Description
Why Credit Executives Should Better Understand Corporate Failure Processes And Turnaround Management In The 21st Century
Why Credit Executives Should Better Understand
Corporate Failure Processes and Turnaround Management
in the 21
st
century
Prof. dr. Jan Adriaanse
Background Jan Adriaanse
Founder and CEO of Turnaround PowerHouse® Rotterdam | New York City (opening 2013)
– Think-tank for proactive change and turnaround management
– 24 Hour Turnarounds | Speaking | Gaming | Research
– Clients include: Ford Motor Company, Multicopy, Kingspan, Calvin Klein Underwear (UK), themepark Efteling,
FMO bank, Eindhoven Airport
– www.turnaroundpowerhouse.com
Professor in turnaround management at Leiden University, The Netherlands
– Founded in 1575 by Dutch Prince William of Orange | Praesidium Libertatis
– Research into success and failure factors of entrepreneurship and turnarounds
– www.leidenuniv.edu
Context for today…
? Disruptive innovation, economic and social trends heavily influence the success
or failure of companies – ‘rapid change = rapid crisis’
? Current success of your customer does not necessarily mean future success –
‘one day you are in, the next day you are out’ (H. Klum)
? Is your customer really trying to fix her business or is she simply rearranging the
furniture on the deck of the Titanic?
My hypothesis: more than ever, credit practitioners need to
understand corporate failure paths and they should be able to
identify good or bad turnaround practice asap… still, nowadays it’s
more difficult than ever…
What do you think?
Why do companies become distressed?
(research by Prof. Adriaanse - Leiden University 2005-2012)
Marketing and Strategy Behaviour towards market/environment /USP
Management team Functioning/quality
Information Lack of steering on financial and qualitative parameters
Efficiency Fixed and variable costs out of control and
operational weaknesses
Economy Pressure from external environment
Most dominant in current economic climate?
> 9 out of 10 companies fail due to their own
misbehaviour…
Sheer bad luck 1%
52%
Internally generated
problems within
management’s control
8% External factors
beyond management’s control
24%
Real balance of external
and internal factors
15%
Internal problems triggered by
external factors
Source: Association of Insolvency and Restructuring Advisors/USA www.aira.org
Marketing and Strategy (examples)
Downfall in sales Bad account management
Insufficient “sales-driven”
No clear strategy Mixing up of (non-) core business
No future vision – not able to reinvent the business
No real unique selling point
No desirable products/services/brands (commodities)
Holding on to the past…
Quality Bad service and products
Margins Sales prices too low (unwanted price competition)
Management (examples)
Weak management Insufficient reactions to operational problems
Major mistakes Bad investments / fraud
Conflicts in management Arguments top management [family businesses!]
Expenses too high Salaries/dividend/“spending culture”
“BMW X5 Syndrome”
Most found causes of decline:
why do companies fail?
(Research by prof. Adriaanse - Leiden University, 2005-2013)
(1) Lack of “strategic entrepreneurship”
(2) Insufficient steering on management information
(3) Cost structures too high and inflexible
(4) Waiting too long due to bad corporate governance…
2001
1958
From great to crisis…
11
On average companies start restructuring
16 months too late…
Small
Large
Assumption
crisis
Earnings
crisis
Liquidity
crisis
29%
54%
17%
Large
Time
[pro-active] turnaround management necessary to avoid downfall
Healthy
company
Effect Cause
Structural
underperformance
Source: Restructuring in Europe 2005 – Roland Berger Germany [amended by Adriaanse between 2006-2013]
Small
Disruptive trends that shape (or mess up) your
customers’ future…
• Everybody is technology
• We are all one-of-a-kind (customization)
• The Mobile Wave (smartphones and tablets rule the world)
• 24/7 economy and efficiency
• Social Disruption (new codes, ideologies, myths)
• Beyond the Commodity Trap: The power of Powerful Brands
• Mini-nationals fighting multi-nationals
Any consequences for the industry of your
customers…?
Is your customer doing the right
things or just doing the things right?
That’s the real question
…and are you able to identify
assumption crises and
disruptive trends…?
