You are on page 1of 31

Booz & Company

Frankfurt, 24th November 2010

Corporate Turnarounds
and Restructuring
AGIG Seminar

This document is confidential and is intended solely for


the use and information of the client to whom it is addressed

Booz & Company


24 November 2010

Introduction Booz & Company


Restructuring and Turnaround
Indicators
Booz & Company Turnaround Approach
Management & Organization of Turnaround Projects
Q&A
Booz & Company
24 November 2010

Booz & Company is the oldest and youngest global management consulting firm
 96 years of consulting
experience (founded 1914)

Europe

North America








Atlanta
Chicago
Cleveland
Dallas
Detroit
Florham Park
Houston








Los Angeles
McLean
Mexico City
New York City
Parsippany
San Francisco










Amsterdam 
Berlin

Copenhagen 
Dublin

Dsseldorf 
Frankfurt

Helsinki

Istanbul

South America





Booz & Company


24 November 2010

Buenos Aires
Rio de Janeiro
Santiago
So Paulo

London
Madrid
Milan
Moscow
Munich
Oslo
Paris








 Solely owned by its 230 officers


 More than 3,300 firmwide staff
Asia









Middle East







 59 offices on all six continents

Rome
Stockholm
Stuttgart
Vienna
Warsaw
Zurich

Abu Dhabi
Beirut
Cairo
Dubai
Doha
Riyadh

Beijing
Delhi
Hong Kong
Mumbai
Seoul
Shanghai
Taipei
Tokyo

Pacific






Adelaide
Auckland
Bangkok
Brisbane
Canberra






Jakarta
Kuala Lumpur
Melbourne
Sydney

 We help the world's top


businesses, governments and
institutions. Over 10,000
clients in 75 countries 400
of the Fortune 500 companies
 Originators of ground breaking
business concepts such as
product life cycle, PERT,
supply chain management and
organizational DNA
 Success based on client results
- 85% of our assignments
come from existing clients
2

We integrate industry foresight and functional expertise to


find tailor made solutions for our clients
Primary Service Offerings
Strategy &
Leadership

Mergers &
Restructuring

Finance & Business Analysis

Marketing &
Sales

Product &
Service Innovation
Information
Technology

Booz & Company


24 November 2010

Operations &
Logistics
Organization &
Change

Outsourcing

















Industry Sectors
Aerospace
Automotive & Industrials
Chemicals
Consumer Products
Energy & Utilities, Oil & Gas
Financial Services
Health
Media & Entertainment
Natural Resources
NGOs, Nonprofits &
Associations
Private Equity
Retail
Technology
Telecommunications
Transportation
3

We focus on results and work closely with our clients

Focusing on Results
 For our clients, success is measured
by results

Working with Clients


 We form joint teams on-site with
clients, to promote teamwork and
effective implementation

 Success for Booz & Company


means creating value and improving
performance

 We forge long term partnerships and


offer strict confidentiality

 We emphasize implementation and


sustainable results

 Our emphasis on knowledge transfer


strengthens our clients skills

 We focus on effective knowledge


transfer to our clients employees

 Our approach is fact-based,


independent and objective

Booz & Company


24 November 2010

Introduction Booz & Company


Restructuring and Turnaround
Indicators
Booz & Company Turnaround Approach
Management & Organization of Turnaround Projects
Q&A
Booz & Company
24 November 2010

World economy downturn in 2008/09 recovery ongoing but


volatile many companies still under financial pressure
Financial Sector

World Economy

Need for Restructuring

 World economy significantly hit


by crisis in 2008/2009
 From beginning of 2010 world
economy is on recovery track
 However, Euro crisis jeopardizes
recovery track
 Many companies still suffering
from low sales volume (and often
losses) during economic crisis
 Still difficult for some companies
to get credits from banks at
reasonable interest rates
High need for many companies
to simultaneously cut cost and
grow stronger for the future

Source: Bloomberg
Booz & Company
24 November 2010

Company crises are often recognized at a very late stage


the scope of action is sometimes already extremely limited
Typical Evolvement of Company Crises

