Restructuring in the crisis – value management during the upturn

DRAFT Be a winner, not just a survivor Restructuring in the crisis – value management during the upturn Economic cycles are getting shorter and These key aspects of business management are very competitive pressures are rising in the often carried out under the umbrella of restructuring manufacturing sector. As a consequence, programmes, driving better results under high pressure. managing sustainability and profitable growth Handling these pressures without attempting a ‘mission in order to lead the competitive agenda impossible’ requires a committed senior team, a good becomes even more of a challenge for most mix of insiders of the specific company, an excellent companies. Restructuring becomes a more financial business case, efficient communication to frequent element of the corporate agenda. all relevant stakeholders as well as a sound team of industry experts to run a quick scan analysis for The key challenge, particularly in difficult root causes of under performance. The first step into times, is securing the right balance between subsequent implementation of a turnaround is usually operational and strategic development, to ‘stop the bleeding’ – and until this has been achieved responding to short-term pressures and every day of business can be costly. driving long-term objectives. The key to success is achieving the correct mix of: Driving results throughout all steps of a restructuring programme will be the only way to re-establish trust with • securing liquidity all key stakeholders (customers, suppliers, shareholders, • focusing the business portfolio bankers, key managers, and key experts) and to ensure • raising and sustaining performance. the future of the company. Case study Figure 1 Key options for securing liquidity Securing liquidity Strong cashflows come from strong business Case Study 1: Improvement of working capital by 100% performance, a quick and flexible response to any within six months movements in the top line and an efficient way of managing the cash cycle in the company. Understanding the key value drivers which really drive free cash is a first step in managing superior performance. Alongside the management of good performance is the careful and intelligent allocation of investments and efficient management of working capital in order to generate even better cashflows and strengthen the operational and strategic position of the company. The client, an international automotive supplier PA Consulting Group (PA) identified a number of key within its strong UK business, had effective sales priorities to look at when driving the efforts of securing outstanding of about 100 days and had not paid free cashflow in the manufacturing sector. Among the some of the bills for more than half a year. Inventory key options there are three main areas in which every was more than 70 days on average. This offered an company must review all opportunities: opportunity of more than 10% of revenues being tied • Working capital reduction: Review all outstanding trade up in unused cash. debtors, the possibility of accelerating outstanding claims, extended payment terms on the buy-side and A clear plan for every part in stock delivered about strengthen overall stock management half of the inventory after six months of work. • Asset utilisation: Review all assets and determine clear A strong improvement of the process between actions for under-utilised core assets as well as find outbound logistics and invoicing and of the total ways to turn non-core assets into cash quality complaint handling process achieved a significant decrease of effective payment times with • Risk management: Review all future cash risks and most of the key customers. On the buy-side of the determine strong and powerful actions to mitigate and business a systematic renegotiation of contracts and prevent all cash risks. common process improvement achieved a reliable supplier satisfaction and better prices with payment All these actions need to be driven by detailed data terms at industry standard. transparency and information flows throughout the firm. 2 Figure 2 Economic profit distribution across a business Figure 3 Business positioning and development (example results of analysis) within the competitive landscape Focusing the business portfolio Large companies often carry business portfolios in Case Study 2: Restructuring strategy of automotive which not every business adds value to shareholders. business unit Understanding which parts of the business portfolio generate value in the sense of delivering positive Within the analysis of the business portfolio of a economic profit is key when focusing the portfolio. larger Tier1 automotive supplier it became clear that Being aware of threats and main opportunities for the some parts of the fuel systems business were only long term competitive positioning supports decision strong in NAFTA but did not have a good position making when building the portfolio strategy. in Europe and Asia. While in the relevant market integrated modules represented the largest value, A winning portfolio strategy pulls together investment the largest market share was represented by plastic priorities, restructuring necessities, innovation focus and and other components. China was seen as the other development priorities and delivers a mixture of only significant growth opportunity, but it became restructuring, growth and development projects which clear that a regional business model was required. generate long term value and growth for each element Competitors have demonstrated that in this market of the portfolio. In restructuring situations, the first step the source of innovation and elements of business towards focusing the portfolio would be to define a way model regionalisation usually emerge from Europe. forward for all businesses (opportunity businesses) that do not add value to shareholders. Regular reviews to Key questions centred around investment to improve the business mix and create a good balance strengthen differentiation and innovation and between winner and opportunity businesses will focus European and Asian footprint, as well as increasing investments and corporate development and lead regional performance and capability. The target was performance improvement efforts. to determine the way forward and to highlight any necessary restructuring of the business in order to Thus, corporate portfolio management needs to include improve competitive position in key markets and all possible measures from exiting to complementing a get sustainably higher ROCE. Based on a number business.