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| Pradip Chanda, is a turnaround consultant
based in Delhi. He is the author of The Second Coming--Creativity
in Corporate Turnarounds |
Managing
a sick company is about taking calculated risks in the deployment
of resources and unlocking value from existing assets. This is particularly
true when there are sudden discontinuities in the business. Instead
of analysing the trends, which are substantially changing the market
structure, some companies end up trying to buy a greater share of
a shrinking market, thus accelerating the downward slide.
The Turnaround CEO has to sit back and ask
how can he use existing resources to find a suitable niche for the
products the company can make and sell. The answers at times are
fairly simple. The channels may have changed. Demographic shifts
may have opened up totally new opportunities for the company to
explore profitably a new but do-able product mix.
The Waterbury Watch Company of Middlebury, Connecticut, was once
known for making one-dollar pocket watches. That was in the 1940s.
During the war the company saw a big opportunity in using its clock-making
expertise to develop a range of timing fuses and became one of the
largest suppliers of such devices to the US army. A company with
a turnover of barely $300,000 suddenly became a $70 million company.
The timing fuse bonanza ended as the war was
over. The company went back to what it knew best-making watches.
But the market had changed. Pocket watches were passé. Young
people were looking for watches that they could strap on to their
wrists and were prepared to pay more than the pre-war one-dollar
pocket watches, but not the kind of fancy prices that the premium
watches fetched.
The company, believing that they can combine
their watch making know-how with the precision tools techniques
used in making fuses, focused on developing a watch that was simpler
and cheaper than the Swiss watches. They succeeded in doing so by
replacing jewels with metal bearings to maintain the balance in
the movement. Believe it or not, the prototype was based on the
mechanism used in Mickey Mouse watches. The company also invested
in plant automation to increase capacity.
The next step was to develop a communication
strategy to convince potential customers that the new cheap watch
not only told the time but was also hardy enough to withstand rough
treatment. Convinced that demonstrations were more effective than
clever advertisements, the company developed a point of sale-window
display unit. To the utter amazement of window shoppers, a lever-operated
arm first dunked the watch into a beaker of water and then dropped
it on an anvil to be struck by a hammer. It then held it up to show
the time.
The other important element in the communication
strategy was to dump the Waterbury brand, too closely associated
with dollar pocket watches and promote a more precise and modern
sounding new name-Timex.
So far so good. But the real problem arose
when jewellers, the traditional sellers of watches, refused to handle
a cheap watch. Used to making $50 on a $100 watch, and in the process
creating a life-time customer beholden for service and repairs,
the jewellers could not see themselves handling a $7 watch for a
piffling two-dollar margin.
The company was dumbstruck. But the Timex management
was equal to the task. The company salesmen tirelessly explored
new avenues and finally found their ally in corner drugstores. Nestled
among prosaic home remedies and toiletry items the Timex watches
had pizzazz. Spurned by jewellers as down-market cheapies, Timex
watches became class merchandise in the drab settings of drug stores.
A classic in dealing with discontinuities that
should inspire many a Turnaround CEO to look deeper into the assets
he inherits.
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