Risk of Bankruptcy

Liquidity
Crisis

Profit
Crisis
Strategic
Crisis

Low
Low

Booz & Company


24 November 2010

Visibility of Crisis Symptoms

High

Low

Scope of Action

Bankruptcy

High

Comments
 Three main types of company crises
usually build upon each other
Strategic crises characterized by
lack of long-term success factors
Profit crises may deplete equity
over time and lead to excessive
indebtedness

Finally, liquidity crises bear risk


of immediate bankruptcy
 The more advanced the phase of
the crisis, the easier it is to identify
its symptoms
High
 However, the scope of action
becomes increasingly restricted

All kinds of crises can be triggered by a large number of


exogenous and endogenous factors
Overview Crisis Triggers
Endogenous Factors

Strategic
Crisis

Profit
Crisis

Liquidity
Crisis
Booz & Company
24 November 2010

 Disadvantage of production location


 Unsystematic investments or product
developments
 Unclear vision, corporate structure,
governance
 Red tape & corruption
 Manipulation or falsification of balance sheet

 Outdated product portfolio
 Insufficient hedging of risks
 Delays in product development pipeline
 Inadequate price-performance ratio
 Excessive personnel cost

 No liquidity/financial reserves
 Unsecured credits for clients
 Large stock of receivables
 Excessive stock


EXAMPLE

Exogenous Factors






Recession, industry crisis


Change in customer demand
Decreasing purchasing power







Market saturation
FX fluctuations, fiscal policy
Political or military crisis
Catastrophes







Cancellation of bank loans


Increase of interest rates
Collective wage agreements
Patent infringement

In typical restructuring situations there is an urgent requirement to change business within a short time horizon to ensure
survival
Annual Revenue Projection
-8,2%

Revenues

EBIT

-44,9%
+2%

+25%

+16% +9%

+11% +7%

Target
EBIT
EBIT
Projection
Weekly Cash Projection

Cash

Booz & Company


24 November 2010

Urgency in Restructurings
 Restructurings require quick action to
resolve threatening business situations that could cease continuity of
operations or terminate independence
 Typical drivers of urgency in restructuring programs
Massive decline in sales
Significant gap to target EBIT
Liquidity crisis
 Urgency of situation requires rapid
decision-making to resolve business
risks
Quick definition of improvement
targets
Compact phases & decision points
Quick-wins identified and addressed
Fast implementation of project findings
9

Introduction Booz & Company


Restructuring and Turnaround
Indicators
Booz & Company Turnaround Approach
Management & Organization of Turnaround Projects
Q&A
Booz & Company
24 November 2010

10

In a recent study, we have identified key success factors for


turnaround and restructuring projects
Booz & Company Study Successful Restructuring in the Crisis 2009
In a recent study, Booz & Company analyzed restructuring projects with and without consulting support.
Below, as an extract of the study, the key answers to the question What were your lessons learned
regarding the next restructuring project? were:
1. More focus on sustainability of effects

83%

2. Broaden project scope beyond cost improvements

76%

3. Stronger consideration of strategy and competencies


as restructuring basis

74%

4. More integrated approach instead of single views

72%

5. Stronger integration of involved parties and people


from the beginning
6. More focus on seniority and relevant experience of
consulting team members
7. Enhanced stringent methodology
8. Increase of dedicated internal resources
for restructuring project
Booz & Company
24 November 2010

65%
64%
54%
34%
11

When identifying savings, we combine traditional top-down


and bottom-up approaches
Classic Top-down Cost-Cutting Approach

Combined Approach

 Central definition of cost-cutting targets and


measures on top- management level
 Pro:
Consistent targets
High transparency on management level
 Contra:
Allocation of cost saving targets along sprinkler
principle, weakening of future branches
Low commitment from the rest of the organization
not invented here-syndrome

 Combined Top-down/Bottom-up approach:


Top down definition of organizational
capabilities and areas for investment to
derive differentiated cost-cutting targets
Bottom-up generation of saving potentials
by the organization
Synthesis of Top-down targets and
Bottom-up potentials for lean processes
and organizational structures
 Pro:
Results not only reducing cost but also
potentially strengthening the organization
Avoid silo-optimizations and sprinkler
principle targets
Generate high commitment level within the
organization for quick and sustainable
implementation
 Contra:
Higher program management complexity
Potentially perceived unfairness between
functions

