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Organizational Fitness Improves Business Turnarounds and Revenue Growth

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During a business turnaround, the first thought is to dive into the financial condition of the business and immediately develop methodologies that improve cash flow and reduces expenses.

I submit that a deep dive into the fitness of the organization will reveal deep fissures in how the company is being managed; then study the leadership team, the business plan and the goals and objectives of the company.

The article “Organizational Fitness Improves Business Turnarounds and Revenue Growth” was developed for business owners and CEO’s that are the center of influence in their companies.

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Organizational Fitness Improves Business Turnarounds and Revenue Growth

  1. 1. ORGANIZATIONAL FITNESS IMPROVES BUSINESS TURNAROUNDS AND REVENUE GROWTH WILLIAM H. PARKER, CTP, 12-17-2018
  2. 2. THE PROCESS OF ORGANIZATIONAL FITNESS and the BUSINESS TURNAROUND During a business turnaround, the first thought is to dive into the financial condition of the business and immediately develop methodologies that improve cash flow and reduces expenses. I submit that a deep dive into the fitness of the organization will reveal deep fissures in how the company is being managed; then study the leadership team, the business plan and the goals and objectives of the company. The business turnaround involves reviving a struggling or probably a dying business. This implies taking steps that would turn a company’s distressed financial position into a healthy and profitable one. It is widely believed that business turnaround is a short term action designed to ease short term financial difficulty. A company that struggles to meet up with its short and long obligation is obviously dying and needs a turnaround. The article “Organizational Fitness Improves Business Turnarounds and Revenue Growth” was developed for business owners and CEO’s that are the center of influence in their companies. 12/19/18 2
  3. 3. THE McKINSEY 7-S MODEL AND THE ORGANIZATIONAL FITNESS FRAMEWORK • STRATEGY AND OBJECTIVES: How Competitive Advantage Will Be Achieved. • SKILLS AND CAPABILITIES: Competence of the Organization • STRUCTURE: Roles, Responsibilities and Reporting Relationships • SYSTEMS: Formal Systems and Procedures {Get stuff done} • STYLE OF LEADER: The Behavior of the Leader and the Top Team • STAFF: People and Their Backgrounds; The DNA of the Organization • SHARED VALUES: Habits, Beliefs and Behaviors {Culture} 12/19/18 3
  4. 4. McKINSEY 7 S MODEL 12/19/18 4
  5. 5. BUSINESS TURNAROUND PROCESS 12/19/18 5
  6. 6. DRIVERS FOR EBITDA IMPROVEMENT FINANCIAL MANAGEMENT  Drive “Good” Sales: Enter niche markets, patent new products to create barriers to entry. Develop the gross margin matrix by customer; high volume/low margin, low volume/low gross margin, low volume/high gross margin and high volume/high gross margin.  Lower Cost of Goods Sold: Develop scale economies, acquire captive access to raw materials, increase efficiencies in processes {production, distribution, services and labor utilization}, implement cutting edge cost control systems.  Control Operating Expenses: Budget and monitor expenses, identify fixed versus variable expenses, manage expenses at lowest level possible, keep track of recast items.  Define the Value Proposition: What does the business stand for? Identify what the company is the “Best in the World At”. Clearly define why the company exists along with it’s competitive advantage in the market. 12/19/18 6
  7. 7. REDUCE THE COST OF DOING BUSINESS FINANCIAL AND OPERATIONAL MANAGEMENT  Increase Economic Value/Decrease Capital Base: Invest in only positive high growth projects. Withdraw or liquidate underperforming businesses, implement product line profitability capabilities to determine winners and losers. Utilize information technology to drive decision making; institute business measures and key performance indicators that lead to outcomes {results}.  Reduce Business Risk: Perform at a higher operating level compared to competitors, long–term contracts, etc. Institute financial transparency, including the retention of audited financial statements.  Reduce Cost of Capital: Maximize use of debt to support equity, possibly use less costly equity substitutes, such as mezzanine debt, reduce surprises {volatility of earnings}, consistently test the market cost of debt, walk down the private capital access line whenever possible.  Reduce Customer Concentration: No single customer should account for more than 20% of sales. 12/19/18 7
