The Interim-CEO service is not cheap, but when corporate survival is at stake,
it may be the best value for money proposition
The most common cause of the demise of businesses is the steadfast refusal of their management to recognise and accept the fact that it is in serious trouble. All-too-human egos simply do not permit top managers, or owners, to accept the death-dive of their corporate performance, or their inability to correct it. The rare CEO does see the abyss ahead, but just cannot find a way out and eventually flounders. What makes this truly tragic for the economy as well as the company's stakeholders is the fact that most such businesses can be saved. Perdition is not necessarily inevitable.
The warning signs are usually fairly clear. A business is in serious trouble when it begins under-performing in terms of profitability, overheads control, input costs, market sales, brand-shares, or brand development and identity – omens of the very survival of a company coming under threat. Many of these such as eroding share of retail shelves, wilting marketing activities and declining customer service standards – often with perfectly good products on offer – are visible to outsiders.
Even when realisation does dawn, managements often still believe they can fix the problem themselves. In almost all cases, there is, at least initially, immense resistance to bringing in help from the outside, since it puts the final seal of confirmation on the company's failure to help itself. The DIY option rarely works for a variety of time-tested reasons. The sooner the organisation realises this and seeks help, the brighter its chances of survival.
While an independent turnaround consultant brings to the task a fresh eye, complete objectivity and a lack of political agenda, insiders, over time, develop vested interests, or simply become too set in their ways to accept change willingly. The consultant, on the other hand, is able to hold aloof from the corporate din and strife, detect symptoms with a clear eye, ruthlessly seek out root causes, create workable solutions unaffected by resident interests, and even cut the Gordian Knot by implementing corrective actions quickly. Insiders are generally more intent on defending current practices, protecting comfort zones and shielding reputations, which
corporate performance should already have called into question. Finally, it is an inescapable fact that full-time managers simply do not have the time to carry out this task effectively.
The selection of a corporate recovery consultant, the guide to lead the corporation off the track to perdition, is one of the most important decisions of the entire turnaround. Choosing the right consultant is absolutely crucial to the success of the effort, and in this, his background and actual track record need to be researched thoroughly. A successful consultant will have a reputation within the local business community and this is worth a great deal. Feedback from employees of a company, after he has left the organisation, can provide key insights into his true abilities and operating style. For the consultant, experience within a particular industry is not important, as it is the actual 'hot-seat' experience of crisis situations and the ability to operate effectively within the storm, that really count. His is the task of analysing and setting right the basic business processes of a company, broadly similar across most businesses. The Interim CEO (I-CEO) has the further requirement of being an effective man-manager, of being able to lead, and indeed inspire, a battered and demoralised team. With the highest possible stakes on the table – the very survival of the company – the corporate recovery consultant does need to be a rather larger-than-life champion.
Very large, resource rich corporations can, of course, create their own task force to carry out such assignments, in a completely focused manner. But then, such corporations rarely fall sick. Of course, there are some spectacular exceptions like Pan Am and Enron, or in Oman, ONDP, where demise rapidly followed incipient internal rot.
Even such task forces are not entirely unbiased, as they necessarily operate within their corporate culture and practices. This can sometimes make their efforts somewhat sub-optimal. It is, however, the category of small and medium enterprises (SMEs) that suffers, by far, the largest number of under-performers and the highest corporate mortality. For these businesses, the corporate recovery consultant is a true white knight. Turnarounds are the ultimate test of crisis management, but these specialist consultants were relatively unknown till once-stable companies began struggling. They operate either as consultants, advising the troubled company's board, or, more rarely, as I-CEOs, actually leading it back towards stability. In either case, they report only to the owner, board or financier, and never to the management.
The corporate turnaround consultant will usually carry out several crucial tasks. The first step is to undertake an in-depth study of the company's entire business process. While this does not involve studying the actual specialist products or services of the company, it does entail a careful understanding of how they impact all business processes within the organisation, especially in terms of its financials.