Classic Bottom-up Cost-Cutting Approach


 Generation of ideas and measures within the
organization
 Pro:
Commitment within the organization
 Contra:
Saving in neighbours' areas
Low aggressiveness of the savings-targets due
to effects within the own budget (Doesn't work
explanations)
Booz & Company
24 November 2010

12

Turnaround and restructuring projects typically need to


address three different focus areas - at once an in short
amount of time
ILLUSTRATIVE
High Level Outline of Turnaround/Restructuring Project
II
III Strengthen Strategic

Secure Liquidity

Improve Performance

Business Significant downturn of


Outlook profitability and cash position

Improvement of business on
lower level allows planning
and implementation of
sustainable performance
enhancement

Typical
Actions







triggers struggle for survival


and immediate need to stop the
bleeding







Immediate top-down actions


Short-term cost cutting
Reactive Trouble Shooting
Ensure business continuity

Focus: Liquidity

Booz & Company


24 November 2010

Bottom-up actions
Sustainable cost cutting
Proactive measures
Ensure profitability growth

Focus:
Sustainable Improvement

Position
Strategy redefinition and
leverage of improved
capabilities to aggressively
determine own position in the
industry






Top-level driven agenda


Strategy re-definition
Footprint adjustment
Determine future position

Focus: Growth

13

No stone should be left unturned


Improving/
Leveraging
Balance Sheet
Cost
Reduction

Booz & Company


24 November 2010

Booz & Company Toolkit


Nonperforming
Assets
Sell-offs/
Divestments

Risk
Management

Investor Mgmt/
Share Price
Protection

Supply Base
Labour Cost
Network
Restructuring/
Management
Optimisation
Sourcing

Operations/
Process
Improvement
(Inc. Lean,
R&D, IT)

Overhead
Reduction

Funding and
Capital
Management

Working
Capital
Reduction

Consumer
Insight

Customer,
Brand and
Product
Portfolio
Optimisation

Pricing

Making it
Happen

Leadership
and
Programme
Management

Stakeholder
Management
Inc Crisis
Governance
Model

Change
Management

Strategy &
Operating
Model

Industry
Structure and
Competitor
Dynamics

Business/
Strategy
Review

Corporate
Capability
Driven
Strategy
Review

Revenue
Protection &
Growth

Enablers

Improvement Activities

Focus Area

Sales Force
Marketing
Effectiveness Effectiveness
and Efficiency and Efficiency

Talent
Management/
Retention

Performance
Management

M&A/PMI,
Target
Alliances And
Operating
Partnerships Model (Inc. IT)

14

A tailor made turnaround/restructuring program has elements


of liquidity, performance and strategic improvement aspects
Turnaround/Restructuring Program Modules
Strategy

II

III
Improve Performance
Purchasing/Sourcing
P1 Safeguard Suppliers
P2 Reduce Material Cost

Strengthen Strategic Position


S1 Consider Strategic Acquisitions/
Business Build-up
S2 Optimize Footprint
S3 Review Product/Brand Portfolio

P3 Cut Non-product-related Cost

Secure Liquidity
L1 Reduce Capital Expenditures
L2 Secure Funding/Credit Line/
Government Support
Adjust Staffing Levels/
L3
Labor Cost

Operational

L4 Reduce Working Capital


L5 Manage Pricing/Currency Risk
L6 Sell Assets/Businesses
L7 Adjust In/Outsourcing-Mix
Short Term (up to 6 months)

Booz & Company


24 November 2010

Engineering/Manufacturing
P4 Incr. Engineering Efficiency,
Quality and Maturity
P5 Design to Cost/Variant Mgmt.

S4 Supply Base Restructuring

P6 Incr. Production Efficiency


Sales/Aftersales
Increase Sales/Sales Network/
P7
Aftersales Efficiency
P8 Realize Prices
IT
P9 1% IT Organization
Overhead
P10 Reduce Overhead to 5%

= Examples on next pages


Long Term (more than 12 months)
15

L3

Secure Liquidity

II

Improve Performance

III Strengthen Strategic Position

Staffing level adjustments require diligent planning and


implementation
Capacity
Planning

 Determine required staff


capacity in different
functions, examples:
Production: base required
capacity on anticipated
output and future process
landscape
R&D: cautiously assess as
R&D is often core
competency, efficiency
improvements can yield
redundancies
Marketing: assess out-/insourcing of marketing services for cost effectiveness
Booz & Company
24 November 2010

