For a company failing to grow the top line, or seeing margins reduced on the bottom line, one solution is certainly to develop new customers and products. This can be done in a systematic way, in a way that is likely to yield better results, or it can be done in a hap-hazard manner in which there are almost no noticeable improvements.
It should be obvious as to the approach I have seen when coming in to troubled situations.
Often, with good intentions, individual sales-people and engineers are all working toward some new "thing" -- gaining a new customer, developing a new application, identifying a new product -- without any real direction or focus. There is little if any analysis done regarding the company's strengths and weaknesses in the new area relative to the competitors. There is little analysis regarding the size of the potential market. By gut feeling, someone decided it was a good thing to work on, and so the go-ahead was given.
However, an alternative is one where such possibilities are reviewed systematically, with some idea of the competition, of the customer's willingness toward adapting a new innovation, of the likelihood of achieving a successful implementation. Simple questions can be developed and answered that will give some indication as to the relative merits of one opportunity vs. another.
Any company, no matter the size, has limited resources. No company can afford to chase every dream. Therefore -- in every company -- someone or some group of "someones" must decide on where and how to spend resources. This can bring its own dangers -- a bureaucracy is introduced, or decisions are made by a group of executives too far removed from the knowledge of technology and customer. These are real dangers.
However, this doesn't change the fact that someone or a group of someones is responsible to decide. To do so, there must be a process. The process can be ad-hoc -- "let's wait to ask the boss on a Wednesday afternoon right before he goes golfing -- he is always in a hurry and usually will say yes quickly in order to get out the door." Or it can be systemic.
For example, what is the product, who are the customers, what is the potential size of the opportunity, do we have the technology or is it otherwise related to our existing capabilities? These questions can all be asked and answered quite easily. With such answers, opportunities can be assessed as to the likelihood of success and thereafter to the value for the firm.
As to the risk of stagnation, or bureaucracy taking over -- shame on management if this happens. It is not so difficult to ensure that the right number and type of people are involved in the decision making process. It is also not so difficult to identify the sales and technical people who have earned the opportunity for much more leeway and freedom from the process if they feel that they have a good idea. Give such performers a discretionary budget to spend how and where they see such an opportunity. It doesn't take much money to fund such internal entrepreneurs.
But, certainly, you must put some process around this. This must be managed. It is a certain way to lose focus, and a certain way to spend resources on opportunities that either a) don't fit in the direction of where the company wants to go, or b) have little or no likelihood of success -- technically or commercially.
Tuesday, July 13, 2010
Non-controllable Costs
One consistent theme in each company I have gone into is the idea of non-controllable costs. "Well, property taxes are not controllable." "We can't do anything about IT." "Energy rates are going to be whatever they are." Such statements come out at all levels of the organization -- even top management.
Consider this for a minute. Executive management is admitting that they are willingly spending money that they cannot do anything about. Is this a sign of a team that is on the top of their game? Would someone dare make such a statement to their spouse regarding the household budget?
Certainly some costs might be easier to manage than others. Some costs are approved "above my pay grade." Every cost can be controlled. Every cost has drivers. Every cost has opportunities for improvement.
Every line item of cost can have an owner, if management wants to manage. The owner can learn the drivers of the cost. The owner can understand the factors that affect the cost. The owner can take action to improve the cost and manage this action through the organization.
This attitude of non-controllable cost is a disease. It is a disease of laziness. It is a disease of complacency. When you hear such statements, know that management is inadvertently admitting that they are not qualified to manage.
When challenged with this, most will come around. "Yes, we actually can do something, but X, or Y, or Z must happen, or so and so must get involved, or...." With this start, you can now begin taking steps to focus on every item, on every project, on every cost -- even the difficult ones. This is the first step toward getting management's mind around change -- a change in attitude toward the future of the company.
Consider this for a minute. Executive management is admitting that they are willingly spending money that they cannot do anything about. Is this a sign of a team that is on the top of their game? Would someone dare make such a statement to their spouse regarding the household budget?
Certainly some costs might be easier to manage than others. Some costs are approved "above my pay grade." Every cost can be controlled. Every cost has drivers. Every cost has opportunities for improvement.
