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a road less travelled

The key to reviving an ailing corporate is in seeking professional help, that too in time
Chandra Lahiri

An underperforming or sick company is not inevitably a dead company – though, at times, appearances may belie this. As the trite but true saying goes, you are not dead till you are dead. Most businesses can be recovered – but only if their true situation is recognised in time, and steps to recovery initiated with energy and commitment. Business owners and management teams go through the SARAH stages – shock, anger/apathy, rejection, acceptance, help. But, there is any hope of recovery only if the agonised soul-searching actually reaches the final two stages. It is amazing how rarely it does. Even when help is sought, it has to be done in time, without vacillation – rather like one caught in quicksand, help sought too late is as fatal as help not sought at all.

Frequently, the biggest hurdle to the acceptance stage is individual ego. This all-too-human failing prevents the leader from accepting the fact that he is out of his depth, has put his trust in untrustworthy lieutenants, or that he has, quite simply, tried to cross a bridge too far. An independent, responsible board can often correct the situation.

However, all too often, realisation dawns just too late. A prime example of this is the case of a textile mill in the GCC, owned by a large conglomerate, where the owner simply refuses to accept that a company in his group can be in such dire straits, and is continuing to administer placebos, instead of actual curatives, to a deeply sick patient. The inevitable outcome of this continuing drama can only be watched with sadness.

This is the time to parachute in a corporate recovery consultant. He will usually take the troubled company urgently through the first two of five distinct stages. Occasionally, such consultants offer I-CEO (Interim CEO) services as well, actually steering the business through the very difficult third and fourth stages too, before handing over to a carefully selected management team to take it forward to the fifth stage of complete recovery. The I-CEO service is popular in the West, but largely unknown in the Middle East. Its benefits are, however, manifold and manifest. Above all, it gives the owner breathing space, enabling him to stand back while the rescue is in progress, and really understand the process, before carefully selecting a new team, based on insight, without panic.

Taking the plunge, the business enters Phase I of the recovery process. There is little actual action during this phase, as it is taken up entirely with making a detailed assessment of the situation, identifying suitable strategies, and crystallising a focused recovery plan, with quantified objectives and milestones. These first weeks, spent determining the scope and severity of the illness, followed by a very detailed SWOT analysis, are probably the most valuable of the entire process.

Careful study of the company's competitive position, production, finances, marketing, operations, organisational structure as well as personnel are vital, before determining appropriate strategy, and crafting a recovery plan. Every aspect of the business process of the company is examined in depth, from a completely fresh perspective. Occasionally, this process does reveal that a business is, in fact, terminal.

Having created a strong recovery plan, it now needs the approval, support and total commitment of the owner/board. As the corporate recovery consultant reports only to them (or, occasionally, to the company's financiers), their fullest support, moral and financial, is vital. Turnarounds are the ultimate test of crisis management. They are a gut-wrenching, nerve-screeching, fear-soaked dash for life through a typhoon – definitely not an experience for the faint-hearted, or ones with less than total commitment to staying the course. An outstanding example of the correct way to recovery was demonstrated by the owners of a luxury fragrance brand in our region, when they accepted the plan and then backed their CEO to the hilt, both financially and morally, allowing him to work with absolutely no interference and complete trust. Recovery, thereafter, was all but assured.

Phase II, beginning with board approval (and funding) of the recovery plan, is the most painful period of the turnaround, as it generally involves a change of management. Egos, or just the inability of the frog at the bottom of its well to see beyond its confines, make it extremely difficult for management to accept the situation, or their inability to fix it. If the recovery plan is to have any chance of success, all those likely to impede it, explicitly or even implicitly, need to be weeded out.

This is a time for facing harsh realities and biting the bullet. This stage, even more than the others, requires an independent corporate recovery consultant – an unbiased, objective outsider with no axe to grind. Insiders inevitably develop vested interests, often subconsciously, or become just too entrenched in their own ways to accept change, even a fresh perspective. For the specialist, experience within a particular industry is not as important as actual 'hot-seat' experience of crisis situations and the ability to operate in the full fury of the storm. One with a strong intuitive feel is far more valuable here than one only technically qualified.

Phase III is only handled by consultants who offer the I-CEO service, as it involves embedding the consultant within the management in an executive role for a specific period. With the company's vital signs now critical, the immediate action needs to be simple but drastic – to stop the cash bleed. A positive operating cash-flow needs to be established by the quickest means possible, though the plan will, of course, include other financial, marketing and operations actions, to restructure debt, improve working capital utilisation, reduce costs, improve budgeting practices, correct pricing, prune product lines and accelerate high-potential products. This is an all-hands-on-the-deck race for survival, the knife-edge of success or failure.

Phase IV begins once the bleed has stopped, with efforts directed at making operations more effective and efficient – now with a slightly longer-term perspective. The business must be restructured to increase profits and also deliver a proper return on assets and equity. If, however, the financial state of the core business has been irreparably damaged, the outlook is bleak.

During this phase of the turnaround, the product mix may change, and may require repositioning. Neglected core brands may require immediate attention to remain competitive – marketing is one of the most vital, yet least understood, functions in our region. The ‘people-mix’ now becomes vital. Survival, not tradition, needs to determine the new shape of the business – often a difficult paradigm shift, especially for people immured in the defunct corporate culture. By the end of this phase, the storm is over, calm beginning to return, morale reviving, and financial recovery clearly visible.

Moving into Phase V, control moves gradually to the new management team, the I-CEO bowing out. As profitability gradually returns, the emphasis shifts from survival cash-flow to developing a strong balance sheet, strategic control systems, and the growth of genuine brands as long-term business assets. The final step demands a psychological shift too – the rebirth of its corporate culture, honed by adversity to a far keener, more sensitive edge. Rebuilding momentum, morale and corporate self-image is as critical as rebuilding return on investments. The phoenix has now risen from the ashes, in glorious rebirth.