Plan Staffing
Adjustments
Plan Labor Cost
Adjustments
 Plan capacity reduction to
meet requirements, e.g.
address
... external temporary work
capacity per head
... internal number of staff
 Adjust labor cost to meet
cash savings target, e.g.:
Adjust bonuses
Re-base salaries (where
possible)
Link compensation to
company/turnaround
performance

Implementation

 Prepare and engage in


communications to stakeholders
 Negotiate capacity reductions with workers council
& union
 Implement identified mix of
working hours reduction and
labor cost adjustments

16

L3

Secure Liquidity

II

Improve Performance

III Strengthen Strategic Position

Labour cost reduction is not necessarily about laying off


employees
Categories of Labour Cost Cutting Measures
Permanent
FTE Reduction

 Individual personnel measures


 Redundancy due to business operations
 Low performer management

Labour Hours

 Reduction of overtime stock


 Reduction of prior year vacation days
 Termination of probation period and temporary contracts

Salary and
Benefits

EXAMPLES

 Tight wage and salary negotiations (reduce, delay increase, alternative tariff)
 Stopping of voluntary benefits
 Reduction in personnel related cost (e.g. company cars)

 Voluntary waiving of vacation days


Voluntary
 Voluntary waiving of extra vacation/Christmas payment
Employee Measures  Voluntary waiving of salary

Work Models

Booz & Company


24 November 2010

 Introduction of new work models, e.g. reduction of weekly hours


 Short-time work
 Temporary leave of absence or part-time work models
17

II

Secure Liquidity

Improve Performance

III Strengthen Strategic Position

Example: Reducing management layers, increasing span of


control and combining functions can rapidly reduce costs

L3

CLIENT EXAMPLE
Before Engineering Structure

Spans and Layers Improvement


Total
Engineering
632 HC

VP

Layer 1

5 Product Directors

Layer 2

Key Considerations for Implementation

4.8:1
21
3 Sr. Mgr. Lvl
Sr. Managers. Ind. Cont.

Layer 3

5.4:1
62 Managers
7.9:1

21 Sr. Mgr. Lvl


Ind. Cont.
30 Ind. Cont

490 Individual Contributors

Booz & Company


24 November 2010

 Align management capacity and layers


adequate best-in-class levels
 Remove decision-making layers to increase
responsiveness to market
 Consolidate sub-span departments and
reduce management staff

Layer 4

Layer 5

 Assessment of multiple factors required


complexity of work
required interface with direct reports
best in class benchmarks, and others
 Risk of increased errors through reduced
oversight to be considered
 Potential need for new organizational
processes and tools to allow execution at
new spans with reduced supervision
18

II

Secure Liquidity

L3

Improve Performance

III Strengthen Strategic Position

Example: Reducing management layers, increasing span of


control and combining functions can rapidly reduce costs

CLIENT EXAMPLE
After Engineering Structure

Spans and Layers Improvement


Total
Engineering
470 HC

VP

Layer 1

 Align management capacity and layers


adequate best-in-class levels
 Remove decision-making layers to increase
responsiveness to market
 Consolidate sub-span departments and
reduce management staff

Key Considerations for Implementation


5 Product Directors

Layer 2

8.4:1
42 Sr. Managers/Managers

Layer 3

10:1
3 Sr. Mgr Lvl. IC, 21 Mgr, Lvl,
IC 401 Individual Contributors

Booz & Company


24 November 2010

Layer 4

 Assessment of multiple factors required


complexity of work
required interface with direct reports
best in class benchmarks, and others
 Risk of increased errors through reduced
oversight to be considered
 Potential need for new organizational
processes and tools to allow execution at
new spans with reduced supervision
19

Secure Liquidity

II

III Strengthen Strategic Position


I

Improve Performance

Secure Liquidity

Identify Outsourcing
Candidates

2
Choose Model

2. Supply Base
Maturity Filter
3. Process Maturity
Filter
4. Capability and
Economics Filter
5. Risk Management
Filter
Outsourcing
Ready Processes

Booz & Company


24 November 2010

Who does the work?

