Description
Abstract explain corporate turnarounds and restructuring agig seminar.
Booz & Company
24 November 2010
0
This document is confidential and is intended solely for
the use and information of the client to whom it is addressed
Corporate Turnarounds
and Restructuring
AGIG Seminar
Booz & Company
Frankfurt, 24
th
November 2010
Booz & Company
24 November 2010
1
Introduction Booz & Company
Restructuring and Turnaround
– Indicators
– Booz & Company Turnaround Approach
– Management & Organization of Turnaround Projects
Q&A
Booz & Company
24 November 2010
2
Booz & Company is the oldest and youngest global manage-
ment consulting firm
96 years of consulting
experience (founded 1914)
59 offices on all six continents
Solely owned by its 230 officers
More than 3,300 firmwide staff
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
South America
Buenos Aires
Rio de Janeiro
Santiago
São Paulo
Atlanta
Chicago
Cleveland
Dallas
Detroit
Florham Park
Houston
Middle East
Abu Dhabi
Beirut
Cairo
Dubai
Doha
Riyadh
Asia
Beijing
Delhi
Hong Kong
Mumbai
Seoul
Shanghai
Taipei
Tokyo
Los Angeles
McLean
Mexico City
New York City
Parsippany
San Francisco
North America
Amsterdam
Berlin
Copenhagen
Dublin
Düsseldorf
Frankfurt
Helsinki
Istanbul
Rome
Stockholm
Stuttgart
Vienna
Warsaw
Zurich
London
Madrid
Milan
Moscow
Munich
Oslo
Paris
Pacific
Adelaide
Auckland
Bangkok
Brisbane
Canberra
Jakarta
Kuala Lumpur
Melbourne
Sydney
Europe
Booz & Company
24 November 2010
3
Primary Service Offerings
Marketing &
Sales
Operations &
Logistics
Strategy &
Leadership
Product &
Service Innovation
Information
Technology
Organization &
Change
Outsourcing
Mergers &
Restructuring
Finance & Busi-
ness Analysis
Aerospace
Automotive & Industrials
Chemicals
Consumer Products
Energy & Utilities, Oil & Gas
Financial Services
Health
Media & Entertainment
Natural Resources
NGO´s, Nonprofits &
Associations
Private Equity
Retail
Technology
Telecommunications
Transportation
Industry Sectors
We integrate industry foresight and functional expertise to
find tailor made solutions for our clients
Booz & Company
24 November 2010
4
We focus on results and work closely with our clients
For our clients, success is measured
by results
Success for Booz & Company
means creating value and improving
performance
We emphasize implementation and
sustainable results
We focus on effective knowledge
transfer to our clients’ employees
Focusing on Results
We form joint teams on-site with
clients, to promote teamwork and
effective implementation
We forge long term partnerships and
offer strict confidentiality
Our emphasis on knowledge transfer
strengthens our clients’ skills
Our approach is fact-based,
independent and objective
Working with Clients
Booz & Company
24 November 2010
5
Introduction Booz & Company
Restructuring and Turnaround
– Indicators
– Booz & Company Turnaround Approach
– Management & Organization of Turnaround Projects
Q&A
Booz & Company
24 November 2010
6
World economy downturn in 2008/09 – recovery ongoing but
volatile – many companies still under financial pressure
World Economy
?
?
Financial Sector
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
Need for Restructuring
Source: Bloomberg
High need for many companies
to simultaneously cut cost and
grow stronger for the future
Booz & Company
24 November 2010
7
Company crises are often recognized at a very late stage –
the scope of action is sometimes already extremely limited
Typical Evolvement of Company Crises
Low
High
Low High Visibility of Crisis Symptoms
R
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Low
High
Comments
Bankruptcy
Strategic
Crisis
Three main types of company crises
usually build upon each other
– Strategic crises characterized by
lack of long-term success factors
Profit
Crisis
– Profit crises may deplete equity
over time and lead to excessive
indebtedness
Liquidity
Crisis
– Finally, liquidity crises bear risk
of immediate bankruptcy
The more advanced the phase of
the crisis, the easier it is to identify
its symptoms
However, the scope of action
becomes increasingly restricted
Booz & Company
24 November 2010
8
All kinds of crises can be triggered by a large number of
exogenous and endogenous factors
Exogenous Factors Endogenous Factors
Cancellation of bank loans
Increase of interest rates
Collective wage agreements
Patent infringement
…
No liquidity/financial reserves
Unsecured credits for clients
Large stock of receivables
Excessive stock
…
Market saturation
FX fluctuations, fiscal policy
Political or military crisis
Catastrophes
…
Outdated product portfolio
Insufficient hedging of risks
Delays in product development pipeline
Inadequate price-performance ratio
Excessive personnel cost
…
Recession, industry crisis
Change in customer demand
Decreasing purchasing power
…
Disadvantage of production location
Unsystematic investments or product
developments
Unclear vision, corporate structure,
governance
Red tape & corruption
Manipulation or falsification of balance sheet
…
EXAMPLE
Overview Crisis Triggers
Strategic
Crisis
Profit
Crisis
Liquidity
Crisis
Booz & Company
24 November 2010
9
In typical restructuring situations there is an urgent require-
ment to change business within a short time horizon to ensure
survival
Restructurings require quick action to
resolve threatening business situa-
tions that could cease continuity of
operations or terminate independence
Typical drivers of urgency in restruc-
turing 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
Urgency in Restructurings
Revenues
EBIT
Cash
+7%
+11%
+9%
+16%
+25%
+2%
-44,9%
-8,2%
Annual Revenue Projection
Target
EBIT
EBIT
Projection
Weekly Cash Projection
Booz & Company
24 November 2010
10
Introduction Booz & Company
Restructuring and Turnaround
– Indicators
– Booz & Company Turnaround Approach
– Management & Organization of Turnaround Projects
Q&A
Booz & Company
24 November 2010
11
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:
8. Increase of dedicated internal resources
for restructuring project
34%
7. Enhanced stringent methodology
