What they don't teach you at B-school about corporate turnarounds

INSEAD alumni like turnarounds: that is they like doing them. At least, that much is suggested by the fact that an event organised by the Alumni Association (UK), 'What they don't teach you at business school about corporate turnarounds' was an early sell-out.

by Morice Mendoza, World Business
Last Updated: 23 Jul 2013

The largely male audience, consisting of consultants and bankers amongst others, were given four presentations from people in the know: Eric Born, senior VP of Gate Gourmet (Western & Southern Europe); Jérôme Losson, operating principal, KKR-Capstone; Mubashir Mukadam, director of distressed products group, Deutsche Bank; and Joachim Palme, director of AlixPartners. The key 'take-aways' for anyone intending to get involved in the turnaround of a firm on the brink of bankruptcy are:

1. Make absolutely sure you have got first-class top managers in place. These may or may not be the ones already there, and is more likely to be a mixture of some old and some new. Watch out, said Born of Gate Gourmet, for believing in some seemingly top-rate managers. You keep hoping they will do well, and they end up disappointing you. So how do you know they are good? Jérôme Losson suggested that the things to watch out for are: that they are on top of their numbers and understand the operational metrics to building value in their business; that there is stability in the top team; and that the HR processes are understood and well established such as succession planning.

2. There are some key things to get right in the first few months, said Joachim Palme: reduce inventory; manage the vendors; retain customers; retain good people and ensure you have the right people in leadership positions.

3. Cash is king: all agreed that you must have a good cash flow to stand a chance of reviving a dying corporate beast.

4. Don't cut back on essential factors that help the business to grow such as R&D.

5. You learn diagnostics at B-school but not, said Born, how to get it done. (In his case, Gate Gourmet - later embroiled in a dispute with its unionised workforce - was losing millions of pounds and the management seemed not to be overly worried about the situation.) The company was literally bleeding to death and drastic measures had to be taken to save it (there was no time, then, to worry about such niceties as strategy). They had to reduce staff numbers; end illegal strikes; change the pension scheme; charge more money for their products (hard when you have a small number of big customers).

6. Always stick to your plans once you have made your mind up.

7. Analyse but don't over-analyse and make sure you communicate well all the time (Born said that you can "never over communicate").

8. Be prepared for the long haul. It can take several years, said Losson, before you can measure whether you are succeeding or not. It is not a fast win.

9. You have to dig deep into the organisation, sometimes finding the unexpected such as in one example a head of purchasing who had over-purchased a luxury boat for himself and his friends.

10. B-schools might not prepare you for having to deal with unionised workforces. You have to understand the nuances and rhythm of the union which may differ from region to region, said Losson. He said at KKR-Capstone they were not always "internally prepared" for having to work with trade unions. It is similar to the difference that exists between driving and taking a driving test: in the former case, you simply drive; in the latter you must follow strict rules in the right order in order to pass the test.

11. The banker's view from Mubashir Mukadim contained the following tips: don't trust managers blindly; get a good lawyer; don't believe the numbers; and, portfolio theory does not apply. In fact, in the case of distressed firms the greater the spread of your investments the greater the risk.

Turnaround merchants are sometimes viewed in the same way as undertakers, said Palme at the beginning of his talk. However, there is plenty of job satisfaction to be had, he continued, when you save a company in which a large proportion of the people are kept in employment.

'What they don't teach you at business school about corporate turnarounds', INSEAD Alumni Association (UK), 14th June 2007
Contact: uk.secretary@inseadalumni.org

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