This done, it dovetails into an assessment of the corporation's SWOT (strengths, weaknesses, opportunities, threats). In this, he is especially effective, compared to the company's own management, as he is able to look at them from a completely unbiased perspective, in a totally dispassionate manner. He is able to objectively map the competitive environment and identify relative assets to be built on, as well as likely threats, both apparent and imminent. This leads to his working up a carefully crafted business strategy, identifying key objectives, actions and, above all, milestones.
This clear, actionable turnaround blueprint is then presented to the owner/board/financier. Indeed, it is, finally, the quality of this blueprint that determines both the quality of the consultant, as well as the likelihood of its succeeding. A thorough examination of this plan, and extensive dialogue with the consultant, on all its aspects, is absolutely essential to ensure it is refined optimally. Once the plan is agreed upon, supported by total owner/board/financier commitment, it must be frozen, and adhered to unswervingly, right through the difficult process ahead. Any mid-course changes of heart, hesitation or doubts, other than minor refinements necessitated by unfolding developments, are even more assuredly fatal than not having embarked on this path at all.
While appointing the consultant, the exact scope of the assignments needs to be spelt out with care, eliminating any grey areas which could lead to misunderstandings. A loose, haphazard brief can lead to the unravelling of an otherwise laudable recovery effort. Another important factor is cost. A corporate recovery consultant is never cheap, and it just does not make sense to penny-pinch in an area that involves survival itself. The cost of the consultant needs to be carefully weighed against the potential gains from a resurgent business. Indeed, even if his conclusion is that a business is terminal, it usually results in cutting continued losses or further investments in a losing battle. Never is the manager more worthy his hire, than when rescuing a business.
Depending on the complexity of the business, and the extent of its disarray, the consultant may bring in others to advise in specialist areas, such as cost management, strategy, human resource, and enterprise resource systems. In a complex, or extensively damaged, environment, this is simply the beginning of wisdom. Leveraging the experience and knowledge of an entire network of specialists can ensure genuinely optimal
solutions. It can also shorten the time to recovery, and therefore, even the cost of recovery.
In today's electronically enabled environment, it is possible to network with such specialists around the world, with the added benefit of working across time zones. There is the remarkable example of a major American corporation, with offices around the world, which was able to resolve a serious engineering problem by having one office work on it, and then pass it on, at the end of its working day, in an electronic relay to the next in its global network, just as they were beginning their day, and so on, until it circled the globe and returned to the head office completed, next morning.
Most consultants sign-off at this stage, having shown the company the road to recovery and helped it take the first step. A few, however, go the extra mile and undertake the arduous, nerve-racking task of actually implementing the plan, carrying through the recovery. This service is that of the I-CEO. Here, the consultant is embedded in the company, as its operating head, for a contracted period, often, but not always, on a full-time basis. Other than the fact that he is there for a specific, contracted period only, there is little
difference between him and a regular CEO – except for the crucial fact that his personal stakes in the recovery are unusually high.
Not only is he virtually out of the consultancy market for the contra-cted period, but both the reputation he survives on as well as his remuneration, to a significant extent, are directly linked to the success of the turnaround. While a regular employee has an indefinite period of time and the complacency of an assured long-term personal income stream independent of the company's performance, the I-CEO literally lives by his actions and has a very finite period within which to deliver results. For owners of sick companies, as well as their financiers, this is one of the most successful routes to recovery, with costs largely linked to performance. Obviously such a service is not cheap, but when corporate survival is at stake, it is by far the best value-for-money proposition. For financiers, corporate recovery, under such terms, is a far more worthwhile option than writing off a liability.
Corporate recovery is one of the most demanding, yet satisfying, management activities possible. Its path is littered with fear, pain, trial and tribulation, but its final mile if reached, is paved with renewed vitality, optimism and resurgence. With the right guide, it is remarkable how many failing companies can actually be saved; the pity is how few realise it.
Chandra Lahiri is a professional global manager with over 30 years of experience, more than a decade of it at board level worldwide. You can reach to him at chandralahiri@gmail.com
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