To successfully turn around a company in difficulty, you need to make André Gide's statement "To choose is to give up" your own . This phrase has a particular resonance in the context of companies in difficulty, where the scarcity of financial resources exposes them to a continuous risk of failure, and where, nevertheless, it is necessary to release the means to carry out recovery actions.
Contents
How to successfully turn around a company in difficulty?
Steering the recovery of a company in difficulty is a balancing act. Managers must refocus on their core expertise. This involves allocating human and financial resources to a transformation project.
The dilemmas are as numerous as they are complex to resolve:
- How can budgets be freed up to undertake transformations? In particular, the investment projects that are essential to the company's recovery?
- Should we slow down the pace of transformation to reduce cash consumption and "hold out" for the long term? Or, on the contrary, accelerate the pace, while taking greater risks?
- Is it better to keep certain "low performers" who are a burden on the cost structure? Or, on the contrary, to let them go - using the financial resources freed up to prepare for the future?
Our expertise in reorganizing companies in difficulty
To help you make the right choice in the face of these contradictions, we at iQo have developed a number of convictions based on our experience. We have acquired this expertise in the context of designing turnaround plans for companies in difficulty, as well as transitional general management.
The aim here is not so much to provide a binary answer that would cut through the paradoxes, independently of the context of each company. Rather, the aim is to provide a few keys to overcoming these contradictions, so as to know how to deal with the turnaround of a company in difficulty.
1. Carry out a systemic diagnosis within a very short timeframe
In a context of economic difficulties, time is vital. The time needed to understand the company's challenges and specific characteristics, and to diagnose its situation, cannot exceed a few weeks. This rules out sequential, siloed, ultra-detailed approaches.
The ability to embrace the globality of the issues at stake, to understand the origins of the difficulties, the links between the causes and, very often, the systemic nature of the current situation, takes precedence over the completeness of the diagnosis.
Time for pragmatism: the time for diagnosis must not delay the time for transformation. transformation. Adjusting the depth of analysis, accepting certain blind spots to the detriment of methodological purity, are acceptable positions as long as they don't hamper understanding of the financial impact (in particular, the transmission mechanism between operational difficulties and financial performance).
2. Mobilize internal resources to turn around a company in difficulty
Mobilizing teams around a " turnaround " approach requires a clear understanding of the urgency of the situation. Those who may have a responsibility (admitted or not) for this state of affairs need to be included in this process.
The following elements are essential to the successful turnaround of a company in difficulty.
- Identifying root causes
- Explain their sequence
- Carrying a vision
- Embodying the ability to change course despite difficulties
- Take the time to explain at all levels to build consensus (without slowing down the action).
Dealing with denial and lack of lucidity
And yet, despite the obvious difficulties, we often observe a lack of lucidity, and sometimes even denial. This denial is all the more marked when the company has experienced "good years" which have left us with the memory of a past (often glorified, wrongly so), which all we need to do is reproduce, as if the market itself had not evolved.
Looking to the future ultimately requires a genuine personal choice, informed by lucidity. This quality is (unfortunately) not a uniformly shared value in companies (large and small)...
Attenuating the subject, euphemizing, not daring to name the causes (or to name them wrongly), letting people think that the turnaround is not a last-chance operation - these are the main pitfalls that need to be guarded against, unless we are to increase the difficulties even further, paradoxically and often unconsciously.
3. Going beyond cost-cutting logic
Financial difficulties are often not new, and difficult decisions have long been delayed. Financial difficulties have become structural, leading to a certain fatalism within the teams, and a habit of not having the means.
Of course, every effort must be made to optimize, but it's up to the manager to go beyond the purely managerial logic of "doing the same with always less". The culture of the manager is not that of the transformer, and the turnaround must not be understood solely as a set of sound management measures, without addressing the strategic issues of market, positioning, value proposition (differentiation, pricing strategy...), investment policy, etc.