54%
6. More focus on seniority and relevant experience of
consulting team members
64%
5. Stronger integration of involved parties and people
from the beginning
65%
4. More integrated approach instead of single views
72%
3. Stronger consideration of strategy and competencies
as restructuring basis
74%
2. Broaden project scope beyond cost improvements
76%
1. More focus on sustainability of effects 83%
Booz & Company
24 November 2010
12
When identifying savings, we combine traditional top-down
and bottom-up approaches
Combined Approach
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 Top-down Cost-Cutting 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
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)
Classic Bottom-up Cost-Cutting Approach
Booz & Company
24 November 2010
13
High Level Outline of Turnaround/Restructuring Project
ILLUSTRATIVE
Turnaround and restructuring projects typically need to
address three different focus areas - at once an in short
amount of time
Focus: Liquidity
Bottom-up actions
Sustainable cost cutting
Proactive measures
Ensure profitability growth
…
Focus:
Sustainable Improvement
Immediate top-down actions
Short-term cost cutting
Reactive „Trouble Shooting“
Ensure business continuity
…
Focus: Growth
Secure Liquidity
Strengthen Strategic
Position
Improve Performance
Typical
Actions
Significant downturn of
profitability and cash position
triggers struggle for survival
and immediate need to stop the
bleeding
Improvement of business on
lower level allows planning
and implementation of
sustainable performance
enhancement
Top-level driven agenda
Strategy re-definition
Footprint adjustment
Determine future position
…
Strategy redefinition and
leverage of improved
capabilities to aggressively
determine own position in the
industry
Business
Outlook
I III II
Booz & Company
24 November 2010
14
Booz & Company Toolkit
No stone should be left unturned
Focus Area
I
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E
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Funding and
Capital
Management
Labour Cost
Management
Consumer
Insight
Leadership
and
Programme
Management
Industry
Structure and
Competitor
Dynamics
Investor Mgmt/
Share Price
Protection
Overhead
Reduction
Target
Operating
Model (Inc. IT)
Performance
Management
Marketing
Effectiveness
and Efficiency
Network
Optimisation
Change
Management
Pricing
Non-
performing
Assets
Sell-offs/
Divestments
Corporate
Capability
Driven
Strategy
Review
Supply Base
Restructuring/
Sourcing
Customer,
Brand and
Product
Portfolio
Optimisation
Working
Capital
Reduction
Stakeholder
Management
Inc Crisis
Governance
Model
Business/
Strategy
Review
Operations/
Process
Improvement
(Inc. Lean,
R&D, IT)
Talent
Management/
Retention
Risk
Management
Sales Force
Effectiveness
and Efficiency
M&A/PMI,
Alliances And
Partnerships
Improving/
Leveraging
Balance Sheet
Cost
Reduction
Revenue
Protection &
Growth
Making it
Happen
Strategy &
Operating
Model
Booz & Company
24 November 2010
15
A tailor made turnaround/restructuring program has elements
of liquidity, performance and strategic improvement aspects
Turnaround/Restructuring Program Modules
Opera-
tional
Strategy
Short Term (up to 6 months) Long Term (more than 12 months)
Secure Liquidity
I
Strengthen Strategic Position
III
Improve Performance
II
Adjust Staffing Levels/
Labor Cost
Reduce Capital Expenditures
L1
Reduce Working Capital L4
Secure Funding/Credit Line/
Government Support
L2
L3
Manage Pricing/Currency Risk L5
Adjust In/Outsourcing-Mix L7
Sell Assets/Businesses L6
Purchasing/Sourcing
Engineering/Manufacturing
Sales/Aftersales
Cut Non-product-related Cost
Reduce Material Cost P2
P3
Increase Sales/Sales Network/
Aftersales Efficiency
P7
Incr. Production Efficiency P6
Realize Prices P8
Design to Cost/Variant Mgmt. P5
Safeguard Suppliers P1
Reduce Overhead to “5%”
P10
P4 Incr. Engineering Efficiency,
Quality and Maturity
“1% IT Organization” P9
IT
Overhead
Review Product/Brand Portfolio S3
Optimize Footprint S2
Consider Strategic Acquisitions/
Business Build-up
S1
Supply Base Restructuring S4
= Examples on next pages
Booz & Company
24 November 2010
16
Staffing level adjustments require diligent planning and
implementation
Capacity
Planning
Plan Staffing
Adjustments
Implementation
Plan Labor Cost
Adjustments
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-/in-
sourcing of marketing ser-
vices for cost effectiveness
Prepare and engage in
communications to stake-
holders
Negotiate capacity reduc-
tions with workers’ council
& union
Implement identified mix of
working hours reduction and
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
Secure Liquidity Strengthen Strategic Position Improve Performance
I III II
L3
Booz & Company
24 November 2010
17
Labour cost reduction is not necessarily about laying off
employees
Permanent
FTE Reduction
Labour Hours
Salary and
Benefits
Voluntary
Employee Measures
Work Models
Individual personnel measures
Redundancy due to business operations
Low performer management
Reduction of overtime stock
Reduction of prior year vacation days
Termination of probation period and temporary contracts
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 waiving of extra vacation/Christmas payment
Voluntary waiving of salary
Introduction of new work models, e.g. reduction of weekly hours
Short-time work
Temporary leave of absence or part-time work models
Categories of Labour Cost Cutting Measures
Secure Liquidity Strengthen Strategic Position Improve Performance
I III II
L3
EXAMPLES
Booz & Company
24 November 2010
18
Example: Reducing management layers, increasing span of
control and combining functions can rapidly reduce costs
Secure Liquidity Strengthen Strategic Position Improve Performance
I III II
L3
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
Spans and Layers Improvement
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
Key Considerations for Implementation
CLIENT EXAMPLE
‘Before’ Engineering Structure
VP Layer 1
Layer 2 5 Product Directors
Layer 3
4.8:1
21
Sr. Managers.
