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The Future Role of the Turnaround Specialist

Introduction
With impending defaults looming as the economy slows and executive teams that have never dealt with an economic downturn, today's CEO needs to be armed with the appropriate tools to efficiently handle the problems that seem destined to be a reality. By hiring a firm that has experts in the financial, operations and sales/marketing arenas, the CEO can feel confident that his/her company is getting the individual attention and expertise needed to ensure that the business remains viable.

Signs of a Troubled Business
A company may require the services of a turnaround specialist for many reasons. Below are the most common signs of distress that troubled businesses often display:

Market Changes - Changes in the marketplace may have bypassed a company, leaving it with lagging sales and lost market share.
Operating without Controls - Managing a company without adequate reporting mechanisms is a recipe for disaster. If management is making decisions on old or inaccurate information, the company can easily head in the wrong direction.
Over-diversification - Today many businesses feel the pressure to diversify in order to reduce risk. However, too much diversification may cause them to spread themselves too thin.
Corporate Growth - Companies are sometimes tempted to add value by engineering a growth spurt. However, growth often carries a very high price tag and leveraging a company to such a degree means that management must operate with little or no margin for error.
Lack of a Sound Business Plan - A number of growing companies operate without a business plan or with a different business plan in every manager's head. The result is that plans are carried out according to individual interpretation.
Ineffective Style of Management - The president and founder of a company may be unable to delegate authority. As a result, the rest of the management staff is without solid experience or any feeling of ownership.
Poor Lender Relationships - Some companies develop an adversarial relationship with their financial lending institution. Fearing that their loan or loans may be in jeopardy, they attempt to hide financial information from the bank and communications are stressed. Since money is the lifeblood of almost every business, this kind of lender relationship only leads to more trouble.

The Turnaround Specialist
Turnaround specialists are a relatively new breed in the business world, but in this era of rapid and painful change, the market has placed an increased premium on their demand. Rising foreign competition, fast-changing technology and shifting financial markets have created a climate where no business can take economic stability for granted. The accelerated pace of change has turned once-successful CEOs into hesitant managers who are no longer able to provide strong leadership for their companies. While downsizing has trimmed payrolls and improved economic health, it has also robbed companies of management talent. Twenty years ago companies hired and carefully groomed managers to assume positions of top management; today many companies have little or no bench strength in their leadership ranks. Turnaround specialists, operating as either an interim manager or consultant, assisting a company's CEO in the decision-making process of a company to guide it back toward profitability. A turnaround management firm specializes in operational and financial restructuring for troubled companies. Armed with a broad base of industrial and financial experience, the firm can guide companies in a wide variety of industries, including manufacturing, retailing, distribution, wholesale, and service.

The turnaround specialist enters a company with a fresh eye and enjoys complete objectivity. This professional is able to spot problems and create new solutions that may not be visible to company insiders simply because the latter are too close to the subject.

The turnaround manager has no political agenda or other obligations to color the decision-making process, allowing him to take the unpopular yet necessary steps for survival. A turnaround specialist brings experience in crisis situations. Like a paramedic, the talent lies in making critical decisions quickly in order for the patient to have the best chance at recovery. Operating in the eye of the storm, the turnaround specialist must deal equitably with angry creditors, scared employees, wary customers and a nervous board of directors.

Armed with fresh ideas and a wealth of experience, a turnaround management firm can breathe new life into a faltering company. As it analyzes and then attacks the problems at hand, it can make decisions with total objectivity because, as an outsider, it can set goals without a preconceived agenda. The turnaround specialist also brings credibility to a company. When an organization's problems become known, creditors are often angry and confused. Employees are scared. Customers look on with suspicion and uncertainty. Therefore, the first important step is to stabilize the climate surrounding a troubled business. Creditors and customers often breathe a sigh of relief upon the retention of a turnaround consultant because it shows that the company recognizes that there is a problem and that it intends to fix it. Creditors and customers alike would like to see the company prosper as a viable company will provide them with either revenues or supplies for years to come.

The prospect of bankruptcy leaves the unsecured creditor with cents on the dollar, whereas a turnaround means payment in full or payment at negotiated rates.

Once engaged by a troubled company, the turnaround specialist moves quickly to minimize damage and restore stability. He/she concentrates on one or more of the following areas:

Manufacturing & Operations - Productivity and efficiency improvement, cycle time optimization, Kaizen, 5S programs, Six Sigma, cellular/continuous flow production, Just-In-Time (JIT), Industrial Engineering, Reengineering, Pull-through scheduling, production/inventory management, Lean Manufacturing, Outsourcing, warehouse and logistics efficiency.
Asset Management - Management and control of accounts receivable, inventory and fixed assets to enhance return on investment.
Financial Management - Information systems effectiveness & implementation, financial & cash flow projections, costing systems, break-even analysis, budgeting, financial analysis.
Sales & Marketing - Sales force development and training, incentive programs, market and competitor analysis, customer satisfaction enhancement, strategic development, new market analysis and development.
Cost Control - Optimizing the cost of raw materials, purchased parts, freight, utilities, insurance and other products and services to provide the critical balance between lowest cost and most efficient operations.
Vision and Success Planning - Vision development, success action plans, strategic plans.
Employee Motivation & Effectiveness - Team building, empowerment, leadership training, incentive programs, organizational effectiveness.

The results of the turnaround specialist concentrating on the above areas are numerous, including:

Dramatic Improvements in Organizational Effectiveness - clearly defined vision, clear benchmarks and goals, involved and empowered employees, leaders instead of managers
Improvement in Operational Effectiveness - commitment to continuous improvement, on-time delivery, reduction of cycle time/non-value added activities, improved response systems, pull-through systems
Cost Reduction - aggressive purchasing, alternative materials, control of waste, scrap and overtime, outsourcing to more efficient providers, consolidate facilities/reduce floor space
Reduction of Under-Performing Assets - slow moving, obsolete or defective inventory, delinquent accounts receivable, under performing divisions/product lines, equipment/buildings
Consistently satisfied customers
Impressive increases in sales and market share
Major improvements in profitability, cash flow and return on investment

The specialist brings an integrative and analytical approach to improve distressed companies by developing and implementing comprehensive turnaround plans. Our effective, hands-on approach produces verifiable, empirical data that yields realistic alternatives, allowing a company's stakeholders to make intelligent, prudent and timely decisions about their organization or investment.

Choosing the Right Turnaround Specialist
Experience - Experience is the most important credential. MBA degrees and CPA designations count for little if the turnaround manager has not been proven in the heat of battle. The candidate should be able to produce a portfolio of success stories and satisfied clients.

Reputation - No turnaround manager can expect to succeed without quickly gaining the confidence of creditors as well as accessing new sources of credit. Check the candidate's reputation with leading bankers, attorneys, accountants, financial advisors, factors, and trade creditors.

Fee Structure - Make sure the fee structure of the turnaround specialist is clear and fair. A company should make sure it can afford such a service or else it may be trading one set of problems for another. Find out if there is an incentive or performance arrangement in the contract.

Professionalism and Ethics - Membership in the Turnaround Management Association helps to indicate the degree of professionalism and honesty of a candidate. TMA holds members to a strict code of ethics and encourages certification by the Association of Certified Turnaround Professionals.

Conclusion
By hiring a turnaround specialist as soon as difficulties become evident, a CEO can save time and money. The sooner a specialist is hired, the sooner their ideas can be implemented. Whether the economy continues to struggle or picks up in the next two quarters, most turnaround firms also offer services that can help streamline operations, as well as other specialties, that can help a company run more efficiently and effectively.