This company was first established in the 1970s and grew to become the world-leader in its field. Diversification without structure, and an unfortunately timed overseas expansion, led to its demise just after the financial crash at the end of the last decade. It was then acquired from administration by a private investor.
Two years later I was asked to take a look at it because it was not meeting expectations. The owner believed the company had a sales problem. I looked at structure, capacity and process.
Board (2):
making it: Operations Director
flogging it: Managing Director (acting Sales Director)
counting the beans: Managing Director (acting Finance Director)
Management:
making it: Factory Manager, Contracts Manager
flogging it: nobody
counting the beans: Financial Controller
Operatives:
making it: 40+ personnel
flogging it: 7 personnel
counting the beans: Accountant
Despite the trio of heavyweights in finance, supplemented by the owner’s ‘group’ Finance Director, report clarity was appalling because the company had the worst computer system I have ever encountered which ‘NewCo’ had carried over from ‘OldCo’.
The term ‘black box’ is often used to describe a system where data is input and nobody is sure what happens to it in there. This was one of those situations, but with the added twist of data extraction being unbelievably difficult, to the extent that even when you forced data out, you could not be sure it was complete or correct. What was even worse, was that staff relied on this information as gospel. Even if the system belched out abject nonsense. The problem was that its users – and this wretched system infected every department – had little external experience as reference. Think of it as a calculator that might return 190 if you input 7 x 9. If you do not know your ‘times tables’, you will accept the mighty computer’s answer.
According to the system and the Finance Team, the company was profitable. I could not see how, but the filed accounts said so. The Operations Director, in whom the owner had great faith, reckoned the capacity was double the revenue it was generating at the time. I thought that doubtful.
The administration nightmare was actually not its biggest problem. The Managing Director – from the august world of banking – had pursued his profitability by downsizing the company by 50% post-administration. This rather unimaginative strategy meant that the order book and work-in-progress which had been insufficient for double-sized OldCo was now plenty for pint-sized NewCo to be getting on with. The company’s mighty international reputation meant that enquiries sort of arrived by themselves. But two years later the order book and enquiries were drying up – and no marketing had been done. A lot of money in those years was saved by cutting this cost, which helped the perception of profit. Yes, I pinched myself too.
This was not however a mere two year marketing drought. The two things that struggling companies reduce as they decline are capital investment and marketing – both of which, particularly the latter, accelerate the decline into administration.
There were two more things to consider about sales. The company had three very different product types and routes to market, but they were misunderstood and treated as one. The price range spanned from the cheapest item for a few pounds to the largest project value recorded: one million US dollars. The core activity was the design, production and installation of very beautiful, complex and labour-intensive projects that took months to bring to contract and then as much as a year to complete.
This meant that after a two to five year marketing drought, marshalling sales enquiries ‘today’, from scratch, would take over a year to bank as cash. Looking at the other product groups, hypothetically one group could be ramped up and sold through the company’s London showroom and the other would need distribution to be established. From scratch.
I provided a report to the Board. The MD hired a Sales Director for the big projects, a Sales Manager for the other two channels (who decided to make them one channel) and a Marketing Manager.
Board (3):
making it: Operations Director
flogging it: Sales Director
counting the beans: Managing Director (acting Finance Director)
Management:
making it: Factory Manager, Contracts Manager
flogging it: Sales Manager, Marketing Manager
counting the beans: Financial Controller
Operatives:
making it: 40+ personnel
flogging it: 7 personnel
counting the beans: Accountant
That looks better. Unfortunately none of the new recruits had the credentials for their posts and six months later nothing had changed apart from the Sales Director’s appointment alienating the sales people.
And so I was invited back for another look. The order book that looked precarious six months earlier was even thinner. The new recruits were too far off the pace, and the situation too urgent, to stand a chance of evolving them. Crisis conversations began and another six months passed. Meanwhile the order book and work in progress were converging on zero.
So: coal or diamond? Burn it or polish it?
The owner chose to polish it – a bold decision, and a very expensive one for the foreseeable future. A 70 person enterprise without work to do is a hungry beast.
I was offered the role of Managing Director. See Heaven & Hell.