Business Turnaround - Case Study
What is business turnaround? There are many papers and articles explaining business turnaround. Typically, they focus on the financial recovery of companies that have performed badly for a sustained period. Investopedia (2017) states… “A turnaround refers to steady, positive movement experienced after a significant period of performance decline”
Evidence shows there are many phases to turnaround projects, ranging from survival to growth and profitability, it is key therefore, that each stage is addressed in a logical sequence so that the business survives long enough to complete the entire recovery process. So, while increased market share and healthy dividends may be the goal, identifying areas of critical weakness that have a potential to close the business must be the immediate priority (E.G; cash flow and reputation).
Principle: When paramedics arrive on scene, they quickly identify life threatening injuries (breathing, bleeding, burns and bones) because attending to these in the wrong order can put a patient at risk. Similarly, potentially catastrophic business issues must be identified, prioritised and resolved or there may not be time available to deploy growth and profitability initiatives.
The following example shows how we identified, prioritised and phased in turnaround actions in a live business environment, executing survival solutions before market share and profitability policies.
Business turnaround – Phase 1: Setting Priorities
On arrival at Company X our immediate business assessment confirmed the following: -
UK domestic business
Value of Overdues
On Time Delivery
Right 2nd / 3rd time
The above suggests there are many delinquent aspects to this business but knowing where to start is key. A review of the order book highlighted serious risks that could close the business if not resolved.
Risk: A $5million, intercompany order for 50-off identical machines was 3 months behind schedule as the company struggled to get finished units through performance testing. These units were a standard design that had been produced for 40 years, yet 50% had failed test to-date. This order accounted for 25% of a higher value group order from a high-profile customer that could expose the group to high financial penalties and delayed cashflow if late. Putting HQ in this position could close the UK Plant.
As a new leaders we were unfamiliar with these machines, but because existing managers struggled to identify a root cause, we halted all manufacture across the factory and ordered all components to be measured. This confirmed component dimensional errors as the reason for test failures, so we put an inspector in the machine shop and quality improved overnight, ensuring all units passed testing.
This project was delivered on time and group rewarded the site with additional work on the same contract. Machining parts right 1st time improved costs, OTD, cash flow, profitability and reputation.
Business turnaround – Phase 2: Beyond Survival
Fixing this quality issue gave the team time to address deeper issues that impacted the sites future.
Phase 2 of this turnaround project addressed the sites dependency on group business and its lack of contribution to group profitability, because this put the UK sites destiny beyond their own control.
Organic Growth: By reviewing the companies installed base we identified over 300 “historical” UK domestic customers who had been supplied with equipment for over 50 years. All these customers were being neglected in favour of larger companies who placed higher value 1-off orders, but when the economy went into decline the large companies stopped ordering and the impact was significant.
Turnaround: Re-engagement with UK domestic customers had a positive impact on margin as group business was always placed at breakeven or less. Adding this new UK domestic revenue to the lower cost of “right 1st time” manufacture, improved profitability and the sites reputation for on time delivery.
Quality Counts: The increased focus on quality from the phase one turnaround highlighted errors in some parts that had already been shipped to a high-profile customer. A recall of these components to rectify and re-test could have proved a major blow to reputation, however, this customer appreciated our openness and accommodated the recall which was completed efficiently and effectively. This act seemed to galvanise the customer relationship and a large value order followed soon after.
Phase 2 Summary: Complementing phase one improvements with additional UK domestic business allowed the site to contribute significantly to revenue, profitability and cashflow at a critical time for the group. This increase in UK domestic business allowed revenues to stabilise at a time when the global economy fell into recession and group order values fell significantly. Trading group orders for domestic growth increased the sites profitability significantly and proved the site could be self-sufficient.
UK domestic business
Value of Overdues
On Time Delivery
Right 1st time
Summary: Our experience within this UK SME is typical of many organisations (regardless of size). The solutions we employed are transferable across businesses and industries. Having the ability, desire, tenacity and patience to execute a systematic and sustainable plan is key.