(Re)creating a virtuous circle
For example, in the context of a turnaround of a company in difficulty, steps to optimize the top line (improving the product mix, optimizing pricing, better passing on to the customer/supplier the costs linked to execution constraints and changes in initial assumptions, etc.) are more promising levers than simply temporarily postponing an expense.
The challenge is to create this virtuous circle, which is the only way to ensure a successful turnaround. It's a question of freeing up the financial resources needed to finance transformation projects. These projects, in turn, will enable us to improve margins, and thus sustainably reach a new level of performance.
4. Do not reduce the horizon to the short term to ensure the recovery of the company in difficulty
A company in difficulty has to constantly reconcile short-term imperatives, which can shorten the horizon - as cash flow issues dictate.
Yet everyone intuitively understands that recovery can only be achieved over the long term. It presupposes continuity of effort and a time lag between the moment when investment expenditure is committed, on the one hand, and the moment when the expected gains (productivity, etc.) are achieved, on the other.
It's necessary to look far ahead, while continuing to devote sufficient investment resources so as not to jeopardize performance. In addition, all available financing levers should be considered (leasing, investment subsidies, rental, etc.).
5. Avoid, as far as possible, difficulties linked to the absence of bank support
More than any other, companies in difficulty live in a "turbulent" environment. Credit-scoring companies are sounding the alarm with downgraded ratings, and financial institutions are refusing to provide the sureties needed to win orders.
However, there are a number of measures that can be taken to provide customers with security in place of bank guarantees, which are no longer available. For example, transferring ownership of raw materials, or adapting invoicing milestones to the reality of work progress... These measures avoid the need to take out guarantees or tie up cash, which can be penalizing in a context of deteriorating cash flow.
6. Communicate with customers on the scope of the transformations undertaken
In difficult economic times, customer confidence is put to the test. They are often reluctant to place orders (at the risk of not seeing them honored). Customers are also more vigilant about the consistency of payment milestones, and particularly sensitive to any rumors (sometimes spread by ill-intentioned competitors) about the company's financial situation.
More than ever, open, authentic, transparent and regular communication is the only way to avoid risk. The aim is to avoid an unannounced, gradual, and sometimes unassumed drop in orders.
7. Reassure suppliers to control working capital and supply chain risk
Suppliers form an ecosystem that is often particularly well-informed about companies' difficulties. They are alert to the problems of payment delays they are experiencing, which generates a significant reputational risk.
What's more, they adopt behaviors that are sometimes marked by mimicry, likely to exacerbate the difficulties encountered. Such is the case with requests for payment on order or pro forma invoices, which can further increase the WCR.
The importance of maintaining trust with suppliers
Finally, a company in difficulty is faced with a reduced range of suppliers, and must sometimes arbitrate between the costs ofProcurement and payment terms. What's more, it often has to give preference not to the lowest-cost suppliers, but simply to those who maintain its confidence, thus reducing the scope of its sourcing choices.
In this context, the quality of relations with suppliers, the relationship of trust built up, and the fulfillment of commitments given (particularly when payment deadlines are extended) are imperative to avoid the risk of supply delays likely to disrupt business. supply chain.
8. Focus all energy and financial resources on the success of the operation
There's no worse failure than not having deployed all the energy necessary to succeed.
Ultimately, this is the essential lesson we draw from these turnaround initiatives: successful turnaround initiatives are those that are carried out with energy, conviction and no fear of failure.
In the context of a company turnaround, all energies must be mobilized to make the turnaround a success, with no ulterior motives, and no "plan B" in the event that the turnaround should fail - which is ultimately the best guarantee of success!
How to use data to manage WCR?
Data has a major role to play in managing working capital requirements (WCR). In a general context of tougher economic
How can we support the transformation of business processes?
Process transformation is at the heart of corporate strategies to ensure that organization and business adapt to changing contexts. Backed by a wealth of
Rethinking corporate culture in the age of hybrid work?
Too few managers really consider the subject of corporate culture. Quite often, it is taken for granted, with some not hesitating to