Every line item of cost can have an owner, if management wants to manage. The owner can learn the drivers of the cost. The owner can understand the factors that affect the cost. The owner can take action to improve the cost and manage this action through the organization.
This attitude of non-controllable cost is a disease. It is a disease of laziness. It is a disease of complacency. When you hear such statements, know that management is inadvertently admitting that they are not qualified to manage.
When challenged with this, most will come around. "Yes, we actually can do something, but X, or Y, or Z must happen, or so and so must get involved, or...." With this start, you can now begin taking steps to focus on every item, on every project, on every cost -- even the difficult ones. This is the first step toward getting management's mind around change -- a change in attitude toward the future of the company.
Tuesday, May 25, 2010
Profit Margin
Understanding how a firm defines "profit margin" often tells a lot about how the firm is managed and the potential long term viability of the firm. I have seen many types of margin used -- some I could not explain if my life depended on it.
Gross margin, net margin, contribution margin, variable margin, EBIT margin, EBITDA margin, etc. I am sure I am missing many other options. The ones I typically focus on are EBITDA, and to a lessor extent EBIT. I find these most conducive to the philosophy of focusing on cash and creating a return on investment.
What I would like to spend some time on are the problem "margins" -- the ones I find being used in companies that have gone south and have helped contribute to going south, companies that "somehow" can't seem to find any profit: contribution margin and variable margin.
What these have in common is a conscious choice to ignore some cost -- everyone's favorite to ignore, G&A; next on the list, fixed overhead, etc. The justifications include the desire to win a program that is marginal financially (in fact, to price below fully burdened cost), or the desire to focus on operations but not support, or a desire to look at costs that management can "control."
All of these reasons are just excuses to not manage costs. Every time a program or project is priced below cost, the company is introducing a new competitor to the market -- and one that the company can never beat...that new competitor is itself, but always a lighter version.
A desire to ignore G&A is exactly what is convenient for the guys in the office. This way the lack of discipline in corporate is not made visible, and in fact the message is sent that this cost is not very important or not anyone's business.
Setting aside fixed costs and looking at variable margin implies that recovering machinery, equipment, and building expenses is not necessary. Or that somehow parts will spontaneously appear from nowhere.
The most stunning is the idea of focusing on costs that management can "control." It is impossible to have any item of cost that someone in management is not responsible for. And whoever is responsible for it must be held accountable to manage it. This one always amazes me, and I have heard it too many times. Management actually stands up and "admits" that they cannot control some portion of cost. If this is true, what use is management?
The bad message is reinforced -- not all cost is important. As if some dollars being spent are less important than others, or have less impact to the bottom line. Management is taught that there are some costs worth worrying about, and some that are unimportant -- or beyond their pay grade.
Such a practice creates a crutch, and a self-reinforcing one. The company develops a culture of dependence on subsidy, as if some benevolent father is covering part of the tuition bill.
Whenever I come across such a situation -- contribution margin, variable margin, etc., I ask which costs are being excluded. At a minimum, it is G&A. I then ask the management if they are agreeing that on such programs they are willing to give up that portion of their own compensation -- after all, what they are suggesting is some portion of their own personal costs will not be born by the company but subsidized by the shareholder.
Even this could be acceptable if the practice was managed strategically relative to opportunities -- with offsetting higher expectations on other opportunities. However, what I have found is that the line has continuously moved, until every program, every opportunity is looked at on less than full cost. In some ways, this is inevitable -- once dependence sets in, it is difficult to create the discipline needed to keep this in control.
Do not allow someone in accounting to convince you that the company can grow itself into profit by selling product at a loss. Don't allow the taste of this drug to seep in. Once it does, it will be difficult to keep it contained -- in fact, it will consume you.
Gross margin, net margin, contribution margin, variable margin, EBIT margin, EBITDA margin, etc. I am sure I am missing many other options. The ones I typically focus on are EBITDA, and to a lessor extent EBIT. I find these most conducive to the philosophy of focusing on cash and creating a return on investment.
What I would like to spend some time on are the problem "margins" -- the ones I find being used in companies that have gone south and have helped contribute to going south, companies that "somehow" can't seem to find any profit: contribution margin and variable margin.