Business
Processes
1. Competitive
Advantage Filter

Third Party

Adjust In/Outsourcing Mix

Company

L7

OutNearsourcing shoring

Offshoring

InOffshore Captive
sourcing

Home
Country,
e.g. US,
UK,
Germany

Nearshore:
Canada,
Mexico,
Costa Rica,
Hungary,
Ireland

Offshore:
India,
China,
Eastern
Europe

Where does the work get done?

Assess Feasibility & Cash


Impact of Outsourcing

 Business case
 Trade-off between short term
cash and long term benefits
might be different than a year ago
(increasing focus on cash now)
 Good future perspective
Note on In-Sourcing:
 If free capacity is available inhouse also in-sourcing could
have a positive cash impact
Reduction of service fees
Utilization of over capacity
 However, in-sourcing only
possible if termination of
external vendor contract is
possible without significant extra
cost

20

P3

II

Secure Liquidity

III Strengthen Strategic Position

Improve Performance

Non-product-related (NPR) spend to be addressed through


a multitude of levers
5 Levers for Reduction of NPR Spend
Building/Site
Related

1 Utilizing the market


Evaluate
market
situation/
benchmark

Human
Resources
IT
Office & ComNPR
munications
Goods
and
Marketing &
Sales
Sevices
Logistics &
Distribution
Production/
Development
Professional
Services
Quick win initiatives
Booz & Company
24 November 2010

2 Rapid sourcing

Negotiate,
select
suppliers

Evaluate
market
situation/
benchmark

Prepare,
submit and
evaluate
RFQs

Negotiate,
select
suppliers

3 Identification of new strategic suppliers


TCO/
Market
evaluation

Supplier
short
listing

Supplier
assessment

RFQ
process

Analysis
Finaliof offers & zation of
negotia- sourcing
tions
strategy

Order of
samples

4 Joint improvement levers/growth security


Assessment
of process
description

AssessProposal
ment of Workshops
for
joint
with
process
supply
suppliers
change
chains

Risk
assessment

Internal
change
request

Process
change in
serial
product.

Demand levers

Assessment Workshops
of technical
with
specification suppliers

Design
of proposed
change

Risk
assessment

RFQ/
negotiations

Internal
change
request

Sample
order

Testing

Long term initiatives

21

II

Secure Liquidity

III Strengthen Strategic Position

Improve Performance

B Improve Performance

P6

We use a systematic framework to assess manufacturing


cost with a focus on selected areas that drive production
efficiency
Production Efficiency Assessment Elements
Product
Design

 Factor costs
 Tariffs

Inherent
Costs

Location
Economics

 Complexity

Scale/
Utilization

B
Manufacturing
Strategy

Supply Chain
Structure

Structural
Costs

Plant
Focus

 Fill rate, lead time


 Inventory targets
 Planning policies

Service &
Supply
Policies

 Sales/operations
planning
 Demand planning
 Capacity planning
 Inventory planning

Tactical
Planning
Processes

 Freight costs
 Product weight and
volume
 Number of suppliers
Sourcing
 Supp. mission & roles
Strategy
 Supplier economics
 Size
Customer
Demographics  Location
 Density
Distribution
Economics

A
 Plant
 Process

Process
Technology

C
Supply Chain
Control
Architecture

Motivation

Systemic
Costs

System
Support &
Architecture

Realized
Costs

Compensation

Business
Processes

 Complexity
 System support

 Size of organization
Enabling
Infrastructure  Location
 Productivity

Source: Booz & Company


Booz & Company
24 November 2010

22

II

Secure Liquidity

S2

III Strengthen Strategic Position

Improve Performance

Overall footprint optimization also includes site


concentration and offshoring

EXAMPLE

Change of European Engineering Footprint

Site #2

Site #7
Site #5

European
HQ

Site #3

Low-cost

Site #6

Site #8

The European
Centre

Other
Indian partner

5%

Site #9

Site #2
Site #1

Site #7
Site #4

Site #10

Sister
Engineering
Centre

Indian partner

26%

Target State

Site #9

Customer
Liaison

Site #4

HC
split

Consolidated Sites

70%

45%

European Front
Office
Centre of
Competence

4%

50%

Low cost Country


(e.g. Slovakia)

