How do you manage complexity in restructuring?

Imagine a restaurant chain that's losing money. The first step is to find out why. Are fewer people coming in? Are costs too high? Once the problem is identified, say it's high costs, the goal could be to cut costs by 20% within a year. Success could be measured by looking at monthly expenses and revenue, while keeping all stakeholders (like employees, suppliers, and investors) in the loop about these targets. Here, the finance team might have different insights into underperformance than the operations team. By having a multi-disciplinary approach, you can have a more comprehensive understanding of the challenges and how to tackle them.

The companies have a tendency to grow complexity over time, adding layers to the organisation. At some point its not serving its market as efficiently as it could. If the market is turning down or you are not competitive anymore you have to do something, fast. I have a couple of ground rules: - put together a team of likeminded people who have a good view of the organisation and its functions - cut enough, even to the muscle, as you want to get to a positive spin, hire next to get new energy. Having to do a second restructuring is toxic - simplify organisation to get many people meet customers/suppliers and by increasing amount of direct reports - when plan is there communicate why this is a must - execute with speed

Break the issue down into its components. Identify the stakeholders in each of the issues and consult. Develop a plan with dependencies , timelines and ownership. Appoint a project manager to coordinate the project. In large projects it is likely to be necessary to have a project office. Have a clear job description for the project manager. I have seen too many projects where the project manager reports that things have not happened. The role of a project manager is to identify these issues in advance of them being overdue and to regularly confirm with task owners that they will deliver on time and to help them identify impediments to delivery. The project manager should develop a clear critical path with dependencies

In my experience one single reason for failure of a company is due to mismanaging of finances ! The company may be excellent in sales and marketing , product portfolio, Purchase management but still can go down under ! So first and foremost understanding has to be current liquidity requirement and potential for future scale if requisite capital is not a constraint ! This understanding becomes the base for moving forward

Restructuring in LBO operations is often the result of an inadequacy of the financial structure with the real economic performance of the company. This inadequacy can be cyclical and can be managed over time or structural and requires efforts from stakeholders. The most complex is the identification of the very nature of the mismatch. In the event of a diagnostic error, the consequences are often disastrous for stakeholders.

Over my 30 year career helping to turn around company performance, I have developed something I call "Joel's Immutable Law of Turnarounds". Money=Time=Options. It is like the E=MC^2 of Restructuring. The more money you have/can generate, the more time you have. The more time you have the more options you have. Focus on the money, first and foremost. That will buy you maximum time and create maximum optionality. But it only works one way. If you have too many options, you waste time and money so make sure to follow the M=T=O formula to increase your odds of a successful restructuring.

Most restructuring options have advantages and a set of challenges. The important criteria is to select a restructuring plan that is best aligned with strategy and solves for most of the issues and desired goals or outcome. Another factor to consider is that not all restructuring solutions can potentially deliver quick results. Therefore at times the most optimal restructuring plan might run over a length of time. Patience and perseverance with such solutions is also an important criteria while evaluating options.

Any restructuring exercise should start with analysis of financial and non financial data to do a root cause analysis and identification of issues leading to organizational underperformance. This has to include industry benchmarking of costs, sales revenues-volumes, prices, market shares etc also, as looking inward alone will not provide the right strategy for restructuring. Right fitment of people for existing roles, need to rejig the team and org culture could also be key drivers of change. Identify the main drivers of growth and cut out the non core businesses to reduce noise and get management to focus their time and attention in a narrower band.

Let's say you own a tech startup that's struggling financially. After identifying that the main problem is a lack of revenue, you consider various options: Cost Reduction: Cutting employee benefits or downsizing the team. Asset Sale: Selling off a non-core software product you own. Debt Restructuring: Negotiating better terms with creditors. Merger or Acquisition: Partnering with a larger tech firm. Bankruptcy: Filing for Chapter 11 to reorganize and stay afloat. You gather all relevant data, such as your balance sheet, customer reviews, competitor strategies, and more, to make an informed decision. Involve key stakeholders like department heads, financial advisors, or even external consultants to get a 360-degree view.

Options and analysis are incomplete until and unless you fully understand the various creditor positions. Invest in time and energy towards this process and gain clarity. For example, a DCF analysis of a secured lender's loan exposure provides tantalizing insights into its portfolio management and strategy.

Need to triangulate to ensure inclusivity by using different approaches. Understand that people react differently to change some may get it and others may require extra support etc so important that you under the varying support needs and ensure resources are provided to meet needs of the diverse stakeholders.

Remember that all discussions and negotiations are meant to achieve value creation and not value destruction or value claiming. There are some pissed off parties across the table so do not sugarcoat things or even attempt to do oneupmanship.

