The Painful Art of the Turnaround, Part 3

25 July 2013

This post is the last of three on turning around a smaller manufacturing business unit. The first of these posts discussed the immediate tasks of a turnaround leader in a situation sufficiently severe as to threaten an organization’s viability. The second post expanded on the turnaround planning process. This post addresses execution of a turnaround plan. — C.H.


Executing a Turnaround

Sidebar - Why "Art"Once cash flow has been stabilized, the “Striving” stage of the turnaround begins. Emphasis on achieving recurring profitability increases. A turnaround plan — a systematic approach for achieving recurring profitability — is needed.

A turnaround plan is, in essence, a plan for formulating and implementing a new business model. A business model consists of a Value Proposition — a package of tangibles (physical products) and intangibles (price, delivery, terms, warranties perceptions, relationships and much more) that a business unit offers to a specific set of target customers — along with a Delivery System that reliably delivers on the entirety of the Value Proposition (at an adequate level of profitability).

There are turnaround situations where the existing value proposition (perhaps with minor adjustments) is sufficiently attractive to an adequate set of prospective customers, if the value proposition could be reliably delivered. If business problem can be localized to the delivery system, focus on improving the delivery system [1]. If the problem lies in the adequacy of the value proposition, as it usually does, then both value proposition and delivery system likely need rethinking.


The second of these three posts offered some tools for developing a distinctive Value Proposition. In addition, Adrian Slywotzky (one of my faves) presents twenty-three “profit paradigms” [2] that can stimulate thinking on capturing value, as well as creating it. Don’t limit your thinking to existing products and customers — it may be possible to bundle services with your tangibles; it may be possible to add digital marketing channels; exporting may be a possibility. Think expansively.


Transition Mapping

Once ideas for a Value Proposition have crystallized, work on the Delivery System begins. A variation on strategy mapping [3] which I call Transition Mapping is useful for doing this.

Transition mapping begins with a stated goal which, in the Striving stage of a turnaround, is almost always something like “achieve an accounting profit by (some date)”. The time between the present and that “some date” is broken into periods, usually months. For each period, financial objectives are set (perhaps turnover, average margin and some measure of working capital employed). These financial objectives build, period upon period, culminating in achieving profitability by the specified date.


Financial objectives are supported by customer – focused objectives for that period (perhaps adding “X” new customers, introducing “Y” new products or services). The customer – focused objectives provide one level of rationale for how the financial objectives will be met.


Financial objectives and customer – focused objectives are supported by business processes objectives. For example, business process objectives clarify how “X” new customers will be added (perhaps additional sales people, sales training, advertising or whatever). Business process objectives can also directly support financial objectives (i.e. improve margins by reducing specific materials or production costs). The customer – focused objectives plus the business processes objectives, taken together, should present a convincing argument that the financial objectives can and will be achieved.


Finally, objectives are set for the availability of resources, especially funds and people. Continuing operations plus the additional resources required to meet the foregoing objectives are constrained by the resources available — especially working capital. If the higher level objectives cannot be funded (or staffed with appropriate talent), they are unlikely to be achieved.


But wait! It gets tougher yet. Some objectives take more than one period to accomplish. Take, for example, the time required to recruiting, hiring, training and equipping one new sales person. Obviously, costs will be incurred (and cash expended) in periods before the new sales person is likely to produce significant incremental revenues. So, higher level objectives to be realized in future periods may affect the current period, especially at the business processes and the resources availability levels.


As each period ends, objectives at each level for each future period are updated, based on the current situation. Action plans for individuals outline personal accountabilities and responsibilities for all objectives pertaining to each individual. Action plans are reviewed and revised as appropriate as each period ends.


A Caveat


Each turnaround is unique because each business situation is unique. There is no universal turnaround plan or Turnarounds for Dummies (I hope). The first of these three posts mentioned that over 50,000 American factories have closed in recent years. In some of those cases, the owners decided that the business was, for whatever reason, no longer viable. In other cases, turnaround efforts were attempted, but failed. Turnarounds are code-blue serious, and almost always painful.

Chuck - Vancouver
Thoughtful comments and experience reports are always appreciated.

…  Chuck Harrington (Chuck@JeraSustainableDevelopment.com)


P.S
: Contact me when your organization is serious about pursuing Sustainability … CH


This blog and associated website (
www.JeraSustainableDevelopment.com) are intended as a resource for smaller manufacturers in the pursuit of Sustainability. While editorial focus is on smaller manufacturers, all interested readers are welcome. New blog posts are published on Wednesday evenings.


 

[1] Bill Gaw, a lean manufacturing consultant, recently published a useful business novel on applying lean manufacturing techniques in a turnaround situation, where the turnaround was needed due to poor factory floor performance. Bill Gaw, Back to the Basics, GCW Publishing, Birmingham U.K. (2013)

[2] Slywotzky, Adrian, The Art of Profitability, Warner Books, New York (2002) 

[3] Kaplan, Robert and David Norton, Strategy Maps, Harvard Business School Publishing, Boston (2004)