I think you should
Turnaround PowerHouse® Rotterdam | New York
Turnaround PowerHouse®
Regus Rotterdam Brainpark
Lichtenauerlaan 102-120
3062 ME Rotterdam
The Netherlands
tel +31 (0) 10 204 56 70
[email protected]
[email protected]
www.turnaroundpowerhouse.com
Opening soon in Rockefeller Center
Diagnose your customers… as if you were a doctor
Appendix
…Is your customer looking for long-term viability or
just cutting squeezing the lemon…?
1. External environment
2. Customers & customers of customers
3. Competitors & peer group
4. Suppliers & supply chain
5. Banks & financiers
6. Shareholders & governance
7. Employees & culture
8. Management
9. Vision, strategy & business model
10. Branding, marketing & sales
11. Financial management & operations
12. Extern supervisory
13. Technology road map
14. Foreign competition
15. Corporate social responsibility
& sustainability
Turnaround Plan
Disruptive
Trend
analysis
Base case
SWOT
analysis
Problem
analysis
Assumption
testing
Some critical questions to be answered…
1. External Environment
- Is your company active in shrinking markets?
- At which loss of demand or any other threat will your company collapse?
- Are there any new (unexpected) competitors active in the market?
- Are there any uncontested assumptions about your market/industry?
2. Customers & customers of customers
- What are the 5 frequently heard complaints of your customers concerning your
company?
- Are there any indications of customer preferences changing?
- Has a large customer gone bankrupt in the past? Did this have a large impact on
your company?
Some critical questions…
3. Competitors & peer group
- In which aspects is your company better than your number one competitor?
- Which competitor do you “hate” the most? Why?
4. Suppliers & supply chain
- Who are your 3 most important suppliers?
- Do you have relationship based upon (mutual) trust with them?
Some critical questions…
5. Banks & financiers
- Have you got on occasion some irritations with respect to the behavior of your bankers?
- Do you expect on the basis of your current financing that you will be able to attract
additional financing with your bankers?
6. Shareholders & governance
- Do the shareholder(s) [owners] have financial resources available to supply the company
with additional funding in order to strengthen the balance sheet (solvency) if needed?
- Is there also willingness to do so?
7. Employees & culture
- Is there a large willingness to change with your employees?
- What do you dislike most of the behavior of your employees?
8. Management
- Do you sometimes have the feeling that within the company money is wasted (for example in
respect to luxury goods, cars and/or declarations)?
- Who is responsible for the financial management of the company? What is the largest mistake
made by him or her recently?
Some critical questions…
9. Vision, strategy & business model
- Which aspects does your “ideal company” have?
- Does your company finds itself in a “Blue Ocean” in other words, does it really
have a “unique selling point” (USP)?
- Which activities, subsidiaries and/or business units are losing money?
10. Branding, marketing & sales
- Is the company and/or her range of products known as “desirable” and can one
speak of a true brand (“Primal branding”)?
- Which 3 improvements can be pointed out concerning the sales team [function]?
Some critical questions…
11. Financial management & operations
- Can unused assets be sold and are they together worth at least 10% to 20% of
the total of the balance sheet?
- Are “worst case” en “best case” calculations being made with respect to the
development of revenue and profits?
- What kind of influence would the reduction of 10% of the total work force have
on the functioning of your company?
- Is the production process [operations] efficient? Can we speak of operational
excellence?
Some critical questions…
12. External supervisory
- Are there any disagreements between yourself and the [formal or informal] advisory body [or
advising persons like accountants] of the company?
13. Technology road map
- What are in the next 2 years the most important innovations in your industry?
- In which way do the innovations in your company differ from those of your most important
competitor?
Some critical questions…
14. Foreign competition
- What are in the next 2 years the most important threats from abroad?
- What will be the influence on your revenue and company results when you do not respond
to this?
15. Corporate Social Responsibility & Sustainability (CSR)
- Are there any changes in rules or laws and/or public opinion noticeable or to be expected
which could influence the company regarding social and environmental behavior?
