22.4 Company turnarounds

A management consultant may be asked to assist with a turnaround of a company that is in trouble. A turnaround strategy often involves total restructuring and reorganization, or constitutes a prelude to major restructuring, and usually affects all the functions and activities of a company. This is a particularly difficult strategic assignment. The consultant will probably be brought in at a very late stage, when bankruptcy may be imminent. He or she may be regarded as a potential saviour or the last hope. The management of the company is often paralysed and in panic, under extreme pressure from creditors, banks, trade unions, tax collectors and others.

Before accepting such an assignment, you should consider whether your experience is adequate for a task that carries so much risk and responsibility, and what the cost of failure will be. If you accept the assignment, you should make sure that your and the management’s roles are clearly defined and understood, since there will be no time for lengthy discussions and negotiations, and some measures will need to be approved and executed immediately. If you feel that senior management itself is the cause of the trouble, or one of the major causes, you should make it clear that personnel changes may be necessary before committing yourself to the assignment.

Aquick preliminary diagnosis will help to evaluate the overall situation. In particular, it is necessary to assess whether the company can still be rescued, and if so, how much this is likely to cost and whether the task is beyond the management’s capabilities. If it is too late, or the cost of a turnaround operation would be prohibitive, there may be no other solution than to sell or liquidate the company.

Following the preliminary assessment, it is not advisable, and often not possible, to carry out lengthy in-depth diagnostic studies. There is a crisis situation; some creditors have to be paid today, others tomorrow, and the most competent staff may be thinking of leaving the sinking ship. Emergency measures have to be taken: a dialogue with the creditors is essential, and resources have to be found to make the payments that cannot be postponed.

The emergency measures will involve decisions that produce immediate savings, or that stop further deterioration in the company’s financial condition (e.g. a recruitment freeze, restrictions on foreign travel, termination of temporary help, increased emphasis on timekeeping and work discipline, cuts in entertainment costs). Some of these measures will not produce major savings, but