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MANAGEMENT: A Tale of Restructuring
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A Tale of Restructuring

By Marwan Emile Faddoul (Managing Partner, NFG Consulting LLC)

BT 201506 09 Management 3A reputable manufacturer was several million dollars in debt. The company hadn’tt shown a profit for the last 4 years and was on the edge of bankruptcy. At the end of 2014, two years after its rescue plan, the company was able to cover all its debt and start making profit again.

What went wrong and what were the strategies that were implemented to turn the company around and put it back on track?

[The information that we are about to share is based on a true story]

A few years ago, on an early Wednesday morning, I received a call from one of our partners. It was bad news. His friend’s company was in a very critical situation and needed urgent help. I was home, celebrating Christmas with my family. A few hours after the call, I booked a ticket back to China and the next day I was on the way to Shenzhen to meet with Mr. Li, the owner of anagricultural equipment manufacturing company. The company had several plants both in China and overseas. It was also well known for its advanced engineering and technology, plant productivity, and quality management.

I arrived in Shenzhen where two of my co-workers were waiting for me.

When we started to diagnose the problems the company faced, we were surprised to learn that, while most of the employees sensed that there was indeed a problem within their factory, they nearly always believed that their respective departments were operating optimally. The consensus was that other departments and other employees were creating the company’s problems. The bad outcome of the company led to finger pointing rather than acceptance of responsibility. Sales managers blamed product planning andproduct planning blamed engineering.

After reviewing the company for 3 months, both in China and overseas, we were able to detect the following additional obstacles:

BT 201506 08 Management HLFirst, in terms of product development, in previous years the company had not reflected customer opinion. Previous models were selling well so the companysimply stopped caring about the demands of customers and failed to improve innovative features or styling of their new products.

Secondly, from a structural perspective, due to the company’sstructure, when something goes wrong, the most senior person takes responsibility, while accountability at lower levels were diffused. These internal cultural norms severely hampered risk-taking and slowed decision making at all levels. Furthermore, existing teams of employees routinely spent much time on concepts and details without much sense of urgency for taking new action.This mind-set contributed to a certain degree of complacency with market positions and internal systems at the company, undermining the company’s competitiveness.

Finally, in strategic terms the company management throughout the previous 4 years had displayed a tendency to emphasise short-term market share growth, rather than profitability or long- term strategic success. In addition, over the previous decade, the company had aimed to maintain operational efficiency and group harmony. This resulted in delays to the decision making process in an effort to achieve consensus. Also, when decisions were made, the follow-up during implementation was often not effective.

BT 201506 11 Management 5Communication problems were present between the layers of the organization. Staff seemed uninformed of key corporate business decisions, while higher management seemed out of touch with the policy issues at the middle and lower management levels.

To overcome all these obstacles and to make deep changes inside the company, we knew that we didn’t need loads of people, but rather the right catalysts at the right places. We believed that cultural conflict, if placed and channelled correctly, could provide opportunity for rapid innovation. By accepting and building on strengths of the different cultures and sectors within the organisation, everyone would be given a chance to grow.

With this in mind, we approached the board with the following initiatives for the revival of the company. The clock was ticking- we only had 18 months to execute our plan.

As a first initiative, we propagated the way we think, say and do all over the company and made sure that it was well applied everywhere. Transparency was the only option. We told all the employees what we were thinking and what we planned to do, and decided to develop strategies and solutions based on employees’ recommendations and opinions. Also, to address the motivation and horizontal communication issues that we encountered throughout the organisation, we asked the employees to accomplish the revival with their own hands. This put confidence back into the company as a whole.

BT 201506 10 Management 4As a second initiative, we organised cross-functional teams to make decisions for radical change. Working together in cross-functional teams helps managers to think in new ways and challenge existing practices. As a result of the cross-functional departments, the staff gained better visibility of the entire business process and began to focus on total business success and customer satisfaction. Also, employees became more disciplined, stimulating risk-taking behaviour and personal accountability.

As the third initiative, we started to focus on implementation and follow-up, rather than planning and re-examining decisions. Our main focus areas included: (1) Development of new products and markets. (2) Improvement of the company’s brand image. (3) Reinvestment in research and development. (4) Cost reduction.

As part of the cost cutting process, we closed factories and branches that were not functioning well or were working at less than 50 percent capacity. We cut purchasing costs by 20 percent. We also laid off employees from different departments and hierarchical layers, especially people who didn’t meet targets and didn’t take responsibility.

Finally, we put the focus on performance by introducing a performance based incentive system. Thisincluded cash incentives and stock options for achievements that could be linked directly to successful operating profits and revenue. We also started promoting people based on their achievements and strong ability to perform, rather than on the seniority of the person and his education.

In conclusion, restructuring is a methodical process of analysis, planning and implementation.

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