What these have in common is a conscious choice to ignore some cost -- everyone's favorite to ignore, G&A; next on the list, fixed overhead, etc. The justifications include the desire to win a program that is marginal financially (in fact, to price below fully burdened cost), or the desire to focus on operations but not support, or a desire to look at costs that management can "control."
All of these reasons are just excuses to not manage costs. Every time a program or project is priced below cost, the company is introducing a new competitor to the market -- and one that the company can never beat...that new competitor is itself, but always a lighter version.
A desire to ignore G&A is exactly what is convenient for the guys in the office. This way the lack of discipline in corporate is not made visible, and in fact the message is sent that this cost is not very important or not anyone's business.
Setting aside fixed costs and looking at variable margin implies that recovering machinery, equipment, and building expenses is not necessary. Or that somehow parts will spontaneously appear from nowhere.
The most stunning is the idea of focusing on costs that management can "control." It is impossible to have any item of cost that someone in management is not responsible for. And whoever is responsible for it must be held accountable to manage it. This one always amazes me, and I have heard it too many times. Management actually stands up and "admits" that they cannot control some portion of cost. If this is true, what use is management?
The bad message is reinforced -- not all cost is important. As if some dollars being spent are less important than others, or have less impact to the bottom line. Management is taught that there are some costs worth worrying about, and some that are unimportant -- or beyond their pay grade.
Such a practice creates a crutch, and a self-reinforcing one. The company develops a culture of dependence on subsidy, as if some benevolent father is covering part of the tuition bill.
Whenever I come across such a situation -- contribution margin, variable margin, etc., I ask which costs are being excluded. At a minimum, it is G&A. I then ask the management if they are agreeing that on such programs they are willing to give up that portion of their own compensation -- after all, what they are suggesting is some portion of their own personal costs will not be born by the company but subsidized by the shareholder.
Even this could be acceptable if the practice was managed strategically relative to opportunities -- with offsetting higher expectations on other opportunities. However, what I have found is that the line has continuously moved, until every program, every opportunity is looked at on less than full cost. In some ways, this is inevitable -- once dependence sets in, it is difficult to create the discipline needed to keep this in control.
Do not allow someone in accounting to convince you that the company can grow itself into profit by selling product at a loss. Don't allow the taste of this drug to seep in. Once it does, it will be difficult to keep it contained -- in fact, it will consume you.
Friday, April 30, 2010
Communicate
One regular theme I have found when coming into a turnaround situation is the lack of communication between the top two or three people in management with the rest of the organization. "They never ask our opinion." "They don't understand the customer the way I do." "I have given many good ideas and nothing has been done."
It seems obvious in its face, but should be said: the wisdom in the organization is priceless, and any two or three people in the organization will know more on a given subject than the leadership will.
The best ways I have found to deal with this is to talk and listen. This can be done one-on-one, it can be done in meetings. I know meetings can be a taboo -- very bureaucratic and cumbersome, some would say. I would like to offer a different view.
It was my practice to set up meetings on various topics. I have previously discussed the four o'clock meeting. I would have meetings on business engagement, new customers / products, innovation, and others. I would ensure a very broad participation -- much broader than required for the specific agenda. I did this for a couple of reasons: 1) I wanted a wide range of opinions on a given subject (especially from people "outside" of the direct line of knowledge), 2) I wanted everyone to benefit from each other's knowledge, and 3) I wanted an opportunity to be able to convey my way of thinking through a subject to the entire team.
At first, I would get many complaints: " we have too many meetings, these meetings last too long, why do you let people talk on and on?" I would remind them of the earlier complaints -- management never listened to me, nobody asked what I thought, etc. I would ask them how they expected me to listen to them if we didn't have some forum to communicate. Or how could we properly question and discuss some new course without a brad array of opinions. Finally, as we are all affected by any such decisions, shouldn't more of us be in the discussion?
I am not sure my arguments won anyone over, however I believe time certainly did. After some time I would get comments from even the most vocal skeptics saying that they now see the benefits of such a process, that it helps bring the team together, that it makes everyone feel like they have a say, etc.
