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Diagnosis and curatives

Turnarounds require teams that are more anxious to win, than they are afraid of losing
Chandra Lahiri

This is the second part of the article, The road to perdition, which was carried in the July issue of Business Today

The bottleneck is at the top of the bottle, as the memorable saying goes. Even when that is unplugged, there are still other hurdles to value creation and enhancement within a company. One of the paradigm shifts necessary for corporate recovery is the realisation that small, gradual changes are not necessarily the easiest to make or sustain – or even the most desirable. Often, only radical measures will work – as Alexander the Great discovered with the Gordian Knot.

Ambiguous business plan
In today's highly competitive environment, operating purely by the seat-of-the-pants is a dangerous anachronism. In the past, many corporate empires, including the Hilton group, have been built this way. That era, however, has gone. As Narayana Murthy of Infosys put it some time ago, "This is not a passing fancy, but a potential restructuring of the way the world operates and how value will be created in the future."

The sultanate, like many parts of the world, is littered with the shattered remnants of uninformed corporate 'inspirations'. There is no substitute for genuine business acumen and instinct and the Bahwan brothers, among others, right here in Oman, provide an outstanding example of just how valuable and effective these can be – when these qualities are present in the DNA of the person at the helm. No amount of business theory or management school credentials can replace that. However, today's businesses, afloat on a swiftly moving tide of opportunity, threat, decision and consequence, demand adherence to a carefully thought out, objective and a clearly communicated business plan.

It is worth remembering, though, that the better a plan, the closer it adheres to the KISS principle (keep it simple, stupid!). A lucid set of practical, achievable goals, clearly understood by all, eliminates the risk of actions carried on through individual interpretations.

Over-diversification
While successful business houses across the Middle East have redefined the old doctrine of core competence, over-diversifying to reduce risk or simply through an unwise excess of ambition, exposes the business to the danger of spreading itself too thin, becoming painfully vulnerable over a period of time. Similarly, very rapid, often unplanned, growth results in an unbalanced leveraging of the company's resources, driving it inexorably beyond its ability to manage.

As important as it is to grasp opportunities, especially in rapidly growing economies or those like Oman, just opening up, full of promise and potential, it is even more important to be realistic about one's abilities and resources to manage, consolidate and grow them thereafter. This becomes aggravated when looking at a multinational scenario. The increasing economic inter-dependence of the world opens up a glittering panorama of opportunities worldwide. However, these can be grasped effectively only through a clear understanding of local conditions, the unique demands of multi-cultural, multi-ethnic workforces and the diverse drivers of each local economic environment. Plunging into areas beyond the home market, even if within the same region, without professional evaluation and preparation is fraught with risk. HSBC's positioning of ‘The world's local bank’ reflects considerable insight and wisdom.

Excessive debt / lack of control
Excessive debt, inadequate working capital, over-extended credits, excessive fixed assets and inventories: these are some of the most obvious symptoms of a business that is incipiently sick. Among other problems, these inevitably lead to an escalating adversarial relationship with lenders, which puts the final seal of doom on a company. Even without such symptoms, if operations lack appropriate reporting mechanisms, management decisions may be based on inadequate or inaccurate data, usually leading to disaster.

Perhaps the most dangerous problem is that of really stringent financial control systems. For the day-to-day security and efficiency of the business, there are few functions more crucial than a flexible yet carefully balanced system of fiscal checks and balances, solidly entrenched within its operating framework. Above all, these systems need to be protected against informal individual intervention, at any level. Auditors, internal or external, can only monitor a number of parameters, by the very nature of their operations. They cannot substitute for a robust internal control system embedded within the very core of the company's operations. At the same time, it is vital that the mindset of the company be geared more to revenue than to accounting. Examples abound of corporates who have swung from one extreme directly to the other from complete lack of fiscal discipline and control to a regime so draconian that it ends up strangling initiative and entrepreneurship almost completely, choking the business.

Feeble marketing functions
This is one of the most critical areas of a business, but one that is the least understood in our region. That this vital activity generates the cash that is the very lifeblood of the business is frequently overlooked. Becoming irrelevant to customers is one of the greatest dangers any business can face, yet this activity is so little understood that even the distinction between marketing and sales is confused. However wonderful the product on offer, unless it is sharply differentiated within its market segment, and then communicated effectively to its potential customer base, it is likely to fail – as was the case with a fragrance company in our region, till the situation was recognised, with rare insight by its owners, and remedial measures quickly initiated. Conformity and sameness, the world over, are initially opportunities but quickly become great generators of consumer ennui – it is simply, distinct or extinct. Inadequate brand development, malnourished marketing budgets, the lack of any understanding of market segmentation or attempts at clear positioning are all urgent warning signals.

Reliance on a few large customers is another common error, leaving the company completely vulnerable. Equally fatal is market lag, with the arrival of major competitors ignored and changes in the marketplace bypassing the company, killing sales, eroding share of retail shelf space and marketshare. Ensuring the vibrant health of the sales and marketing function must be one of the top priorities of the corporation. Indeed, in the area of costs, rising sales commissions is one of the few increases that actually signal health and dynamism.

Corporate turnarounds require teams that are more anxious to win, than they are afraid of losing. At the end of the day, corporate recovery is all about passion – a passionate belief by the owner that it needs to be, and can be, turned around; a passionate leader to steer the turnaround; a passionate team that believes in it and strives beyond the normal to take it up to its rightful place in the sun. And few sights are more wondrous than that of a phoenix rising.