3 Sr. Mgr. Lvl
Ind. Cont.
Layer 4
5.4:1
62 Managers
21 Sr. Mgr. Lvl
Ind. Cont.
30 Ind. Cont
7.9:1
Layer 5 490 Individual Contributors
Total
Engineering
632 HC
Booz & Company
24 November 2010
19
Example: Reducing management layers, increasing span of
control and combining functions can rapidly reduce costs
Secure Liquidity Strengthen Strategic Position Improve Performance
I III II
L3
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
Spans and Layers Improvement
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
Key Considerations for Implementation
CLIENT EXAMPLE
‘After’ Engineering Structure
Total
Engineering
470 HC
Layer 1 VP
Layer 2 5 Product Directors
Layer 3
8.4:1
42 Sr. Managers/Managers
Layer 4
10:1
3 Sr. Mgr Lvl. IC, 21 Mgr, Lvl,
IC 401 Individual Contributors
Booz & Company
24 November 2010
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Assess Feasibility & Cash
Impact of Outsourcing
Adjust In/Outsourcing Mix
Choose Model
Identify Outsourcing
Candidates
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 in-
house 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
1. Competitive
Advantage Filter
2. Supply Base
Maturity Filter
3. Process Maturity
Filter
4. Capability and
Economics Filter
5. Risk Management
Filter
Business
Processes
Outsourcing
Ready Processes
Where does the work get done?
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P
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Home
Country,
e.g. US,
UK,
Germany
Offshore:
India,
China,
Eastern
Europe
Offshore “Captive”
Off-
shoring
Near-
shoring
Out-
sourcing
Nearshore:
Canada,
Mexico,
Costa Rica,
Hungary,
Ireland
In-
sourcing
1 2 3
I
Secure Liquidity Strengthen Strategic Position Improve Performance
I III II
L7
Secure Liquidity
Booz & Company
24 November 2010
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Non-product-related (NPR) spend to be addressed through
a multitude of levers
5 Levers for Reduction of NPR Spend
Quick win initiatives Long term initiatives
P3
Secure Liquidity Strengthen Strategic Position Improve Performance
I III II
NPR
Goods
and
Sevices
Building/Site
Related
Human
Resources
Office & Com-
munications
Logistics &
Distribution
Production/
Development
IT
Professional
Services
Marketing &
Sales
Identification of new strategic suppliers
TCO/
Market
evaluation
Supplier
short
listing
Supplier
assess-
ment
RFQ
process
Analysis
of offers &
negotia-
tions
Finali-
zation of
sourcing
strategy
Order of
samples
3
Joint improvement levers/growth security
Assessment
of process
description
Assess-
ment of
joint
supply
chains
Workshops
with
suppliers
Proposal
for
process
change
Internal
change
request
Risk
assess-
ment
Process
change in
serial
product.