Communication is an extremely important part of restructuring which is often ignored. If you want people to change, it is not enough to tell them what to change without explaining with reason WHY to change - what happens if they don’t (consequences) and what are opportunities if they do (what’s in it for them). It is only when the WHY resonates with people that they accept the change and implementation becomes easy and chances of success amplify. Consistency in communication over the transformational journey, with different messages to different stakeholders including updating progress is key to retain enthusiasm and support.

Let's say you're the CEO of a struggling retail company. After analysis, you decide that the best strategy is to close down unprofitable stores and focus on e-commerce. You communicate this to stakeholders—investors, employees, and suppliers—explaining that the retail landscape has shifted and this is the most viable path to profitability. You lay out a timeline for store closures and the ramping up of the online business, assigning responsibilities to various departments. In today's digital age, you could use a mix of in-person meetings, video conferences, and written reports to communicate your strategy. Also, ongoing communication is key. It's not a one-time event but a continuous process to keep everyone aligned and informed.

The first step in choosing and communicating the strategy is to listen to each of the stakeholders/constituencies, as they have been watching the decline of the enterprise. The fact that they will inevitably offer different perspectives, is exactly the information that is needed to successfully restructure the company. Remember that you need two eyes to get depth perception; however, if you cover up one eye, you lose your depth perception. As you are identifying both the issues and strategy for resolving the issues, make sure that you do not over-promise / under-deliver. Be honest with everyone about the length of time that it will take to resolve the issues, so that you do not lose the faith from the stakeholders.

It is essential to look up often during a restructuring implementation to check to be sure you are still on target. I see even excellent restructuring programs go off kilter because of a lack of "looking back" at the original plan/direction and making sure you haven't drifted too far off course unintentionally.

Peter Drucker is often quoted as saying, "You can't manage what you can't measure." That is certainly true for tracking the implementation plan for both numerical and non numerical targets. Tracking is important not just to measure progress but also to highlight if the steps taken are yielding desired result. Many times the strategy may fail due to internal or external factors or due to inherent biases in selecting the option. Only by tracking and careful examination of results, we will know if the organization is progressing towards desired outcome. If not, the strategy needs to change. This is the most important contribution that the finance team or the core strategy team can contribute from measuring and tracking.

Many restructuring efforts failed because they were not thorough. What this means is, it is good to have the balance sheet repaired, but without performing surgery on the profit and loss section, a bad business case will still be a bad business and lose money. So at this tail-end segment, proper attention must go towards performance improvement initiatives to keep the virtuous cycle running.

Always have a 'Plan B' for critical parts of your restructuring plan. If a key supplier fails to deliver, or if a technology solution isn’t as effective as expected, a backup plan can keep you on track.

From a transfer pricing perspective, restructuring involves considerations of whether or not corporate-mandated decisions and related expenses should be borne by operating subsidiaries. Additionally, restructuring can lead to new functions being performed, requiring re-examing whether the existing intercompany contracts support the new activities or whether new intercompany contracts need to be executed, while also considering whether new services are being created and if current transfer pricing policies cover the new activities.

As a restructuring consultant, I navigate complexity with a three-pronged approach. First, deep dives: I meticulously analyze the organization's core functions and pain points. This clarity allows me to tailor the restructuring, not impose a one-size-fits-all solution. Second, open communication: Transparency is key. I involve stakeholders at every step, fostering trust and buy-in for the changes. Finally, a phased approach: I break down the restructuring into manageable steps, minimizing disruption and ensuring a smooth transition. Through meticulous planning, open dialogue, and a focus on implementation, I guide organizations through the complexities of change.

Operating model changes are inevitable element of a company’s strategic evolution and scalability. The key drivers around operating model reviews are inherent to the journey/ life of any organization that makes a humble beginning, scales itself in size and volume, build capabilities, generates value, diversifies, adopts change, transforms culturally and from market perspective, adopts change in practices and governance, build maturity and seeks newer opportunities to maximize value. Value from Operating Model is an equation that clearly is built around building SUSTAINABLE and SCALABLE organizations by retaining its VALUE

Whether you are a debtor or creditor, pay your restructuring advisers! Just as you will be more than happy to pay your lawyer for resolving sticky legal matters for you or pay a fortune to your medical specialist to treat your illness, your restructuring specialist provides a vital service to you by giving emergency treatment to the distressing problems of debt resolution.

Very often leaders don’t want to communicate if the organization is struggling to survive. There are many reasons for it like he/she may be seen as a weak leader or the fear that some people will jump ship if they come to know that the boat is on a fire. Whatever the case may be, the risk from not communicating transparently are much higher. Also it is important to identify the tier 2 and tier 3 leaders who might support or oppose the restructuring plan (senior and mid management). Very important that strategic implementation roles are assigned from the group that supports the plan or else it may never be implemented. Announcing early wins and celebrating achievements on the way are surely going to keep the moral and momentum high.