European
HQ

Site #1

HC
split

Low-cost

Satellites

Status Quo

Increased Off Shoring

Booz & Company


24 November 2010

23

Introduction Booz & Company


Restructuring and Turnaround
Indicators
Booz & Company Turnaround Approach
Management & Organization of Turnaround Projects
Q&A
Booz & Company
24 November 2010

24

Be clear how you want each stakeholder to contribute to your


turnaround effort
EXAMPLE
Stakeholder Overview
Shareholders/Capital Markets
 Generally overall positive towards
efficiency programs
 Future strategic perspective key to
receive funds
Show firm has future
perspective

Board of Management
 Interest in short-/medium-term KPI
improvements
 Members from different functional
areas might have different interests
Communicate steadily

Customers/Distribution Partners
 Focus on sustained quality and
supply stability
 Might demand share of margin
improvements
Involve where
necessary

Restructuring
Program
Involve strategic
suppliers early

Suppliers
 Suppliers are key to achieve cost
savings
 Potentially interested in strategic
alliances of driving supplier
industry consolidation

Booz & Company


24 November 2010

Openly involve with


solutions, no rumours

Workers Council/Employees
 Workers Council typically skeptical on efficiency and redundancies with given political mandates
 Employees fear consequences for
position and career path

Involve as
needed

Government/Public
 Multitude of public stakeholders
exist
 Generally critical about restructurings due to potential redundancies
 Federal/state governments might
contribute but will ask for participation in decision-making
25

Manifold action areas to be addressed within a turnaround/


restructuring project
EXAMPLE
Action Areas within Typical Turnaround/Restructuring Project
Top line growth/
Market forecast
Business plan/model

Fairness
opinion

Detailed cost measures/


Master Plan

Implementation
controlling

Communication strategy

Communication

Negotiation strategy

Official union negotiation

Financing strategy

Bank negotiation

M&A
Timeline
Booz & Company
24 November 2010

26

a systematic approach is required to steer the overall


program
High Level Restructuring Program
Understand
the Problem

Implement Solutions

Plan and Prioritise


Actions
Initiative 1

Diagnostics &
Target Setting

Program
Design

Initiative 2

Blueprinting

Implementation

Managing
Change

Initiative n

Program Management Office


 Determine and
 Prioritize improvement areas
analyze perfor Define priority
mance gap
 Assess potential
initiatives
 Set up overall
and set targets
program structure
 Build key stakeholder commitment
Booz & Company
24 November 2010

 Design measures
 Develop
implementation
plans and roll-out
actions
 Track progress
continuously

 Launch
communications
 Train and certify staff
 Implement processes
and systems
 Develop KPIs
 Flip the switch
27

A strong PMO is THE central unit to orchestrate between


project and line organization
EXAMPLE
Project Organization

Line Organization

Project Steering Committee

Client Board of Management

 Typically client C-level and potentially shareholder (PE)


 Partner of Consulting firm

Project Management Office (PMO)

Workstream 2

 Client staff
 Client staff
 Project manager  Project manager
and consultants,
and consultants,
Booz & Company
Booz & Company

Business Unit 1

Business Unit 2

Region A

 Implements BU
 Implements BU
 Implements
efficienc. measures efficienc. measures regional efficiency
 Engage in cross
 Engage in cross
measures
BU opport. identific. BU opport. identific.

 Client project office team


 Potential outside support

Workstream 1

Country Org

Additional
workstreams as
required

Engineering

Production

 Implements engineering efficiency


measures

 Implements production efficiency


measures

Sales
 Implements
sales efficiency
measures

Responsibility to implement initiatives and deliver against restructuring targets


needs to be established in line organization early
Booz & Company
24 November 2010

28

Introduction Booz & Company


Restructuring and Turnaround
Indicators
Booz & Company Turnaround Approach
Management & Organization of Turnaround Projects
Q&A
Booz & Company
24 November 2010

29

Thank you for your attention

JOERG KRINGS
Vice President

Booz & Company


24 November 2010

Booz & Company GmbH


Lenbachplatz 3
D-80333 Mnchen
Tel +49 89 54525 574
Fax +49 89 54525 500
Mobile +49 170 2238 574
joerg.krings@booz.com
www.booz.com/de

30

You might also like