In some recovery situations, it is sometimes necessary to stop a deflationary spiral. As this example shows, in some markets, even recessive ones, the closure of many industrial sites can be counterproductive and it is better to exploit the potential for operational improvement and commercial development.
This French subsidiary of a large foreign group produces materials for construction. Its heavy products require geographic proximity to customers and it has several dozens of sites spread across the territory. The business is much diversified: several subsidiaries for a broad portfolio of products, applications and customers, with Bob, Botch and Bottom activities.
Basic technology is in competition and activity is slowly declining. This decline has increased sharply since 2008 following the erosion of the construction market.
One of the activities of the French company in particular, saw its turnover divided by two in 5 years and its losses are greater than 25% of its turnover. A restructuring plan is planned for this activity but has not yet been implemented. The other activities are profitable for some, in loss for others. The overall financial result of the French subsidiary was therefore mediocre.
The Group is reorienting its general policy along the following lines:
- Reflection on its business portfolio and a possible refocus on its “core business”, which this French subsidiary may not be part of restriction of investments pending decisions.
- Proposed disposal of the French subsidiary, but with a term yet to be defined, since the Group does not know how to evaluate the possibilities and the deadline for a recovery.
In disagreement with these orientations, the leader, who had been in place for many years, leaves the company. This unexpected departure is badly experienced by the management team.
EIM is then mandated to set up an experienced Transition Manager, which we choose from our base pool and will take the following initiatives:
Take the pulse of the company:
The new leader of Transition goes down on the ground. In 2 months, he visits more than 30 production sites and meets with sales teams. Its diagnosis is then supplemented by a quick “business review”, intended to more accurately quantify the impact of the various levers of action envisaged. Potential gains are greater and more secure than those that could be brought by heavy industrial restructuring, including the closure of many sites.
Adjust by turnover despite the market crisis; play on its strengths and on the launch of new products.
For the activity that is the main source of losses, the following measures are taken:
The planned downsizing plan is well established, but the manager announces that there will be no further restructuring. The salvation of the company goes through the commercial recovery and the recon quest of market shares, despite the recessive context. Without renewed turnover, it is a complete closure of the French subsidiary that should be considered.
This redeployment is achieved through the rapid launch of certain products, and through the introduction and adaptation to the specific needs of the French market of several products that substitute for foreign imports. The sales team is refocused on products that generate a good margin and on which the company has a strong position.
In contexts of restructuring and urgency, it is often best to play on one’s strengths, “sharp pencils”, rather than trying to develop weak points, even if the potential gain may seem less important at first glance. Apparently counterintuitive, it is often simpler to reinforce its leading position and gain market share on products already well-established and recognized, than to engage a reinforcement plan supported by important market segments but on which the company is less well installed. It is often easier to go from 40 to 50% market share than 5 to 15%.
In parallel with this reinforcement, a commercial action is carried out to regain the trust of the customers, relying on operational improvements in the quality and the service.
Thanks to these measures, combined with the planned plan, this activity is about to come out of the red after two years, despite a final market remained very bad.
In other markets as well, a reorientation is necessary:
The company, which has a large market share over a large part of its range, was not really aware of the reasons for its difficulties. Blinded by its status as a leader, she attributed the drop in sales to the general collapse of the market and had not measured the growing disaffection of its customers, annoyed by problems of responsiveness and availability. In addition, salespeople lacked a clear guideline and commercial costs were generally too high.
The fixed costs were notably reduced by the elimination of two hierarchical levels and the non-replacement of certain departures.
Do not close industrial sites but put the customer “in the center of the village”:
Better meeting the expectations of customers while reducing costs requires an industrial reordering. Adopting the opposite strategy of that led by the main competitor, the Transition Manager refutes the idea of closing many sites. It is based on the following reasons:
- This type of production requires a close proximity to end markets
- Industrial equipment has been largely amortized
- A major restructuring would mobilize significant financial resources
- And it would most likely result in a loss of shares market.
Postpone certain structural projects:
From the beginning of this restructuring, the project of transfer to a new ERP is stopped. This type of project can generate additional costs or difficulties, incompatible with the priorities of the operational recovery undertaken. In these contexts of heavy mutation and very uncertain market, it is necessary to make as much as possible with the existing systems.
Do with the same?
All this operation is conducted with the same teams. Only two people, out of more than twenty leaders, are “thanked”.
This example illustrates many points of interest. Some are related to the nature and characteristics of the activity (factories necessarily close to the customers), others are more general in scope.
- Putting the customer in the center is often a good reflex
- Attention not to drag society into a negative spiral. Growth can be a solution, even in a declining market
- It is often easier to quickly increase sales in market segments where the company is in a strong position, rather than trying to strengthen where it is weak, even though these sectors may Higher Potential Gain
- The Costs of a Severe Restructuring Are Often Inconsistent with a Financial Crisis
- It’s better to Keep the Same Teams, Even if You Do not Have to Be Reluctant to Separate Quickly from the “Weak Links”
- The Biggest structural projects must almost always be postponed in recovery contexts, as in the first 100 days of a new
- It is important to clarify shareholders’ expectations and establish a relationship of trust with them, in any transaction or in taking office.