4
Demand levers
Assessment
of technical
specification
Workshops
with
suppliers
Design
of pro-
posed
change
Risk
assess-
ment
Internal
change
request
Sample
order
Testing
RFQ/
negotia-
tions
5
Utilizing the market
Evaluate
market
situation/
benchmark
Negotiate,
select
suppliers
Rapid sourcing
Evaluate
market
situation/
benchmark
Prepare,
submit and
evaluate
RFQs
Negotiate,
select
suppliers
1 2
Booz & Company
24 November 2010
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We use a systematic framework to assess manufacturing
cost with a focus on selected areas that drive production
efficiency
Inherent
Costs
Product
Design
Process
Technology
Structural
Costs
Manufac-
turing
Strategy
Supply -
Chain
Structure
Customer
Demographics
Sourcing
Strategy
Distribution
Economics
Plant
Focus
Scale/
Utilization
Location
Economics
Freight costs
Product weight and
volume
Number of suppliers
Supp. mission & roles
Supplier economics
Size
Location
Density
Factor costs
Tariffs
Plant
Process
Complexity
A B
Realized
Costs
Motivation
Compen-
sation
Systemic
Costs
Supply Chain
Control
Architecture
System
Support &
Architecture
Tactical
Planning
Processes
Service &
Supply
Policies
Enabling
Infrastructure
Business
Processes
Complexity
System support
Size of organization
Location
Productivity
Fill rate, lead time
Inventory targets
Planning policies
Sales/operations
planning
Demand planning
Capacity planning
Inventory planning
D C
Production Efficiency Assessment Elements
P6
Secure Liquidity Strengthen Strategic Position Improve Performance
I III II
Improve Performance B
Source: Booz & Company
Booz & Company
24 November 2010
23
Overall footprint optimization also includes site
concentration and offshoring
Change of European Engineering Footprint
HC
split
Site #1
European Front
Office
“Centre of
Competence”
Site #4
Site #2 Site #7
Site #9
Site #2
Site #3
Site #4
Site #5
Site #8
Site #9
Site #7
Site #10
Site #6
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a
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H
Q
Site #1
5%
45%
50%
26%
70%
4%
Low cost Country
(e.g. Slovakia)
HC
split
Consolidated Sites
Increased Off Shoring
Status Quo Target State
Indian partner
Sister
Engineering
Centre
The European
Centre
S2
Secure Liquidity Strengthen Strategic Position Improve Performance
I III II
EXAMPLE
Other
Indian partner
Booz & Company
24 November 2010
24
Introduction Booz & Company
Restructuring and Turnaround
– Indicators
– Booz & Company Turnaround Approach
– Management & Organization of Turnaround Projects
Q&A
Booz & Company
24 November 2010
25
Be clear how you want each stakeholder to contribute to your
turnaround effort
Stakeholder Overview
Board of Management
Workers‘ Council/Employees
Worker‘s Council typically skep-
tical on efficiency and redundan-
cies with given political mandates
Employees fear consequences for
position and career path
Customers/Distribution Partners
Focus on sustained quality and
supply stability
Might demand share of margin
improvements
Shareholders/Capital Markets
Generally overall positive towards
efficiency programs
Future strategic perspective key to
receive funds
Suppliers
Suppliers are key to achieve cost
savings
Potentially interested in strategic
alliances of driving supplier
industry consolidation
Involve strategic
suppliers early
Communicate steadily
Involve where
necessary
Government/Public
Multitude of public stakeholders
exist
Generally critical about restructur-
ings due to potential redundancies
Federal/state governments might
contribute – but will ask for parti-
cipation in decision-making
Show firm has future
perspective
Involve as
needed
Openly involve with
solutions, no rumours
Restructuring
Program
Interest in short-/medium-term KPI
improvements
Members from different functional
areas might have different inte-
rests
EXAMPLE
Booz & Company
24 November 2010
26
Manifold action areas to be addressed within a turnaround/
restructuring project …
Action Areas within Typical Turnaround/Restructuring Project
Top line growth/
Market forecast
Business plan/model
Fairness
opinion
M&A
Bank negotiation Financing strategy
Detailed cost measures/
Master Plan
Implementation
controlling
Communication strategy Communication
Negotiation strategy Official union negotiation
Timeline
EXAMPLE
Booz & Company
24 November 2010
27
…a systematic approach is required to steer the overall
program
Program
Design
Program Management Office
Blue-
printing
Imple-
mentation
Diagnostics &
Target Setting
Determine and
analyze perfor-
mance gap
Assess potential
and set targets
Build key stake-
holder commitment
Prioritize improve-
ment areas
Define priority
initiatives
Set up overall
program structure
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”
Initiative 1
Initiative 2
Initiative n
High Level Restructuring Program
Managing
Change
Understand
the Problem
Plan and Prioritise
Actions
Implement Solutions
Booz & Company
24 November 2010
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A strong PMO is THE central unit to orchestrate between
project and line organization
Responsibility to implement initiatives and deliver against restructuring targets
needs to be established in line organization early
Project Management Office (PMO)
Client project office team
Potential outside support
Project Organization
Project Steering Committee
Typically client C-level and potentially shareholder (PE)
Partner of Consulting firm
Workstream 1
Client staff
Project manager
and consultants,
Booz & Company
Workstream 2
Client staff
Project manager
and consultants,
Booz & Company
…
Additional
workstreams as
required
Line Organization
EXAMPLE
Client Board of Management
Engineering
Implements engi-
neering efficiency
measures
Production
Implements pro-
duction efficiency
measures
Sales
Implements
sales efficiency
measures
…
Country Org
Business Unit 1
Implements BU
efficienc. measures
Engage in cross
BU opport. identific.
Business Unit 2
Implements BU
efficienc. measures
Engage in cross
BU opport. identific.
Region A
Implements
regional efficiency
measures
…
Booz & Company
24 November 2010
29
Introduction Booz & Company
Restructuring and Turnaround
– Indicators
– Booz & Company Turnaround Approach
– Management & Organization of Turnaround Projects
Q&A
Booz & Company
24 November 2010
30
Thank you for your attention
JOERG KRINGS
Vice President
Booz & Company GmbH
Lenbachplatz 3
D-80333 München
Tel +49 89 54525 574
Fax +49 89 54525 500
Mobile +49 170 2238 574
[email protected]
www.booz.com/de
doc_804003084.pdf
Abstract explain corporate turnarounds and restructuring agig seminar.
