from the crisis.
A key area of managing your employee base during these times is communication. In fact, there is no such thing as over communication during difficult times. In the absence of information your employees will fill the void with what they think is happening, and most times it is untrue and detrimental to moving the company forward. Refer to the November 17, 2008 post in this blog for a complete discussion of employee communication.
2.) Suppliers – Communicate with your key suppliers to update them on your situation and status. Treat these relationships as key partnerships. During the discussion focus on your goals, timing and action plan. Use this as an opportunity to consolidate suppliers and leverage the increased volume with key partners to assist you with your turnaround effort.
3.) Customers – Customers are the lifeblood of your business, and you cannot risk your top customer’s hearing about any turnaround effort through the grapevine. They can and most likely will hear about any difficult time you are managing from your employees or through the internet. Be proactive and discuss your situation with key customers. Visit them in person when possible and reassure them that you are focused on emerging a healthier company prepared to serve them well into the future.
This is also the time to review profitability by customer and make the difficult decision of firing those unprofitable or marginally profitable customers. The client meeting is a good opportunity to discuss a price adjustment that brings them in line with your objectives or terminating the relationship. It will not be a comfortable discussion for you, but it is something that needs to be done and done quickly.
4.) Partners – Partners may be a dealer or VAR sales channel, joint venture partners, or banking/finance partner. It is necessary that you communicate openly and honestly about your situation along with the recovery plan in place. If you have not heard from your banking/finance partner yet, you will, so be proactive and present your plan of recovery along with time lines. It is good with this constituency to be very conservative in your recovery plan, so you feel comfortable the company can achieve the results even with any unforeseen issues that will arise.
5.) Focus on Cash Flow – Now is the time to focus on your cash flow. Have your finance group develop a rolling 13 week cash projection. Have a key management meeting revolving around cash flow to review progress and plan steps to improve the projection. P&L reviews are nice, but they are inherently poor for this activity, due to all the non-cash accruals embedded in the document. Focus on cash generation and cash preservation activities.
6.) Leadership – This is the time your company needs you most. Demonstrate confidence in front of your workforce, even if behind closed doors you and your management team are having violent discussions on the turnaround plan. Your employees need to see a common front from the management team, so they can confidently follow your leadership and the direction to improve company results. Once again, communication is key to building this confidence and providing regular feedback on the progress the team is making.
Turnaround management is not fun, but administered correctly you can emerge from difficult times poised to take advantage of opportunities. Take advantage of your advisory board as input to your plan, and hire an outside consultant to help with your efforts.
Larry Turner is CEO of Roundhouse Advisors, Inc. and has over 25 years experience growing, starting up, repositioning, and revitalizing organizations. Roundhouse Advisors is a business consulting practice focused on helping businesses increase enterprise value in all stages of company life cycle. For additional information visit www.RoundhouseAdvisors.com .
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