comprehansive approach on how to adress corporate crisesand resolve

1. Turnaround- and Crisis
Management
concepts and principles for
successful resolution
PM Summit 2012, Clemens Frowein
HLP entwicklungspartner GbR . Voltastraße 31 . D-60486 Frankfurt . info@hlp-entwicklungspartner.de
Telefon: 0049(69)43 00 820-00 . Telefax: 0049(69)43 00 820-10 . www.hlp-entwicklungspartner.de

2. Turnaround and Crisis Management
"Crisis" (Greek): 1. a stage in a sequence of events at which the trend of all future
events, especially for better or for worse, is determined; turning point. 2. a condition of
instability or danger, as in social, economic, political, or international affairs, leading to
a decisive change. 3. a dramatic emotional or circumstantial upheaval in a person's
life. 4. the point in a play or story at which hostile elements are most tensely opposed
to each other.
In Chinese, to set the font symbol for crisis together from 2 characters:
"Danger" and "opportunity"
70% !
Crisis is a subjective state after a suddenly occurring, life-changing event that, where
affected humans often are (temporarily) overwhelmed with the resolution.
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3. Turnaround and Crisis Management
Most common causes for corporate crisis
Liquidity problems 73,9%
Decrease in sales 69,6%
Endangered equity 65,2%
Uncompetitive cost base 60,9%
Strategic reorientation 56,5%
Drop in prices 43,5%
Negative earnings 43,5%
Earnings lower than target 8,7%
Roland Berger Study, 2006
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4. Turnaround and Crisis Management
Dynamic and logic of corporate crisis
Urgency
Small Large
INSOLVENCY
LIQUIDITY
Scope for Action
CRISIS
Need for Action
EARNINGS
CRISIS
STRATEGIC
CRISIS
Large Small
Time
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5. Turnaround and Crisis Management
How to tackle the challenge: The turnaround resolution cycle
Get in
crisis state
Root-cause
understanding Turnaround
Resolution Learning &
Cycle moving
Phase 1
the tough cuts
first Phase 2
new capacity
building
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6. Turnaround and Crisis Management
Root cause unterstanding: External and internal causes
External causes of crisis Internal causes of crisis
Structural change, e.g. due to Management problems
Globalization Ignoring the signs of crisis
Integration Lack of ability to act
Technology leaps Wrong HR policy
Shareholder value orientation
Wrong focus: on sales rather
Cyclical problems than profit
Drop in demand
Change in the dynamics of Growth trap or overambitious
competition cost saving efforts
Sales channel switch
Increasing complexity of the
Unpredictable changes to the product portfolio, regions, and
market/competitive framework customer segments
Drop in public-sector demand
Ban on certain products Insufficient transparency for
corporate control
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7. Turnaround and Crisis Management
Root cause unterstanding: Challenges of diagnosis
Problems are so different and situations so complex, there can
be no universal remedies for corporate crisis.
Knowing the strategic and operative causes is key to success
and the basis for effective counter-action.
Major decisions of the diagnosis must be made under extreme
time pressure.
Management must be self-critical and open-minded: in the final
analysis, most corporate crises are down the management
mistakes.
