The 1980s saw the rise of personal computers and with that a substantial increase in the productive potential of many office workers. In the 1990s, those personal computers were networked together, first in offices and then through the Internet, which enabled even greater productivity as data sources that had once been remote became easily accessible. In the decade just ended, we witnessed a move to mobile devices that ensured that work could never be completely left behind for many white-collar workers.

The result of these changes is that it is now possible to manage companies with reference to a breadth and depth of data that could scarcely have been imagined in earlier periods. Data for sales, collections, human resources and other crucial functions can rapidly be tracked and manipulated to yield valuable insights. Managing through a series of rules of thumb is no longer simply old-fashioned; it is a retrograde choice that places a company at a competitive disadvantage.

While this generation of unrelenting technological progress has paid numerous dividends, it also represents considerable peril, especially for companies in distress. Companies facing benign economic conditions rationally focus on growth, which invariably leads to a broadening of product and/or service offerings, increasing inventory diversity, ever more dynamic staffing requirements, etc. But of course economic conditions change, and as a result companies facing distress often find that the complexity of their operations has significantly outstripped the capacity of their internal systems.

Turnaround Professionals Employ Business Savvy and Technological Skills to Manage Through Distressed Situations

Turnaround professionals are in the business of embracing the complex. Every turnaround situation involves no small effort by these professionals to reign in the spiraling complexity inherent to distressed situations and so avoid a descent into unmanageable chaos.

Sensitivity to the central role of both good data and the tools to analyze that data can substantially improve the chances of a turnaround’s success. Professionals so focused can proceed by taking the following steps:

1. Work with company management and staff to understand the data and tools currently available (both what is being utilized and what is available but not currently utilized).
2. Identify and prioritize areas of weakness, with particular focus on areas impacting cash (sales, collections, staffing, etc).
3. Construct tools aimed at addressing key areas of weakness, with a focus on “elegantly simple” output that will be understandable to the broadest possible range of users.
4. Initiate use of new tools, refining as needed.
5. Train management and key staff in the use and maintenance of new tools, ensuring a permanent enhancement to operations.

By following these steps, turnaround professionals can systematize an approach to data that acknowledges its increasing importance while building on the skills that turnaround professionals traditionally bring to the table. Additionally, the newly established tools that are developed in following these steps can serve as useful stop-gap measures and a bridge to a longer-term solution once a company is no longer in distress.

View From the Trenches: Recent Experience in Data-Centric Solutions

Two recent cases illustrate the importance of data and its timely analysis in a turnaround:

Case # 1: Book of Business Analysis

On a recent engagement the lender group to a $350 million energy supply company experiencing severe profitability erosion retained a turnaround firm to assess the situation and advise on a course of action. The turnaround firm immediately identified the need for a detailed book of business analysis. With 10,000 SKUs, management considered such an analysis to be beyond the technical capabilities of its staff and counseled patience as a comprehensive system was tested and installed. Recognizing that a thorough book of business analysis must precede, and not follow, implementation of a successful turnaround, the turnaround firm set about performing the analysis that management did not believe to be possible.

By utilizing the database skills of a member of the consulting team the “impossible” task of this analysis was revealed to be merely extremely complex. The consulting team was able to present the lender group with comprehensive findings on the very analysis management had maintained was beyond their abilities.

Drawing on the insights from the turnaround firm’s findings, the lender group engaged management in a constructive dialog on how best to restructure its liabilities, and to-date all parties have been able to proceed with an amicable restructuring.

Exhibit 1: Sales and Margin (%) Analysis By Category-Class [1]

 

Exhibit 2: Sales and Margin ($) Analysis By Category-Class

Case # 2: Inventory Reduction Initiative

In another recent case, the interim management team of a $130 million snack food company had secured a forbearance agreement on the strength of a proposed $10 million inventory reduction initiative. However, the systems in use proved incapable of providing timely and actionable data to drive this initiative. Senior management was spending several hours a day determining inventory position, and that information, once available, was not being widely disseminated.

In reviewing this state of affairs, a member of the interim management team saw a better way. Leveraging off the strengths of the legacy system, this team member built a robust front-end that provided the necessary analysis and reporting capability while substantially reducing the time commitment necessary to maintain the tool. Additionally, the added capabilities allowed for timely dissemination of inventory intelligence that allowed for more aggressive bidding and increased efficiency in inventory management.

Armed with a tool that provided near real-time visibility into the client’s inventory and how that inventory matched with contract and spot orders, the interim management team recognized that the current situation was untenable and proceeded with an orderly wind-down that maximized recovery to all constituencies.

Exhibit 3: Contracts and Orders Position

Only by addressing a thorny data-centric issue in both of the above cases was the turnaround team able to fully serve the needs of their clients. As the operations of companies generate increasing amounts of data, the ability to craft data-centric solutions quickly and effectively will come to be seen as a necessary skill of any high-caliber turnaround team.

Conclusion

The operations of companies are becoming increasingly data-centric and so must successful turnarounds. Distressed companies of all sizes often find themselves severely lacking in business intelligence; and due to this the value proposition of turnaround professionals must include an ability and willingness to tackle these problems head on. To do anything less would be to fail in the effort to effectively position under-performing companies for success.

David Johnson is a director with ACM Professional Services, a boutique financial advisory firm serving alternative asset managers, entrepreneurs and under-performing companies. He can be reached at 312-505-7238 or [email protected].