Booz & Company
24 November 2010
0
This document is confidential and is intended solely for
the use and information of the client to whom it is addressed
Corporate Turnarounds
and Restructuring
AGIG Seminar
Booz & Company
Frankfurt, 24
th
November 2010
Booz & Company
24 November 2010
1
Introduction Booz & Company
Restructuring and Turnaround
– Indicators
– Booz & Company Turnaround Approach
– Management & Organization of Turnaround Projects
Q&A
Booz & Company
24 November 2010
2
Booz & Company is the oldest and youngest global manage-
ment consulting firm
96 years of consulting
experience (founded 1914)
59 offices on all six continents
Solely owned by its 230 officers
More than 3,300 firmwide staff
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
South America
Buenos Aires
Rio de Janeiro
Santiago
São Paulo
Atlanta
Chicago
Cleveland
Dallas
Detroit
Florham Park
Houston
Middle East
Abu Dhabi
Beirut
Cairo
Dubai
Doha
Riyadh
Asia
Beijing
Delhi
Hong Kong
Mumbai
Seoul
Shanghai
Taipei
Tokyo
Los Angeles
McLean
Mexico City
New York City
Parsippany
San Francisco
North America
Amsterdam
Berlin
Copenhagen
Dublin
Düsseldorf
Frankfurt
Helsinki
Istanbul
Rome
Stockholm
Stuttgart
Vienna
Warsaw
Zurich
London
Madrid
Milan
Moscow
Munich
Oslo
Paris
Pacific
Adelaide
Auckland
Bangkok
Brisbane
Canberra
Jakarta
Kuala Lumpur
Melbourne
Sydney
Europe
Booz & Company
24 November 2010
3
Primary Service Offerings
Marketing &
Sales
Operations &
Logistics
Strategy &
Leadership
Product &
Service Innovation
Information
Technology
Organization &
Change
Outsourcing
Mergers &
Restructuring
Finance & Busi-
ness Analysis
Aerospace
Automotive & Industrials
Chemicals
Consumer Products
Energy & Utilities, Oil & Gas
Financial Services
Health
Media & Entertainment
Natural Resources
NGO´s, Nonprofits &
Associations
Private Equity
Retail
Technology
Telecommunications
Transportation
Industry Sectors
We integrate industry foresight and functional expertise to
find tailor made solutions for our clients
Booz & Company
24 November 2010
4
We focus on results and work closely with our clients
For our clients, success is measured
by results
Success for Booz & Company
means creating value and improving
performance
We emphasize implementation and
sustainable results
We focus on effective knowledge
transfer to our clients’ employees
Focusing on Results
We form joint teams on-site with
clients, to promote teamwork and
effective implementation
We forge long term partnerships and
offer strict confidentiality
Our emphasis on knowledge transfer
strengthens our clients’ skills
Our approach is fact-based,
independent and objective
Working with Clients
Booz & Company
24 November 2010
5
Introduction Booz & Company
Restructuring and Turnaround
– Indicators
– Booz & Company Turnaround Approach
– Management & Organization of Turnaround Projects
Q&A
Booz & Company
24 November 2010
6
World economy downturn in 2008/09 – recovery ongoing but
volatile – many companies still under financial pressure
World Economy
?
?
Financial Sector
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
Need for Restructuring
Source: Bloomberg
High need for many companies
to simultaneously cut cost and
grow stronger for the future
Booz & Company
24 November 2010
7
Company crises are often recognized at a very late stage –
the scope of action is sometimes already extremely limited
Typical Evolvement of Company Crises
Low
High
Low High Visibility of Crisis Symptoms
R
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Low
High
Comments
Bankruptcy
Strategic
Crisis
Three main types of company crises
usually build upon each other
– Strategic crises characterized by
lack of long-term success factors
Profit
Crisis
– Profit crises may deplete equity
over time and lead to excessive
indebtedness
Liquidity
Crisis
– Finally, liquidity crises bear risk
of immediate bankruptcy
The more advanced the phase of
the crisis, the easier it is to identify
its symptoms
However, the scope of action
becomes increasingly restricted
Booz & Company
24 November 2010
8
All kinds of crises can be triggered by a large number of
exogenous and endogenous factors
Exogenous Factors Endogenous Factors
Cancellation of bank loans
Increase of interest rates
Collective wage agreements
Patent infringement
…
No liquidity/financial reserves
Unsecured credits for clients
Large stock of receivables
Excessive stock
…
Market saturation
FX fluctuations, fiscal policy
Political or military crisis
Catastrophes
…
Outdated product portfolio
Insufficient hedging of risks
Delays in product development pipeline
Inadequate price-performance ratio
Excessive personnel cost
…
Recession, industry crisis
Change in customer demand
Decreasing purchasing power
…
Disadvantage of production location
Unsystematic investments or product
developments
Unclear vision, corporate structure,
governance
Red tape & corruption
Manipulation or falsification of balance sheet
…
EXAMPLE
Overview Crisis Triggers
Strategic
Crisis
Profit
Crisis
Liquidity
Crisis
Booz & Company
24 November 2010
9
In typical restructuring situations there is an urgent require-
ment to change business within a short time horizon to ensure
survival
Restructurings require quick action to
resolve threatening business situa-
tions that could cease continuity of
operations or terminate independence
Typical drivers of urgency in restruc-
turing 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
Urgency in Restructurings
Revenues
EBIT
Cash
+7%
+11%
+9%
+16%
+25%
+2%
-44,9%
-8,2%
Annual Revenue Projection
Target
EBIT
EBIT
Projection
Weekly Cash Projection
Booz & Company
24 November 2010
10
Introduction Booz & Company
Restructuring and Turnaround
– Indicators
– Booz & Company Turnaround Approach
– Management & Organization of Turnaround Projects
Q&A
Booz & Company
24 November 2010
11
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:
8. Increase of dedicated internal resources
for restructuring project
34%
7. Enhanced stringent methodology
54%
6. More focus on seniority and relevant experience of
