ANNEX II : THE 3 R's OF TURNAROUND
In many places on this site I refer to repositioning, restructuring
and re-engineering strategies and programs that are normally required to
achieve a sustained turnaround.
Repositioning of the company generally refers to a strategic
shift in its position in the marketplace. The following experience
illustrates this.
Case #7 –
Repositioning to Restore Profitability and to Solve
Financing Problem. One of my customers was a supplier of various types of
audio amplifiers, from consumer amplifiers to specialty units for
industry. Because of the company's small size, despite the advanced and
high quality nature of all its designs, the company was unable to make
money while supplying a wide range of clientele. Moreover, the financing
of production was a nightmare, when the profit margin on consumer models
was small and the stores wanted drop-shipments from stock. My solution
was to reposition the company, namely to offer only high-end specialty
amplifiers, which often included some custom design work, which
industrial clients agreed to pay for (based on milestones achieved) .
While total sales of the company dropped, profit appeared almost
immediately, and at the same time financing ceased to be a problem.
I use the term Restructuring only to denote changes in the
organizational structure of the company. It should be noted that the
expression "restructuring" is used loosely by the press to
describe all types of major changes in the company, and sometimes to describe
such changes together with the turnaround itself. This could cause
confusion, and to avoid it and use the term meaningfully, I use the
term "restructuring" only in the above sense.
Re-engineering of the business process, to which the press
sometimes refers as the re-design of the company, is a term I use to
denote mainly changes in the business process of the company, its
modus operandi, i.e. the changes in the way things are done, and
these are often the most challenging and fundamental. Because
business process re-engineering sometimes starts with the analysis of
the mission of the company, in some cases elements of re-engineering
are identical with repositioning, but re-engineering can go much further.
Though the business re-engineering literature which I read does not
directly say it, my own experience in design engineering tells me that
business re-engineering uses the same interactive, iterative
relationships as the process of designing and developing a complex
equipment, and often results in changes to the equipment itself.
Case #2 – Re-engineering
to Reduce Operating Expenses. Some twenty-five
years ago Chrysler was on the verge of a collapse. It was then that Lee
Iacocca became its president and was charged with the turnaround. One of
the things he did early on, was to look at the costs of shipping
Chrysler automobiles to distribution centers by rail. In essence, the
rail companies charged for distance traveled and the number of rail cars
used. Everyone knew that, but It took Lee Iacocca to ask how many Chrysler automobiles typically fit
on a rail car. The answer he obtained led to him to realize that by
shortening these automobiles by 3 or 4 inches, he could save Chrysler
several hundreds millions of dollars a year, and he did just that. This
was business re-engineering before even the term was invented. This work
resulted also in technical re-engineering of the automobiles. It
shouldn't surprise us that Iacocca's original training was as an
engineer.
Although repositioning, restructuring and re-engineering are
distinct, they are also related, and one often involves another. Example
: moving the quality control function from the Engineering to the
Production department would be both restructuring and re-engineering,
while changes to the quality control methods alone would fall under
re-engineering. Re-engineering may also lead to a change of the very
mission of the company – as happened in the above case of my client who
produced amplifiers, simply because of the repositioning.
Combined, the 3 R's of Turnaround – repositioning, restructuring
and re-engineering, cover most of the changes one could imagine in a
business.
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