NSW Premier Baird, in the lead up to winning the recent NSW election made it policy to seek out and receive ideas from the wider community about solutions to the big issues. NSW’s economy has been “turned around” in recent times depending on what financial measure you take.
It would seem Premier Baird subscribes to the view that no one has a monopoly on all the good ideas. In a company turnaround this really holds true.
If you ask employees in a distressed business what their best ‘fix it’ idea is – mostly two things will happen:
- There will be lots of responses; and
- Most responses will be supportive, simple ideas.
That’s because different people within the same organisation have contrasting perspectives as to the business they’re really in.
Often in a turnaround, companies focus on a solution using other people’s money (e.g. debt/equity) at the expense of finding additional dollars of earnings. Improving a company’s earnings is likely to have a high impact on any turnaround strategy. The more a company is able to improve its earnings the better able it is to service its existing needs of debt and equity.
Typically the board looks to the CEO/CFO for ways to improve earnings. However, the challenge is that they may not have all the ideas to identify and then implement the solution(s). Indeed they may have already exhausted all ideas!
The people employed in the company across management layers will often be the ones best able to originate ideas to improve earnings and determine the path a company should take. The premise that only the CEO/CFO or externally appointed CRO can own the ideas in a turnaround is flawed, given the best ideas will often flow from the intellectual capability residing in management.
In our experience, often we have seen no shortage of good ideas, with the lowest risk, originating from second and third tier management when they are given the opportunity to participate in deriving a solution.
KPMG Australia recently ran this process for a construction manufacturing client in a depressed sector with downward pressure on prices. Our options appeared limited other than to cut costs.
One of the best and simplest ideas came from one of the logistics managers who proposed raising prices, which in the current environment the sales team said was very problematic. We challenged the manager to develop the concept more and it became apparent from our data analysis that a number of products were only available from this company and had recently been in high demand. As a trial, prices on these products were raised with little impact on demand. The company established that it was a price leader in a whole category and soon raised prices across the board. Its competitors also raised their prices.
A simple but seemingly ‘radical’ solution that the sales team rejected initially dropped millions to the bottom line. While cost cutting is often inevitable, on that initiative no staff members lost their jobs and no sites were closed. It was managed in a way that was low risk and was able to be implemented very quickly.
In the moment, even the most seemingly obvious or simple solutions can appear obscure or radical. But investing time in harnessing the intellectual capital of a company’s people can be one of the best ways to originate ideas to find a way through a turnaround. If the process of asking for ideas is good enough for Premier Baird, it’s good enough for the humble CEO.
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Carl Gunther, Partner, Restructuring Services - KPMG Sydney, joined KPMG in August 2009 and has over 20 years’ financial and operational restructuring experience. He is a restructuring specialist having led teams in complex operational and financial restructuring programmes across multiple industries. He is often called upon to assist Boards and various stakeholders in organisations during times of stress in circumstances where it’s no longer business as usual. His clients are drawn from Retail, Mining, Energy, Metals Recycling, Industrial Engineering, Transport Logistics and Manufacturing.
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