consulting team members
64%
5. Stronger integration of involved parties and people
from the beginning
65%
4. More integrated approach instead of single views
72%
3. Stronger consideration of strategy and competencies
as restructuring basis
74%
2. Broaden project scope beyond cost improvements
76%
1. More focus on sustainability of effects 83%
Booz & Company
24 November 2010
12
When identifying savings, we combine traditional top-down
and bottom-up approaches
Combined Approach
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 Top-down Cost-Cutting 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
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)
Classic Bottom-up Cost-Cutting Approach
Booz & Company
24 November 2010
13
High Level Outline of Turnaround/Restructuring Project
ILLUSTRATIVE
Turnaround and restructuring projects typically need to
address three different focus areas - at once an in short
amount of time
Focus: Liquidity
Bottom-up actions
Sustainable cost cutting
Proactive measures
Ensure profitability growth
…
Focus:
Sustainable Improvement
Immediate top-down actions
Short-term cost cutting
Reactive „Trouble Shooting“
Ensure business continuity
…
Focus: Growth
Secure Liquidity
Strengthen Strategic
Position
Improve Performance
Typical
Actions
Significant downturn of
profitability and cash position
triggers struggle for survival
and immediate need to stop the
bleeding
Improvement of business on
lower level allows planning
and implementation of
sustainable performance
enhancement
Top-level driven agenda
Strategy re-definition
Footprint adjustment
Determine future position
…
Strategy redefinition and
leverage of improved
capabilities to aggressively
determine own position in the
industry
Business
Outlook
I III II
Booz & Company
24 November 2010
14
Booz & Company Toolkit
No stone should be left unturned
Focus Area
I
m
p
r
o
v
e
m
e
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t
A
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t
i
v
i
t
i
e
s
E
n
a
b
l
e
r
s
Funding and
Capital
Management
Labour Cost
Management
Consumer
Insight
Leadership
and
Programme
Management
Industry
Structure and
Competitor
Dynamics
Investor Mgmt/
Share Price
Protection
Overhead
Reduction
Target
Operating
Model (Inc. IT)
Performance
Management
Marketing
Effectiveness
and Efficiency
Network
Optimisation
Change
Management
Pricing
Non-
performing
Assets
Sell-offs/
Divestments
Corporate
Capability
Driven
Strategy
Review
Supply Base
Restructuring/
Sourcing
Customer,
Brand and
Product
Portfolio
Optimisation
Working
Capital
Reduction
Stakeholder
Management
Inc Crisis
Governance
Model
Business/
Strategy
Review
Operations/
Process
Improvement
(Inc. Lean,
R&D, IT)
Talent
Management/
Retention
Risk
Management
Sales Force
Effectiveness
and Efficiency
M&A/PMI,
Alliances And
Partnerships
Improving/
Leveraging
Balance Sheet
Cost
Reduction
Revenue
Protection &
Growth
Making it
Happen
Strategy &
Operating
Model
Booz & Company
24 November 2010
15
A tailor made turnaround/restructuring program has elements
of liquidity, performance and strategic improvement aspects
Turnaround/Restructuring Program Modules
Opera-
tional
Strategy
Short Term (up to 6 months) Long Term (more than 12 months)
Secure Liquidity
I
Strengthen Strategic Position
III
Improve Performance
II
Adjust Staffing Levels/
Labor Cost
Reduce Capital Expenditures
L1
Reduce Working Capital L4
Secure Funding/Credit Line/
Government Support
L2
L3
Manage Pricing/Currency Risk L5
Adjust In/Outsourcing-Mix L7
Sell Assets/Businesses L6
Purchasing/Sourcing
Engineering/Manufacturing
Sales/Aftersales
Cut Non-product-related Cost
Reduce Material Cost P2
P3
Increase Sales/Sales Network/
Aftersales Efficiency
P7
Incr. Production Efficiency P6
Realize Prices P8
Design to Cost/Variant Mgmt. P5
Safeguard Suppliers P1
Reduce Overhead to “5%”
P10
P4 Incr. Engineering Efficiency,
Quality and Maturity
“1% IT Organization” P9
IT
Overhead
Review Product/Brand Portfolio S3
Optimize Footprint S2
Consider Strategic Acquisitions/
Business Build-up
S1
Supply Base Restructuring S4
= Examples on next pages
Booz & Company
24 November 2010
16
Staffing level adjustments require diligent planning and
implementation
Capacity
Planning
Plan Staffing
Adjustments
Implementation
Plan Labor Cost
Adjustments
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-/in-
sourcing of marketing ser-
vices for cost effectiveness
Prepare and engage in
communications to stake-
holders
Negotiate capacity reduc-
tions with workers’ council
& union
Implement identified mix of
working hours reduction and
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
Secure Liquidity Strengthen Strategic Position Improve Performance
I III II
L3
Booz & Company
24 November 2010
17
Labour cost reduction is not necessarily about laying off
employees
Permanent
FTE Reduction
Labour Hours
Salary and
Benefits
Voluntary
Employee Measures
Work Models
Individual personnel measures
Redundancy due to business operations
Low performer management
Reduction of overtime stock
Reduction of prior year vacation days
Termination of probation period and temporary contracts
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 waiving of extra vacation/Christmas payment
Voluntary waiving of salary
Introduction of new work models, e.g. reduction of weekly hours
Short-time work
Temporary leave of absence or part-time work models
Categories of Labour Cost Cutting Measures
Secure Liquidity Strengthen Strategic Position Improve Performance
I III II
L3
EXAMPLES
Booz & Company
24 November 2010
18
Example: Reducing management layers, increasing span of
control and combining functions can rapidly reduce costs
Secure Liquidity Strengthen Strategic Position Improve Performance
I III II
L3
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
Spans and Layers Improvement
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
Key Considerations for Implementation
CLIENT EXAMPLE
‘Before’ Engineering Structure
VP Layer 1
Layer 2 5 Product Directors
Layer 3
4.8:1
21
Sr. Managers.