Some critical questions…
Magic question
Why should the customer buy from you?
doc_499400898.pdf
Why Credit Executives Should Better Understand Corporate Failure Processes And Turnaround Management In The 21st Century
Why Credit Executives Should Better Understand
Corporate Failure Processes and Turnaround Management
in the 21
st
century
Prof. dr. Jan Adriaanse
Background Jan Adriaanse
Founder and CEO of Turnaround PowerHouse® Rotterdam | New York City (opening 2013)
– Think-tank for proactive change and turnaround management
– 24 Hour Turnarounds | Speaking | Gaming | Research
– Clients include: Ford Motor Company, Multicopy, Kingspan, Calvin Klein Underwear (UK), themepark Efteling,
FMO bank, Eindhoven Airport
– www.turnaroundpowerhouse.com
Professor in turnaround management at Leiden University, The Netherlands
– Founded in 1575 by Dutch Prince William of Orange | Praesidium Libertatis
– Research into success and failure factors of entrepreneurship and turnarounds
– www.leidenuniv.edu
Context for today…
? Disruptive innovation, economic and social trends heavily influence the success
or failure of companies – ‘rapid change = rapid crisis’
? Current success of your customer does not necessarily mean future success –
‘one day you are in, the next day you are out’ (H. Klum)
? Is your customer really trying to fix her business or is she simply rearranging the
furniture on the deck of the Titanic?
My hypothesis: more than ever, credit practitioners need to
understand corporate failure paths and they should be able to
identify good or bad turnaround practice asap… still, nowadays it’s
more difficult than ever…
What do you think?
Why do companies become distressed?
(research by Prof. Adriaanse - Leiden University 2005-2012)
Marketing and Strategy Behaviour towards market/environment /USP
Management team Functioning/quality
Information Lack of steering on financial and qualitative parameters
Efficiency Fixed and variable costs out of control and
operational weaknesses
Economy Pressure from external environment
Most dominant in current economic climate?
> 9 out of 10 companies fail due to their own
misbehaviour…
Sheer bad luck 1%
52%
Internally generated
problems within
management’s control
8% External factors
beyond management’s control
24%
Real balance of external
and internal factors
15%
Internal problems triggered by
external factors
Source: Association of Insolvency and Restructuring Advisors/USA www.aira.org
Marketing and Strategy (examples)
Downfall in sales Bad account management
Insufficient “sales-driven”
No clear strategy Mixing up of (non-) core business
No future vision – not able to reinvent the business
No real unique selling point
No desirable products/services/brands (commodities)
Holding on to the past…
Quality Bad service and products
Margins Sales prices too low (unwanted price competition)
Management (examples)
Weak management Insufficient reactions to operational problems
Major mistakes Bad investments / fraud
Conflicts in management Arguments top management [family businesses!]
Expenses too high Salaries/dividend/“spending culture”
“BMW X5 Syndrome”
Most found causes of decline:
why do companies fail?
(Research by prof. Adriaanse - Leiden University, 2005-2013)
(1) Lack of “strategic entrepreneurship”
(2) Insufficient steering on management information
(3) Cost structures too high and inflexible
(4) Waiting too long due to bad corporate governance…
2001
1958
From great to crisis…
11
On average companies start restructuring
16 months too late…
Small
Large
Assumption
crisis
Earnings
crisis
Liquidity
crisis
29%
54%
17%
Large
Time
[pro-active] turnaround management necessary to avoid downfall
Healthy
company
Effect Cause
Structural
underperformance
Source: Restructuring in Europe 2005 – Roland Berger Germany [amended by Adriaanse between 2006-2013]
Small
Disruptive trends that shape (or mess up) your
customers’ future…
• Everybody is technology
• We are all one-of-a-kind (customization)
• The Mobile Wave (smartphones and tablets rule the world)
• 24/7 economy and efficiency
• Social Disruption (new codes, ideologies, myths)
• Beyond the Commodity Trap: The power of Powerful Brands
• Mini-nationals fighting multi-nationals
Any consequences for the industry of your
customers…?
Is your customer doing the right
things or just doing the things right?
That’s the real question
…and are you able to identify
assumption crises and
disruptive trends…?
