 |
| Pradip Chanda, is a turnaround consultant
based in Delhi. He is the author of The Second Coming--Creativity
in Corporate Turnarounds |
An
audit of the operations of a sick company is often like watching
an oriental fan dance. All issues are conveniently camouflaged behind
one pervading problem: there is no cash. This is no surprise. If
the company is generating cash surpluses from its operations, it
is not yet sick. It may be under-performing and sliding towards
sickness, but as long as there is a positive cash flow, it is possible
to put it back on a healthy track.
I keep that in mind when I interact with the management of a sick
company. I try to guide the management into taking its focus away
from the lack of working capital and training it on the fundamentals
of business.
This does not imply that lack of cash is not
a problem. It is, undoubtedly, a very serious problem. But it needs
to be tackled at the level of the chief executive or the chief financial
officer. Little is gained if every department head spends his time
worrying about it. That apart, injecting fresh funds into a company
not ready with an effective strategy and a plan is like throwing
money away. New funds will disappear in no time. This has been amply
demonstrated in the case of a number of public sector units.
An effective way for a company's management
to begin the process of zeroing in on critical issues is to ask
the question: ''Why is the company in such a critical condition?''
This helps pinpoint the areas in which the company has lost its
competitiveness.
Markets change. Many companies are left with
excess capacity and attendant infrastructure and finance costs that
result in sickness.
A careful analysis of the five key elements
of competitiveness often shows the way forward.
The first element is the product. The design,
quality, availability, and price are the sub-elements that demand
intense scrutiny. The product has to get all the sub-elements correct
to fit into the segment in which it competes.
It is not always shoddiness that causes sales
to decline. At times, it is over-engineering. The product may deliver
features the customer thinks are non-essential. Under such circumstances,
the customer justifiably balks at paying a higher price for features
he does not require. This is common in markets where traditional
differentiation between premium and non-premium products is getting
blurred. Being confined to traditional distribution channels, when
the customer's shopping habits have changed, can also sometimes
put an end to a good product priced right.
The second element is process. Poor planning
and marketing can kill good products. This is all the more true
for companies making products with a seasonal bias. Unsold inventories,
tied-up cash, loss of credibility among dealers and agents, and
demoralised sales force are reasons enough to create enormous stress
on a company's resources.
The third element is customer care. It is not
always possible to deliver exactly what the customer likes. The
management should focus on what is do-able and offer the customer
value for his money.
The fourth element that is critical to an organisation's
competitiveness is the response time that it has to react to the
changes demanded of it, both internally as well as externally. Administrative
bottlenecks of a company can effectively gift opportunities to competitors.
The last, but not the least, comes the ability
of a company to innovate. The capacity to innovate can do wonders
in restoring a company's competitiveness. An example I have found
inspiring is that of a company that was lumbered with a dimethyl
terphthalate (DMT) manufacturing facility that had no flexibility
to make anything else. The management asked: ''What else can DMT
be used for?'' The company eventually came up a solution: DMT proved
to be an excellent alternative to pet in making plastic bottles.
|