For me, I get the benefit of learning a lot about a new company, seeing management in action as to how they think and communicate, and conveying my sense to the group. I believe it is a win-win for everyone.
It seems obvious in its face, but should be said: the wisdom in the organization is priceless, and any two or three people in the organization will know more on a given subject than the leadership will.
The best ways I have found to deal with this is to talk and listen. This can be done one-on-one, it can be done in meetings. I know meetings can be a taboo -- very bureaucratic and cumbersome, some would say. I would like to offer a different view.
It was my practice to set up meetings on various topics. I have previously discussed the four o'clock meeting. I would have meetings on business engagement, new customers / products, innovation, and others. I would ensure a very broad participation -- much broader than required for the specific agenda. I did this for a couple of reasons: 1) I wanted a wide range of opinions on a given subject (especially from people "outside" of the direct line of knowledge), 2) I wanted everyone to benefit from each other's knowledge, and 3) I wanted an opportunity to be able to convey my way of thinking through a subject to the entire team.
At first, I would get many complaints: " we have too many meetings, these meetings last too long, why do you let people talk on and on?" I would remind them of the earlier complaints -- management never listened to me, nobody asked what I thought, etc. I would ask them how they expected me to listen to them if we didn't have some forum to communicate. Or how could we properly question and discuss some new course without a brad array of opinions. Finally, as we are all affected by any such decisions, shouldn't more of us be in the discussion?
I am not sure my arguments won anyone over, however I believe time certainly did. After some time I would get comments from even the most vocal skeptics saying that they now see the benefits of such a process, that it helps bring the team together, that it makes everyone feel like they have a say, etc.
For me, I get the benefit of learning a lot about a new company, seeing management in action as to how they think and communicate, and conveying my sense to the group. I believe it is a win-win for everyone.
Tuesday, March 23, 2010
The Four O'Clock Meeting
Coming into a company that has gone through a long bankruptcy or a slow death march toward the same requires bringing in some new energy and a new focus. For this, I have found no more effective tool than the four o'clock meeting.
There are many items that need specific, focused attention. Management may not have focused on these things for some time due to the stresses of bankruptcy, etc. Cash collections, customer business engagement processes, strategic procurement, etc. Whatever the list (and you must have a list), these items need special attention and are not in the normal day-to-day focus of the management. And they already have a full-time day job.
So 3-4 days per week, I would hold a four o'clock meeting. This meeting would focus specifically on these items that require change from past practices. The agenda would be published in advance such that everyone could be prepared. Not every item would be covered daily, but each item would be discussed once per week or at most every other week. It is held at the end of the business day to set a tone that this is the time for management to focus on longer term requirements -- not part of the day-to-day. It also can turn into a good time for the team to unwind and bond. There are many stresses they went through in bankruptcy and in a sale process. They are under pressure from the new ownership. It is a great opportunity to build the team.
It is also a good teaching opportunity. For example, if one item regards cash flow: instead of this being a discussion between the treasurer and CFO, it is now a discussion for all of management. Isn't that where it belongs? Or if the topic is sales strategy: shouldn't operations understand the thinking and dialogue on customer related decisions? Apart from the fact that this shared knowledge will help each member of management perform better each day, there is also a strong benefit of exposure to all business issues, thus better developing complete business managers.
It also allows for management to have a say in the future of the business -- a complaint often raised, when only one or two top executives might make decisions as if they were dictators.
Altogether, I have found this to be one of the most productive and useful methods to achieve lasting change and success -- and as a side benefit, a great teaching tool and team-building opportunity.
There are many items that need specific, focused attention. Management may not have focused on these things for some time due to the stresses of bankruptcy, etc. Cash collections, customer business engagement processes, strategic procurement, etc. Whatever the list (and you must have a list), these items need special attention and are not in the normal day-to-day focus of the management. And they already have a full-time day job.
