Corporate Restructuring

Transcription

1 David E. Vance Corporate Restructuring From Cause Analysis to Execution 4y Springer

2 Contents 1 Diagnosing the Problem 1 Introduction 1 Stages of a Troubled Company 1 Early Stage 2 Intermediate Stage 2 Late Stage 2 Restructuring Tasks 3 Time Span 3 Diagnosing Problems 4 Management Dissembling 4 Common Types of Problems 5 Cause Versus Effect 6 Tools for Identifying the Problem 6 Ratios 6 Models 12 Ethics 14 Why Ethics? 14 Sample Ethics Policy 15 Complexity 16 Segmentation 16 Think Broadly About Problems 16 Boundaries 16 Information and Decisions 16 Think in an Interdisciplinary Way 17 Conclusion 17 Notes 17 References 18 2 Setting Restructuring Goals and Reverse Engineering a Company 19 Introduction 19 Business Model 19 Adding Realism to the Model 20 Reverse Engineering Turnaround Goals 20

3 viii Contents Goals Must Be Realistic 22 Forecasting Sales 23 Probabilistic Sales Forecasts 23 How Sensitive is the Business Model to Small Changes in Assumptions? 25 Constraints on the Model 26 Selling and Marketing Costs Not Detailed 27 Applying the Model 27 Conclusion 28 References 28 3 People 29 Introduction 29 Turnaround Committee 29 Incumbent Management 31 Turnaround Team Structure 31 Supplementing Management 32 Turnaround Team 33 Sales and Marketing 33 Operations 34 Finance 34 Human Resources 34 Transaction from Restructuring Team to New Management 35 Management Problems 35 Psychological Pathogens 36 Organizational Obstacles 36 Political Inhibitors 37 Warning/Response Factors 37 Bad Attitudes 38 Culling the Herd 38 Blue Chair Employees 39 Training 39 Unions 39 Layoffs 40 LayoffNotice 40 Layoff Guidelines 41 Layoff Law 42 Conclusion 44 Notes 45 References 45 4 Labor Cost 47 Introduction 47 Headcount Management 47 A Perfect Organization 50 Low Performing Employees 50

4 Contents Staff Functions 51 Span of Control 51 Headcount Management System 53 Consultants and Temporary Workers 54 Compensation 54 Wage Give Backs 56 Labor Leverage 56 Termination and Severance Pay 57 Benefits 57 Pensions 58 Health Benefits 58 Other Labor Cost Management Strategies 58 Executive Compensation 58 Normalize the Compensation of Top Executives 59 End Executive Bonuses Until Superior Performance Returns Overtime 59 Turnover Costs 60 Workers Compensation 63 Unemployment Compensation Taxes 64 Conclusion 65 Notes 65 References 66 Evaluation of Businesses, Divisions, Facilities, and Dealerships 67 Introduction 67 Businesses 67 Analyzing Divisions, Subsidiaries and Business Units 68 Re-specialization 68 Operating Profits 68 Revenue and Cost Trends 70 Return on Division Assets 71 Comparing Divisions to Industry Norms 72 Allocation of Corporate Overhead 72 Allocation of Interest Expense 72 Allocation of Income Tax Expense 73 Comparable Companies 74 Franchises 74 Market Position 74 Disposition of Underperforming Divisions, Subsidiaries and Business Units 77 Break-Up Value 77 Facility Analysis 78 Disposition of Underperforming Facilities 82 Dealerships 83