I think you should
Turnaround PowerHouse® Rotterdam | New York
Turnaround PowerHouse®
Regus Rotterdam Brainpark
Lichtenauerlaan 102-120
3062 ME Rotterdam
The Netherlands
tel +31 (0) 10 204 56 70
[email protected]
[email protected]
www.turnaroundpowerhouse.com
Opening soon in Rockefeller Center
Diagnose your customers… as if you were a doctor
Appendix
…Is your customer looking for long-term viability or
just cutting squeezing the lemon…?
1. External environment
2. Customers & customers of customers
3. Competitors & peer group
4. Suppliers & supply chain
5. Banks & financiers
6. Shareholders & governance
7. Employees & culture
8. Management
9. Vision, strategy & business model
10. Branding, marketing & sales
11. Financial management & operations
12. Extern supervisory
13. Technology road map
14. Foreign competition
15. Corporate social responsibility
& sustainability
Turnaround Plan
Disruptive
Trend
analysis
Base case
SWOT
analysis
Problem
analysis
Assumption
testing
Some critical questions to be answered…
1. External Environment
- Is your company active in shrinking markets?
- At which loss of demand or any other threat will your company collapse?
- Are there any new (unexpected) competitors active in the market?
- Are there any uncontested assumptions about your market/industry?
2. Customers & customers of customers
- What are the 5 frequently heard complaints of your customers concerning your
company?
- Are there any indications of customer preferences changing?
- Has a large customer gone bankrupt in the past? Did this have a large impact on
your company?
Some critical questions…
3. Competitors & peer group
- In which aspects is your company better than your number one competitor?
- Which competitor do you “hate” the most? Why?
4. Suppliers & supply chain
- Who are your 3 most important suppliers?
- Do you have relationship based upon (mutual) trust with them?
Some critical questions…
5. Banks & financiers
- Have you got on occasion some irritations with respect to the behavior of your bankers?
- Do you expect on the basis of your current financing that you will be able to attract
additional financing with your bankers?
6. Shareholders & governance
- Do the shareholder(s) [owners] have financial resources available to supply the company
with additional funding in order to strengthen the balance sheet (solvency) if needed?
- Is there also willingness to do so?
7. Employees & culture
- Is there a large willingness to change with your employees?
- What do you dislike most of the behavior of your employees?
8. Management
- Do you sometimes have the feeling that within the company money is wasted (for example in
respect to luxury goods, cars and/or declarations)?
- Who is responsible for the financial management of the company? What is the largest mistake
made by him or her recently?
Some critical questions…
9. Vision, strategy & business model
- Which aspects does your “ideal company” have?
- Does your company finds itself in a “Blue Ocean” in other words, does it really
have a “unique selling point” (USP)?
- Which activities, subsidiaries and/or business units are losing money?
10. Branding, marketing & sales
- Is the company and/or her range of products known as “desirable” and can one
speak of a true brand (“Primal branding”)?
- Which 3 improvements can be pointed out concerning the sales team [function]?
Some critical questions…
11. Financial management & operations
- Can unused assets be sold and are they together worth at least 10% to 20% of
the total of the balance sheet?
- Are “worst case” en “best case” calculations being made with respect to the
development of revenue and profits?
- What kind of influence would the reduction of 10% of the total work force have
on the functioning of your company?
- Is the production process [operations] efficient? Can we speak of operational
excellence?
Some critical questions…
12. External supervisory
- Are there any disagreements between yourself and the [formal or informal] advisory body [or
advising persons like accountants] of the company?
13. Technology road map
- What are in the next 2 years the most important innovations in your industry?
- In which way do the innovations in your company differ from those of your most important
competitor?
Some critical questions…
14. Foreign competition
- What are in the next 2 years the most important threats from abroad?
- What will be the influence on your revenue and company results when you do not respond
to this?
15. Corporate Social Responsibility & Sustainability (CSR)
- Are there any changes in rules or laws and/or public opinion noticeable or to be expected
which could influence the company regarding social and environmental behavior?
Some critical questions…
Magic question
Why should the customer buy from you?
doc_499400898.pdf