So 3-4 days per week, I would hold a four o'clock meeting. This meeting would focus specifically on these items that require change from past practices. The agenda would be published in advance such that everyone could be prepared. Not every item would be covered daily, but each item would be discussed once per week or at most every other week. It is held at the end of the business day to set a tone that this is the time for management to focus on longer term requirements -- not part of the day-to-day. It also can turn into a good time for the team to unwind and bond. There are many stresses they went through in bankruptcy and in a sale process. They are under pressure from the new ownership. It is a great opportunity to build the team.
It is also a good teaching opportunity. For example, if one item regards cash flow: instead of this being a discussion between the treasurer and CFO, it is now a discussion for all of management. Isn't that where it belongs? Or if the topic is sales strategy: shouldn't operations understand the thinking and dialogue on customer related decisions? Apart from the fact that this shared knowledge will help each member of management perform better each day, there is also a strong benefit of exposure to all business issues, thus better developing complete business managers.
It also allows for management to have a say in the future of the business -- a complaint often raised, when only one or two top executives might make decisions as if they were dictators.
Altogether, I have found this to be one of the most productive and useful methods to achieve lasting change and success -- and as a side benefit, a great teaching tool and team-building opportunity.
Monday, March 8, 2010
The Cash on the Balance Sheet
The balance sheet is often overlooked. What I have found in struggling companies is that -- at best -- there was some management focus on the P&L (even this is rarely so). It is certainly so that most people focus on the income statement and the levers that can change this far more so than the balance sheet. Ignoring the balance sheet, or giving it only passing attention, is a mistake that a) disallows opportunities for one time cash generation, and b) contributes to the possibility of future failure.
In virtually every turnaround situation I have encountered, the balance sheet was a source of funds -- and at the beginning of the process, by far the most important source of funds. One can often recover 50% or greater of the purchase price of the company within 6 - 18 months by working on making the balance sheet more efficient.
There are countless opportunities: inventories, receivables, payables, unused assets, life insurance policies, joint ventures or sideline businesses, and others. Each one of these is an avenue to collect cash to pay down acquisition debt, and is also an area for focus to improve ongoing operations.
The process is quite straightforward. Go through the balance sheet line by line, and in this go through the details behind every item. Consider the opportunities:
1) Inventory: how many days of inventory is the company carrying? Using competitive data or even internal plant-by-plant best-in-class benchmarks, where are the outliers?
2) Payables: during bankruptcy, many suppliers demand cash on delivery or cash in advance. Develop strategies to change this, and certainly if possible as a win-win.
3) Idle facilities: they only cost money the longer you keep them.
4) Life insurance policies: this sounded strange to me until we once were able to use these as a funding source to cover a significant percentage of the purchase price of the company.
5) Side businesses: don't be surprised if a company that has found its way into bankruptcy also found ways to invest in businesses that have nothing to do with the core operations.
6) Receivables: ensure that customers are paying on time.
Assign people to each of these. Meet with them regularly. Monitor and track the results and hold them accountable. By showing them it is important to you, it will become important to them.
There was a time that it was hard for me to imagine that a company headed toward insolvency would not have found ways to unlock this cash -- certainly religion is found when survival is at stake, or so I thought. Equally as amazing is that these sources are not found during the period in bankruptcy. Creditors certainly would love to get paid back more of their due. After a time, I stopped being amazed.
Additionally, many of these opportunities can be used for an ongoing efficiency focus. For example, beyond cost structure -- and maybe the most important item to improve the cost structure of an operation -- inventory reduction and efficiency will contribute to the efficiency of the P&L. Additionally, an ongoing emphasis on receivables will help ensure that customer quality is taken into account when planning new sales initiatives.
I have seen the balance sheet overlooked countless times -- before going bankrupt, during bankruptcy, and very often by new management teams after emerging from bankruptcy. I cannot overemphasize the importance of this focus -- for immediately recovering some portion of the purchase price and for the long term financial health of the company, a focus on the balance sheet is as important and in some ways more important than a focus on the P&L.
In virtually every turnaround situation I have encountered, the balance sheet was a source of funds -- and at the beginning of the process, by far the most important source of funds. One can often recover 50% or greater of the purchase price of the company within 6 - 18 months by working on making the balance sheet more efficient.