3 Sr. Mgr. Lvl
Ind. Cont.
Layer 4
5.4:1
62 Managers
21 Sr. Mgr. Lvl
Ind. Cont.
30 Ind. Cont
7.9:1
Layer 5 490 Individual Contributors
Total
Engineering
632 HC
Booz & Company
24 November 2010
19
Example: Reducing management layers, increasing span of
control and combining functions can rapidly reduce costs
Secure Liquidity Strengthen Strategic Position Improve Performance
I III II
L3
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
Spans and Layers Improvement
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
Key Considerations for Implementation
CLIENT EXAMPLE
‘After’ Engineering Structure
Total
Engineering
470 HC
Layer 1 VP
Layer 2 5 Product Directors
Layer 3
8.4:1
42 Sr. Managers/Managers
Layer 4
10:1
3 Sr. Mgr Lvl. IC, 21 Mgr, Lvl,
IC 401 Individual Contributors
Booz & Company
24 November 2010
20
Assess Feasibility & Cash
Impact of Outsourcing
Adjust In/Outsourcing Mix
Choose Model
Identify Outsourcing
Candidates
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 in-
house 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
1. Competitive
Advantage Filter
2. Supply Base
Maturity Filter
3. Process Maturity
Filter
4. Capability and
Economics Filter
5. Risk Management
Filter
Business
Processes
Outsourcing
Ready Processes
Where does the work get done?
W
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?
C
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p
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T
h
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d
P
a
r
t
y
Home
Country,
e.g. US,
UK,
Germany
Offshore:
India,
China,
Eastern
Europe
Offshore “Captive”
Off-
shoring
Near-
shoring
Out-
sourcing
Nearshore:
Canada,
Mexico,
Costa Rica,
Hungary,
Ireland
In-
sourcing
1 2 3
I
Secure Liquidity Strengthen Strategic Position Improve Performance
I III II
L7
Secure Liquidity
Booz & Company
24 November 2010
21
Non-product-related (NPR) spend to be addressed through
a multitude of levers
5 Levers for Reduction of NPR Spend
Quick win initiatives Long term initiatives
P3
Secure Liquidity Strengthen Strategic Position Improve Performance
I III II
NPR
Goods
and
Sevices
Building/Site
Related
Human
Resources
Office & Com-
munications
Logistics &
Distribution
Production/
Development
IT
Professional
Services
Marketing &
Sales
Identification of new strategic suppliers
TCO/
Market
evaluation
Supplier
short
listing
Supplier
assess-
ment
RFQ
process
Analysis
of offers &
negotia-
tions
Finali-
zation of
sourcing
strategy
Order of
samples
3
Joint improvement levers/growth security
Assessment
of process
description
Assess-
ment of
joint
supply
chains
Workshops
with
suppliers
Proposal
for
process
change
Internal
change
request
Risk
assess-
ment
Process
change in
serial
product.
