11 hours ago
Revitalising businesses in challenging situations – Key turnaround and rescue strategies
In today's dynamic business landscape, Irish companies across sectors are facing a multitude of challenges. Rising operational costs, supply chain disruptions, and shifts in consumer preferences demand strategic adaptation. Businesses need to embrace revitalisation and adapt to thrive and secure long-term growth.
Niall Kearney, director, KPMG's rapid performance improvement team.
A challenging situation doesn't necessarily mean that a business is no longer viable. A performance improvement plan is the key to taking control of the problem and getting the business back on the path to sustainable growth.
Understanding the situation
We view a business turnaround as a strategic process to improve performance and restore profitability. The issues that give rise to the challenging situation may arise from a variety of triggers, such as loss of a key contract, poor cash flow, management deficits, or external factors like market changes.
Whatever the reason for the decline, it's important to stabilise the business and diagnose the drivers of the underperformance before determining the performance improvement strategy.
For many companies, the journey begins by addressing liquidity—the foundation that underpins everything and without which any strategic move is impossible. Managing liquidity and ensuring that there is sufficient headroom is a crucial step in building a stable base from which a business can springboard into recovery and growth. Renegotiating debts, reorganising capital structures and selling non-core assets are examples of the initiatives that may be required to provide the breathing room needed to forge ahead confidently.
Once breathing space has been established, reevaluating strategic priorities in light of current market conditions is essential. We typically work with companies early on to thoroughly understand industry and sector analyses and to understand prevailing market trends. Adjusting strategic goals to align with newfound insights allows businesses to orient their efforts towards seizing emerging opportunities.
4 key focus areas
In developing any performance improvement plan, we work with management to assess the business performance in four key areas;
Core operations: Often the fundamentals of a business are sound, i.e. growing sector, brand recognition and good sales volume. However, there are operational inefficiencies and failures to innovate, which are compressing profit margins.
Procurement: This function can often be siloed and not adequately incorporated into the business. This creates limitations in respect of (i) missing out on business-wide purchasing discounts and (ii) identifying excess inventory holdings.
Revenue and margin management: Similar to core operations, certain strategic changes can enable a business to unlock material upside. Some examples of areas to deliver this value are through (i) understanding customer elasticity and pricing accordingly, (ii) SKU analysis and (iii) footprint optimisation.
Back Office: Bloated and inefficient organisational structures can generate a disproportionately high cost base. This can quickly erode strong gross margins. Carefully planned rationalisation of the workforce can often unlock huge value. An initial rapid diagnostic of these four key areas underpins any good turnaround plan. Depending on the drivers identified for the underperformance, examples of the initiatives that will need to be deployed to start turning performance around may include;
Cost optimisation: Opportunities for increasing efficiency without compromising quality. Reviews to identify operational inefficiencies can highlight areas ripe for streamlining. Deploying methodologies such as Lean thinking ensures that processes are refined and resources are allocated effectively. Renegotiating supplier contracts can reduce costs, helping preserve the company's commitment to delivering value to customers.
Market strategy: Exploring revenue enhancement avenues expands potential income streams. Implementing levers like customer contract negotiations, product rationalisation or re-pricing or introduction of a loyalty programme encouraging repeat business and securing brand loyalty can all make a difference to profitability. It's important, though, that any of these levers are only implemented once the business has carried out a thorough review of the market it operates in and its own strategy within that market.
These are just some examples of the type of initiative we typically see our clients engage in. Engaging people in any chosen initiative is crucial. It fosters buy-in, increases motivation, and leverages employees' knowledge and commitment. When employees are actively involved in the process, they are more likely to embrace change, adapt quickly, and contribute to the company's recovery.
The importance of the external voice
Engaging expert advice can be hugely beneficial when a company's performance is not as expected and even more so when there's an urgent need to enhance it. By providing an impartial perspective, situational experience, as well as any necessary specialist skills, external advisors can significantly improve the performance improvement process and enhance the probability of success.
We often find that management teams may be too immersed in the situation to recognise critical issues or identify alternative options. As well as the outside perspective and specialist expertise that external advisors bring, we also bring much-needed bandwidth to management teams that quite are often already stretched.
Improving a company's performance requires clear and consistent communication, adaptable strategies, and regular monitoring. Bringing in expert advisors can be crucial, as they provide fresh perspectives, specialised skills, and much-needed support for already stretched management teams. With dedication, strategic focus, and the right expertise, companies can successfully navigate their challenges and achieve their performance targets.
To discover how we can support you and your organisation, search KPMG rapid improvement to learn more.