The diagnosis is the success critical – all interventions build upon
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8. Turnaround and Crisis Management
Root cause unterstanding: Diagnosis in three areas
1 2 3
Financials Operations Strategy
Revenue and cost Structures Product portfolio
Revenue, cost and profits by Departments (structure/heads) Product mix
products, markets, customers Hierarchical levels Complexity
Benchmarking by cost type Regional coverage Innovation
(material, operation, overhead) Holding structure (subsidiaries) Pricing model
Main causes of losses/risks
Key processes Market and customers
Cash flow Decision-making/ reporting Market segment development
Monthly develop. /forecast Value chain (in/outsourcing) Trends & key success factors
Accounts receivable Sales/marketing efficiency Market access and distribution
Inventory Purchasing efficiency Customer and order structure
Investment/divestment Production efficiency
Logistics efficiency Competitive position
Capital structure Existing and potential
Excessive debt/loss of equity Management/ personnel competition profiles
Hidden risks in balance sheet Qualification Relative positioning (market
Need for „fresh money“ Motivation share, success factors)
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9. Turnaround and Crisis Management
1. Phase of the program: The „tough cuts“
Liquidity Profitability
Sales up
Reduce investments to absolute - Increase prices where possible
minimum - Focus sales efforts on customers
(only essential repairs/replacements) - Speed up new product launches
Reduce inventories Reduce procurement costs
- Lower safety stocks Survive & - Lower material/service standard
- Dispose of slow movers Regain - Negotiate with suppliers
- Increase quality in delivery - Change suppliers
Value Reduce personnel costs
Reduce accounts receivable
- Intensify claim management - Layoffs/part-time employment
- Speed up settlement - Reduce/waive salary
- Push for faster payment terms or - Stop employment
advance payments - Reduce overtime
Reduce overhead costs
Sell fixed assets
- Cut travel budgets
- Real estate
- Reduce perks
- Machinery
- Negotiate interest relief
- Holdings
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10. Turnaround and Crisis Management
2. Phase new capabilities: The path back to value
Restructure weak setup’s Identify extra sales and Focus on the profitable
earnings potential elements of the value chain
Reduce complexity costs - Focus on quality of
- Eliminate unprofitable customer handling Develop a business model
products - Enter complementary that creates value
- Reduce no. of product markets
variants
- Introduce a modular system
Optimize business units/
Choose unusual market jettison non-core business
Reorganize Processes entry or exit strategy segments
Involve employees
Organization Target markets Business model
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11. Turnaround and Crisis Management
Use the ep Transformation Canvas: Change is critical
ep Transformation
Canvas
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12. Turnaround and Crisis Management
Critical success factors of turnaround management
1. MANAGEMENT COMMITMENT & LEADERSHIP
The most important success factor in restructuring – implementation has
room for improvement
HOLISTIC CONCEPT – Strategic, Operational and Financial
2. Very important (P&L, balance sheet, cashflow, strategy, systems) – implementation has
improvement potential
3. QUICK IMPLEMENTATION – Speed is of essence
Rated as very important; but low rate of early warning systems implementation
4. TRANSFORMATION MANAGEMENT – without Change no results
Create the energy and build new capabilities with involvement and up-skilling
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13. Turnaround and Crisis Management
Überblick: Experten in Reorganisation / Turnaround
Clemens Frowein
Studium des Wirtschaftingenieur-wesens und der Betriebswirtschaft an
den Universitäten TH Darmstadt und JWG Frankfurt / Main. Assistent des
Vorstands bei einem führenden Systemhaus.
Von 2004 bis 2010 war er Gesellschafter bei HLP Hirzel Leder & Partner,
seit 2011 Partner bei HLP entwicklungspartner GbR.
Clemens Frowein berät mit den Schwerpunkten Unternehmens- und Geschäftsfeld-
strategie, Innovationsmanagement, Projektmanagement und Organisationsentwicklung.
Nach Branchen liegen die Erfahrungen in der Konsumgüterbranche, Chemische Industrie,
Dienstleistungsbereich, bei ITC Diensten und auch im landwirtschaftlichen Bereich. Er
unterstützt Unternehmen in der Orientierung, der Geschäfts- und Organisations-
entwicklung, wobei in besonderer Weise „harte“ Faktoren (Geschäftslogik) kombiniert mit
„weichen“ Faktoren (Dynamik der Menschen und Organisation) in den Blick genommen
werden. Veröffentlichung zahlreicher Artikeln und Beiträgen sowie Vorträge zu den Themen
Strategie und Innovation.
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14. Thank You
HLP entwicklungspartner GbR . Voltastraße 31 . D-60486 Frankfurt . info@hlp-entwicklungspartner.de
Telefon: 0049(69)43 00 820-00 . Telefax: 0049(69)43 00 820-10 . www.hlp-entwicklungspartner.de