Have you ever been the only person to see a crash about to happen? Everything seems to go into slow motion as the vehicles collide. In that moment of realisation you scream out a warning but no one hears you and the accident plays out in front of you.
I once took on a role as MD for a newly acquired business. In the first month the company made sales but cash, EBITDA and profit were well below Management’s IM plan. By week 3 of the second month it was clear that the rate of order intake was well below the run rate required to make the sales plan. My rough forecast showed that by the end of the month the business would be substantially adrift from the Information Memorandum profit and cash plan.
Much to my surprise none of the Senior Management wanted to talk about the issue, let alone focus on developing a recovery plan. The cockpit alarms were going off and it seemed I was the only one able to hear them.
Even the new owner seemed indifferent to the poor performance and did not share my fear for the business’s trajectory. We soon parted company.
The wake up call for most businesses is often the first annual loss. But that “loss” is merely the outcome of issues unnoticed, ignored or unrecognised by Management much earlier.
Spotting events that may cause changes in performance and reacting to them is a vital part of Management function.
Early signs of trouble ahead include a lost order from a regular customer; below par operational outcomes for quality, delivery and productivity; delays to new projects; resignation of key employees; and declining or negative operating cash flow.
Of course not everything shows up on the radar screen at once. Much that does, may seem familiar or be explainable. It is human nature to be optimistic and so miss the accumulated signs of slow changes over time. And it is likely that there will be Management disagreement as to whether what is showing up is a trend or just a blip.
So follow and regularly review the data. If the order intake run rate is below plan or Sales lose an expected order, find out why and develop a recovery plan. If Operations is off the pace, failing to meet customer delivery, quality or cost expectations, take a good long look and take action to get back on track. And make sure everyone in the Management team knows the implications on cash.
The business above made no changes. Key employees became disillusioned at the reluctance to address the core issues and left. Over the next two years the trading trajectory continued to decline and the losses doubled.
A few measures could have been implemented to focus everyone in the organisation on delivering the plan. A rolling three month forecast would have made the business face the real implications for sales, cash and profit of the poor order intake rate; a “no tolerance” approach to below 100% on time in full delivery and perfect quality would have reset the business’s internal perceptions of acceptable customer experiences (an important attribute in a design lead business); and a readiness by Management to rethink the “way we do things around here” would certainly have made for a better outcome.
Ensuring better outcomes is what everyone wants. So don’t be afraid to ask the difficult questions.
- put in place a rolling three month forecast
- review any performance gaps
- develop recovery plans to get the business back on track.
And if external help is required, the sooner Owners and Management reach out for support and advice the better.
Time to work the problem is key to ensuring a better outcome.
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