There are countless opportunities: inventories, receivables, payables, unused assets, life insurance policies, joint ventures or sideline businesses, and others. Each one of these is an avenue to collect cash to pay down acquisition debt, and is also an area for focus to improve ongoing operations.
The process is quite straightforward. Go through the balance sheet line by line, and in this go through the details behind every item. Consider the opportunities:
1) Inventory: how many days of inventory is the company carrying? Using competitive data or even internal plant-by-plant best-in-class benchmarks, where are the outliers?
2) Payables: during bankruptcy, many suppliers demand cash on delivery or cash in advance. Develop strategies to change this, and certainly if possible as a win-win.
3) Idle facilities: they only cost money the longer you keep them.
4) Life insurance policies: this sounded strange to me until we once were able to use these as a funding source to cover a significant percentage of the purchase price of the company.
5) Side businesses: don't be surprised if a company that has found its way into bankruptcy also found ways to invest in businesses that have nothing to do with the core operations.
6) Receivables: ensure that customers are paying on time.
Assign people to each of these. Meet with them regularly. Monitor and track the results and hold them accountable. By showing them it is important to you, it will become important to them.
There was a time that it was hard for me to imagine that a company headed toward insolvency would not have found ways to unlock this cash -- certainly religion is found when survival is at stake, or so I thought. Equally as amazing is that these sources are not found during the period in bankruptcy. Creditors certainly would love to get paid back more of their due. After a time, I stopped being amazed.
Additionally, many of these opportunities can be used for an ongoing efficiency focus. For example, beyond cost structure -- and maybe the most important item to improve the cost structure of an operation -- inventory reduction and efficiency will contribute to the efficiency of the P&L. Additionally, an ongoing emphasis on receivables will help ensure that customer quality is taken into account when planning new sales initiatives.
I have seen the balance sheet overlooked countless times -- before going bankrupt, during bankruptcy, and very often by new management teams after emerging from bankruptcy. I cannot overemphasize the importance of this focus -- for immediately recovering some portion of the purchase price and for the long term financial health of the company, a focus on the balance sheet is as important and in some ways more important than a focus on the P&L.
Monday, March 1, 2010
Business Engagement
This will be the first of what I expect will be many posts on this subject. What do I mean by business engagement? In the big picture, to me it means everything from market and customer analysis through pricing and ultimately contractual terms and conditions. Identifying where and how the company wants to sell products, the products it wants to sell, how it will sell these, and how it will price them.
However, for today, I will focus on pricing. I do this because, in an intensive turnaround, the bigger strategic questions of market analysis, customers, etc., are not the first priority. Right now, the company is pricing product for sale. Right now, the company is agreeing to contractual terms and conditions. Right now, little if anything can be done about orders already booked but something can be done about those in process and to be booked. Right now is not the time to figure out if the company has the right long term strategic focus.
Coming out of bankruptcy, the company likely already has a hole in the order book. It already has customers that are leery of the company's future and certainly leery of the new ownership group. The customer base may already be upset about having to support the company through the bankruptcy period. So, right now is not the time to add to the concerns of the customer base about potential changes in long term strategic issues.
However, ensuring that new orders are booked that will enhance profitability should be an immediate concern. This will likely require a changed signature of the company in its face to the customer. This is already enough of a change to deal with, without introducing questions of longer term significance.
Certainly, communicate with your customers. Let them know where you are and your intentions. These intentions can certainly include the idea that you will take some time to develop long term plans that fit the company's and the customer's expectations and needs. My experience is that customers will allow for this time and will work with the company and new ownership -- especially if they already have provided support through a bankruptcy.
The immediate focus internally regarding business engagement should be pricing and contractual terms. Understand the company's practices today. Understand the models, formulas, templates -- if they have any. Unfortunately, I have found that the extent of involvement in this subject doesn't extend beyond the sales office -- little support from finance or legal. Little involvement from engineering that will develop the product or from operations that must deliver it. Little idea of the validity of the cost structures that will be employed to achieve success -- and no dialogue with operations and engineering to communicate where the cost must be in order to win a project or secure a sale.
