ANNEX VII : CORPORATE SURGERY
In life threatening medical conditions, rational people often accept
the need for radical surgery. It is no different in business, when
the life of the company is in danger. In fact, in an early stage of a
turnaround, a tough surgery must usually be performed on the company in order
to arrest the decline, and more particularly for the following reasons :
-
to stop the hemorrhaging – to establish a break-even
cash-flow, and break-even profitability,
-
to stabilize the situation internally – to end rumors of
closings and layoffs.
-
to stabilize the situation externally – to end rumors about plant closings of facilities and
discontinuation of product lines.
A further benefit of these actions is to free up management attention
for the tasks of running the business and rebuilding the company.
The surgery once complete, normally has the effect of reassuring
remaining staff and of reducing desertions by key employees; in general,
it helps to
focus the minds of everyone on work.
A timely and clear notice of the nature of the corporate surgery also reassures existing customers that they
can rely on the company to continue providing them with products and
services, which they buy. This helps to retain existing customers and
reduces the reluctance of prospective new customers to give business to
the company.
Naturally, the surgery is coordinated with Turnaround
Communications, both internal and external, including letters to
customers, lenders, press releases and so on.
Means of Corporate Surgery. The surgery is carried out by
means such as the following :
-
sale of non-core capital assets, both business units and physical
assets,
-
dropping unprofitable product lines,
-
dropping customers who are chronically very slow or delinquent in
their payments, and who will not change their ways,
-
raising prices to profitable levels, even though this may alienate
some customers,
-
subcontracting some of the work, instead of doing it in house (in one
of my cases, the analysis led to the opposite conclusion),
-
sale of inventory or receivables at a discount to realize cash,
-
closing some outlets or facilities, to conserve cash, and / or
because their functions can be performed more efficiently by other
means,
-
automating some of the work,
-
layoffs of non-essential staff in areas other than the above,
-
termination of employment of non-productive employees in all areas.
Corporate surgery must be based on penetrating analysis and conscious
distinction between core and non-core activities. Certainly, permanent
cuts should not be made without having at least an outline of the
strategic plan for repositioning and restructuring the company, nor
without a realistic idea of workloads that people can cope with, nor
without a reasonable idea of certain productivity improvements that will
be made through foreseeable re-engineering of the business process.
Thumbs down to "across-the-board cuts". It follows
from the above, that I am opposed to the use of cuts of "x"
percent across-the-board, as a method of reducing costs in crisis
situations, which some businesses copied – it seems – from the
government. Most of the time, such cuts mean that the people ordering
them, do not know what the various budgets should really be in relation
to revenues and workloads. The staff, particularly lower level
supervisors, recognize this rather quickly; and it does not increase
their respect for the leadership – irrespective of the fact that they
themselves may have withheld information on workloads from senior
management. Consider how unfair and damaging to production and morale
are cuts of a fixed percentage when applied to both to an overworked and
an overstaffed department. Even more fundamentally, responsible management is
not about spreading the pain, but about wise allocation of resources.
Lastly, it should be kept in mind that, except in most extreme
circumstances, corporate surgery should not affect services that the core
clientele likes and needs.
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