4
Demand levers
Assessment
of technical
specification
Workshops
with
suppliers
Design
of pro-
posed
change
Risk
assess-
ment
Internal
change
request
Sample
order
Testing
RFQ/
negotia-
tions
5
Utilizing the market
Evaluate
market
situation/
benchmark
Negotiate,
select
suppliers
Rapid sourcing
Evaluate
market
situation/
benchmark
Prepare,
submit and
evaluate
RFQs
Negotiate,
select
suppliers
1 2
Booz & Company
24 November 2010
22
We use a systematic framework to assess manufacturing
cost with a focus on selected areas that drive production
efficiency
Inherent
Costs
Product
Design
Process
Technology
Structural
Costs
Manufac-
turing
Strategy
Supply -
Chain
Structure
Customer
Demographics
Sourcing
Strategy
Distribution
Economics
Plant
Focus
Scale/
Utilization
Location
Economics
Freight costs
Product weight and
volume
Number of suppliers
Supp. mission & roles
Supplier economics
Size
Location
Density
Factor costs
Tariffs
Plant
Process
Complexity
A B
Realized
Costs
Motivation
Compen-
sation
Systemic
Costs
Supply Chain
Control
Architecture
System
Support &
Architecture
Tactical
Planning
Processes
Service &
Supply
Policies
Enabling
Infrastructure
Business
Processes
Complexity
System support
Size of organization
Location
Productivity
Fill rate, lead time
Inventory targets
Planning policies
Sales/operations
planning
Demand planning
Capacity planning
Inventory planning
D C
Production Efficiency Assessment Elements
P6
Secure Liquidity Strengthen Strategic Position Improve Performance
I III II
Improve Performance B
Source: Booz & Company
Booz & Company
24 November 2010
23
Overall footprint optimization also includes site
concentration and offshoring
Change of European Engineering Footprint
HC
split
Site #1
European Front
Office
“Centre of
Competence”
Site #4
Site #2 Site #7
Site #9
Site #2
Site #3
Site #4
Site #5
Site #8
Site #9
Site #7
Site #10
Site #6
S
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l
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i
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e
s
L
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-
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a
n
H
Q
C
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L
i
a
i
s
o
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L
o
w
-
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t
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u
r
o
p
e
a
n
H
Q
Site #1
5%
45%
50%
26%
70%
4%
Low cost Country
(e.g. Slovakia)
HC
split
Consolidated Sites
Increased Off Shoring
Status Quo Target State
Indian partner
Sister
Engineering
Centre
The European
Centre
S2
Secure Liquidity Strengthen Strategic Position Improve Performance
I III II
EXAMPLE
Other
Indian partner
Booz & Company
24 November 2010
24
Introduction Booz & Company
Restructuring and Turnaround
– Indicators
– Booz & Company Turnaround Approach
– Management & Organization of Turnaround Projects
Q&A
Booz & Company
24 November 2010
25
Be clear how you want each stakeholder to contribute to your
turnaround effort
Stakeholder Overview
Board of Management
Workers‘ Council/Employees
Worker‘s Council typically skep-
tical on efficiency and redundan-
cies with given political mandates
Employees fear consequences for
position and career path
Customers/Distribution Partners
Focus on sustained quality and
supply stability
Might demand share of margin
improvements
Shareholders/Capital Markets
Generally overall positive towards
efficiency programs
Future strategic perspective key to
receive funds
Suppliers
Suppliers are key to achieve cost
savings
Potentially interested in strategic
alliances of driving supplier
industry consolidation
Involve strategic
suppliers early
Communicate steadily
Involve where
necessary
Government/Public
Multitude of public stakeholders
exist
Generally critical about restructur-
ings due to potential redundancies
Federal/state governments might
contribute – but will ask for parti-
cipation in decision-making
Show firm has future
perspective
Involve as
needed
Openly involve with
solutions, no rumours
Restructuring
Program
Interest in short-/medium-term KPI
improvements
Members from different functional
areas might have different inte-
rests
EXAMPLE
Booz & Company
24 November 2010
26
Manifold action areas to be addressed within a turnaround/
restructuring project …
Action Areas within Typical Turnaround/Restructuring Project
Top line growth/
Market forecast
Business plan/model
Fairness
opinion
M&A
Bank negotiation Financing strategy
Detailed cost measures/
Master Plan
Implementation
controlling
Communication strategy Communication
Negotiation strategy Official union negotiation
Timeline
EXAMPLE
Booz & Company
24 November 2010
27
…a systematic approach is required to steer the overall
program
Program
Design
Program Management Office
Blue-
printing
Imple-
mentation
Diagnostics &
Target Setting
Determine and
analyze perfor-
mance gap
Assess potential
and set targets
Build key stake-
holder commitment
Prioritize improve-
ment areas
Define priority
initiatives
Set up overall
program structure
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”
Initiative 1
Initiative 2
Initiative n
High Level Restructuring Program
Managing
Change
Understand
the Problem
Plan and Prioritise
Actions
Implement Solutions
Booz & Company
24 November 2010
28
A strong PMO is THE central unit to orchestrate between
project and line organization
Responsibility to implement initiatives and deliver against restructuring targets
needs to be established in line organization early
Project Management Office (PMO)
Client project office team
Potential outside support
Project Organization
Project Steering Committee
Typically client C-level and potentially shareholder (PE)
Partner of Consulting firm
Workstream 1
Client staff
Project manager
and consultants,
Booz & Company
Workstream 2
Client staff
Project manager
and consultants,
Booz & Company
…
Additional
workstreams as
required
Line Organization
EXAMPLE
Client Board of Management
Engineering
Implements engi-
neering efficiency
measures
Production
Implements pro-
duction efficiency
measures
Sales
Implements
sales efficiency
measures
…
Country Org
Business Unit 1
Implements BU
efficienc. measures
Engage in cross
BU opport. identific.
Business Unit 2
Implements BU
efficienc. measures
Engage in cross
BU opport. identific.
Region A
Implements
regional efficiency
measures
…
Booz & Company
24 November 2010
29
Introduction Booz & Company
Restructuring and Turnaround
– Indicators
– Booz & Company Turnaround Approach
– Management & Organization of Turnaround Projects
Q&A
Booz & Company
24 November 2010
30
Thank you for your attention
JOERG KRINGS
Vice President
Booz & Company GmbH
Lenbachplatz 3
D-80333 München
Tel +49 89 54525 574
Fax +49 89 54525 500
Mobile +49 170 2238 574
[email protected]
www.booz.com/de
doc_804003084.pdf