5 n Contents Conclusion 83 References 84 6 Evaluation Products, Customers and Contracts 85 Introduction 85 Customers and Products 85 Analyzing Customers 85 Customer Profitability Analysis 87 Analyzing Products and Services 91 Measurement 91 Hidden Costs 93 Price and Cost Trends 93 Complementary Goods and Services 93 Product Fit and Consistency 94 Product Revitalization 95 Customers and Products 96 Analyzing Contracts 97 Profit Ladder Analysis 98 Conclusion 101 References Revenue Growth and New Products 103 Introduction 103 Driving Customers 103 Advertising 104 Understanding Customers Needs 105 Solving Problems 105 Value Proposition 106 Quick Response Advantage 106 New Products 107 Complacency Kills 107 Product Pipeline 108 Killer App 108 New Market Spaces 108 Complementary Goods 109 Creating and Harvesting Value 110 Marginal Utility Ill Quick Second Strategy 112 Time to Market 113 Radical Product Innovation 113 Culture of Technology and Innovation 114 Customer Focus, Technology Focus, Future Customer Focus Core Competencies and Creative Destruction 115 Independent Organization 115 Innovation Limits 115 Sales Person and Sales Territory Management 116

6 Contents xi Sales Training and Lessons from High Performers 117 New Sales Territories 118 Sales Production 118 Conclusion 118 Notes 119 References Markets and Pricing 121 Introduction 121 Cost Centered Pricing 121 Market Centered Pricing 123 Engineered Cost 123 Price Elasticity 123 Optimizing Gross Profit Versus Optimizing Revenue 124 Product Life Cycle 125 Introduction 125 Growth 125 Maturity 125 Decline 125 Length of Product Life Cycle 126 Pricing Implications of the Product Life Cycle 126 Opportunistic Pricing 126 Microeconomic Pricing 127 Demand, Supply, and the Market Clearing Price 127 Surpluses and Shortages 128 Price Implications of Surpluses, Shortages and Equilibrium Price 129 Product Differentiation 129 Brands 131 Market 131 Pure Competition 131 Monopoly 132 Oligopoly 132 Monopolistic Competition 132 Price Analysis 133 Competitive Analysis 133 Price Panels 135 Conclusion 135 References Customer Service and Relationships 137 Introduction 137 Customer Service 137 Holistic Approach to Customer Service 139 Customer Relations 140 Responsiveness 140

7 xii Contents Customer Service Training 141 Customer Tracking System 141 Lost Customers 143 Customer Feedback 145 Customer Complaints 146 Customer Hotline 146 Customer Satisfaction Surveys 147 Customer Research 147 Customer Selection 148 Firing Customers 148 Conclusion 149 Notes 149 References Re-engineering, Process Mapping, Continuous Process Improvement and Outsourcing 151 Introduction 151 Process Mapping 151 Continuous Process Improvement 153 Targets of Opportunity 155 Organizational Factors 156 Re-engineering 156 Re-engineering Goals 156 Re-engineering Process 157 Targets of Opportunity 158 Human Dynamic 159 Criticisms of Re-engineering 160 Setting Goals 161 Setting Priorities 161 Technique Selection 162 Outsourcing 162 Quality and Reputation 164 Hidden Costs 165 Savings Erosion 165 Conclusion 166 References Cost Analysis and Finding Waste 169 Introduction 169 Cost Goals 169 Overhead 169 Cost of Goods Sold 171 Appropriate Goals 172 Payment Analysis 172 "Vendor Payment Analysis 172

8 Contents xiii Category Payment Analysis 173 Functional Analysis 173 Cost of Goods Sold 173 Production Costs 174 Facility Utilization 175 Suppliers and Purchasing 175 Product Design 177 Make or Buy 177 Targets of Opportunity 177 Consultants 177 Office Space 178 Facility Consolidation 178 Airplanes 178 Cars 179 Trucks 179 Phones and Phone Lines 179 Insurance 180 Travel and Entertainment 180 Executive Perks 180 Financing 180 Taxes 181 Audit Program 181 Conclusion 184 References Information Technology 185 Introduction 185 Alignment of Strategy and Information Technology 185 Cost and Needless Complexity 186 Integration of Computer Professionals 187 Inventory Computer Systems and Projects 187 IT Outsourcing 189 Payroll System 190 Web Hosting 190 Equipment and Software Costs 190 Errors 191 Productivity 192 Mining Existing Data 193 Conclusion 194 References Financing the Turnaround 197 Introduction 197 Balance Sheet and Cash Flow Goals 197. Banks 199 ' Bank Lending Agreements 200