  8. 8. INCREASE EFFICIENCY AND ACQUISTION ATTRACTIVENESS FINANCIAL AND HUMAN CAPITAL MANAGEMENT  Develop a Place in the Market: Always be considered a tough competitor or roadblock, by larger players, become a company of niches.  Obtain Critical Mass: Achieve Minimum Sales of at least $10.0M to $50.0M with EBITDA of $3.0 to $8.0 million {multiple rises exponentially after $3.0 million in EBITDA}  Maintain High Margins: Focus on maintaining higher gross and operating margins than the competitor.  Management Team and Systems Add Value: The CEO or owner is the “Orchestra Leader” and no longer plays an instrument; the management team is considered self sufficient and has clear roles and responsibilities.  Create Effective Planning: Build an effective business model that links employee performance with the operating and financial plans. 12/19/18 8
  9. 9. TURNAROUND STRATEGIC PLANNING CYCLE High profits and revenue growth result when companies perform well in the following areas: 12/19/18 9
  10. 10. KEY ELEMENTS OF THE TURNAROUND PLAN  Business Sense of Urgency: Assess all elements of the company quickly.  Review the Strategic Options: Determine why the key performance indicators are not being met {competition, internal operating issues, customers, unclear objectives or employee execution issues} and what needs to change to results.  The Board: Make board members your partner {if there is no board, develop an advisory board to as a sounding board to share ideas and thoughts about risks in the business}.  Stabilize Finances: Develop a series of 13 week cash flow statements to ensure having sufficient cash on hand to keep the lights on and pay essential obligations.  Develop a Turnaround Story: All stakeholders want to know what they are working towards; build a communications strategy to gain buy-in and input from employees.  Quick Wins: Rosabeth Moss Kanter of Harvard talks about “Quick Wins” during a business turnaround which builds confidence and morale in the organization.  Build Incentive Plans: All incentive plans should be tied to the behavior of change that deliver specific outcomes derived from key objectives, goals and strategies.  The Team: It may be necessary to replace top leaders in the company; someone has to own the deteriorating performance of the company. Find top talent to replace them. 12/19/18 10
  11. 11. ABOUT PARKER REVENUE GROWTH STRATEGIES Organizational Fitness Leads to Revenue Growth •When it comes to brand development, business management and sales growth strategies, Bill Parker is a true disciple of the authors, Ram Charan, business Guru to Fortune 100 CEO’s and Larry Bossidy, former CEO of Allied Signal who wrote the famous business book, “Execution, the Discipline of Getting Things Done”. •Parker Revenue Growth is a business management and services firm that utilizes the ‘Organizational Fitness Program’ to improve operating systems and results for mid-size companies, non-profits and private equity portfolio businesses. The company provides business assessments to prepare privately owned companies for an exit strategy and a maximum return on investment. Parker Revenue Growth is an outcome driven company and develops business plans and organizational fitness strategies to maximize value and operating results. •On Thursday, August 9th, 2018, the Turnaround Management Association granted Parker the Certified Turnaround Professional (CTP) designation. The Certified Turnaround Professional (CTP) designation provides evidence of an individual’s commitment to the turnaround and corporate renewal industry and also attests to a level of expertise that non-certified professionals may find difficult to prove. 12/19/18 11
  12. 12. APPENDIX AND CREDITS Turnaround Factors 12/19/18 12
  13. 13. APPENDIX AND CREDITS  Enduring Ideas: The 7-S Framework | McKinsey https://www.mckinsey.com/.../enduring-ideas-the-7-s-framework  What is a Business Turnaround? www.accountantnextdoor.com/what-is-business-turnaround-meaning-and-process/  What is Organizational Fitness? Michael Beer, Cahners-Rabb Professor of Business Administration, Emeritus at the Harvard Business School, co-founder and Director of TruePoint Partners, a management consultant firm 12/19/18 13

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