Generally, what is lacking is a process and communication toward a common understanding and objective; involvement from all aspects of the organization that will have the responsibility to deliver; assurance that the cost structures are built with discipline. This discipline can include the identification of challenges that must be met in order to achieve targets. But without discipline in the process, how can one be sure of the required challenges?
I am not suggesting that the company, as the supplier, can dictate terms and prices to a customer that is buying in a competitive market. What I am suggesting is that the facts must be unearthed and open to the entire organization such that the organization is fully aware of where it is and the challenges that lie in front of it. Every obligation of the company should be taken with a clear understanding of what is required to succeed in fulfilling the obligation. This can only be done with well-grounded facts and data, and open dialogue among all constituents. I am also suggesting that bad deals must be recognized as such, and if the company cannot find ways to turn these into a good opportunity then the company must have the discipline to say no.
It is virtually certain, when I come into a new situation, that the entire business engagement process is contained on a salesman's desk. Yes, he will say it is coordinated with finance and operations, but when pressed, it turns out the cost data is five years old, or operations was asked for input only three iterations ago -- and the salesman didn't go back when the initial numbers were too high.
Pricing and contractual terms, along with a focus on cash, is one of the first areas that must be wrestled to the ground. Stop making the hole deeper by disallowing more bad projects and bad sales into the funnel.
However, for today, I will focus on pricing. I do this because, in an intensive turnaround, the bigger strategic questions of market analysis, customers, etc., are not the first priority. Right now, the company is pricing product for sale. Right now, the company is agreeing to contractual terms and conditions. Right now, little if anything can be done about orders already booked but something can be done about those in process and to be booked. Right now is not the time to figure out if the company has the right long term strategic focus.
Coming out of bankruptcy, the company likely already has a hole in the order book. It already has customers that are leery of the company's future and certainly leery of the new ownership group. The customer base may already be upset about having to support the company through the bankruptcy period. So, right now is not the time to add to the concerns of the customer base about potential changes in long term strategic issues.
However, ensuring that new orders are booked that will enhance profitability should be an immediate concern. This will likely require a changed signature of the company in its face to the customer. This is already enough of a change to deal with, without introducing questions of longer term significance.
Certainly, communicate with your customers. Let them know where you are and your intentions. These intentions can certainly include the idea that you will take some time to develop long term plans that fit the company's and the customer's expectations and needs. My experience is that customers will allow for this time and will work with the company and new ownership -- especially if they already have provided support through a bankruptcy.
The immediate focus internally regarding business engagement should be pricing and contractual terms. Understand the company's practices today. Understand the models, formulas, templates -- if they have any. Unfortunately, I have found that the extent of involvement in this subject doesn't extend beyond the sales office -- little support from finance or legal. Little involvement from engineering that will develop the product or from operations that must deliver it. Little idea of the validity of the cost structures that will be employed to achieve success -- and no dialogue with operations and engineering to communicate where the cost must be in order to win a project or secure a sale.
Generally, what is lacking is a process and communication toward a common understanding and objective; involvement from all aspects of the organization that will have the responsibility to deliver; assurance that the cost structures are built with discipline. This discipline can include the identification of challenges that must be met in order to achieve targets. But without discipline in the process, how can one be sure of the required challenges?
I am not suggesting that the company, as the supplier, can dictate terms and prices to a customer that is buying in a competitive market. What I am suggesting is that the facts must be unearthed and open to the entire organization such that the organization is fully aware of where it is and the challenges that lie in front of it. Every obligation of the company should be taken with a clear understanding of what is required to succeed in fulfilling the obligation. This can only be done with well-grounded facts and data, and open dialogue among all constituents. I am also suggesting that bad deals must be recognized as such, and if the company cannot find ways to turn these into a good opportunity then the company must have the discipline to say no.
It is virtually certain, when I come into a new situation, that the entire business engagement process is contained on a salesman's desk. Yes, he will say it is coordinated with finance and operations, but when pressed, it turns out the cost data is five years old, or operations was asked for input only three iterations ago -- and the salesman didn't go back when the initial numbers were too high.
Pricing and contractual terms, along with a focus on cash, is one of the first areas that must be wrestled to the ground. Stop making the hole deeper by disallowing more bad projects and bad sales into the funnel.
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