9 xiv Contents Facility Renewals 200 Line of Credit and Borrowing Capacity 200 Bank Crisis and Surprise 201 Factors 201 Asset Based Lenders 202 Tranche B Lenders 203 Junk Bonds 204 Securitization 204 Private Investment in Public Entities (PIPES) 206 Bankruptcy and Super Priority Loans 207 Commercial Credit Companies 207 Summary of Financing Alternatives 209 Conclusion 210 Note 210 References Internal Sources of Cash 213 Introduction 213 Appropriate Amount of Capital 213 Return on Assets 213 Limitation on Use of ROA 215 Asset Turnover 215 The Cash Cycle 216 Accounts Receivable 216 Accounts Receivable Turnover 217 Raising Cash from Accounts Receivable 218 Accounts Receivable Management 220 Inventory 224 Raising Cash from Inventory 225 Plant, Property and Equipment 229 Accounts Payable 229 Imputed Interest 230 Conclusion 231 Note 231 References Emergency Cash Management 233 Introduction 233 Emergency Cash Budget 233 Consolidation of Cash 233 Daily Cash Report 234 Cash Disbursement Calendar 234 Payment Priorities 234 Dealing with Collection Agencies 235 Halt Spending 235 Commitments 235

10 Contents xv Consultants, Conferences and Other Discretionary Spending Expansion 236 Labor Costs 236 Hiring Freeze 236 Layoffs 236 Executive Sacrifice 237 Partial Layoff 237 Held Paychecks 237 No Pay Payday 238 Notes Payable 238 Emergency Collection Techniques 238 In Person Collection Visit 239 Missing Payroll 239 Factors 240 Collection Agencies 240 Salesperson's Responsibility in Collections 240 Conclusion 240 Notes 241 References Bankruptcy 243 Introduction 243 Background 243 Chapter 7 Liquidation 243 Chapter 11 Reorganization 244 Finding Bankruptcy Law and Forms 245 Filing a Bankruptcy Petition 245 Commencement of Bankruptcy 246 Voluntary Bankruptcy 246 Involuntary Cases. 246 Stay of Collection Actions 246 Property of the Estate 247 Non-dischargeable Debts 247 Preferences 247 Set-Off 249 Fraudulent Transfers 250 Real Estate - Failure to Timely Record a Lien or Mortgage 250 Protecting a Company from Bankrupt Customers 250 Order of Payout 251 Secured Claims 252 Classes of Unsecured Claims 252 Section 507 Priority Claims 252

11 xvi Contents Additional Protection for the Bankrupt 253 Leases and Executory Contracts 253 Contracts, Covenants and Lease Clauses 254 Retention Bonuses 254 Bankruptcy Plan 254 Who May File a Bankruptcy Plan 255 Classes of Creditors 255 Plan Approval 255 Prepackaged Bankruptcy 256 Advantages of a Prepackaged Bankruptcy 256 Disadvantages of a Prepackaged Bankruptcy 257 Specimen Bankruptcy Plan 257 Conversion of Debt to Equity 257 Exemption from Securities Laws 257 Section 363 and Sale of Assets 257 Section 363 Sale Procedures 259 Who May Buy at a Section 363 Sale 260 Sale of the Company or a Major Subsidiary 260 Break-Up Fees, Overbid and Sale Procedures 260 Bidder Qualifications - Financial Capacity 261 Other Legal Considerations - Forum Shopping 261 Collective Bargaining Agreements 261 Conclusion 262 Note 263 References Execution 265 Introduction 265 Execution Shortfalls 265 The Plan 266 Executable Plan 267 Priorities 268 Clarity and Communication 269 Responsibility 269 Time Frames and Sense of Urgency 270 Contingencies 270 A Culture of Success 270 Measurement and Monitoring 271 Key Performance Indicators 271 Management by Walking Around 273 People Development 273 Selection 273 Training, Coaching, Nurturing 274 Conclusion 275 References 276

12 Contents xvii Appendix A: Restructuring Timeline 277 Introduction 277 Turnaround Timeline 278 Index 279