Conveniences prevent necessary social changes and prevent opportunities from being taken

The examples I will provide today are mainly taken from Europe, but they could take place anywhere. I will focus today on a social political discrepancy. We are living in a time full of developments that ultimately impact the structure of our society. To act on the opportunities of some developments, it is necessary to also adapt the social political framework.
I will provide three examples. All of them represent big opportunities for most countries, in my opinion. These opportunities can be taken only if society makes the necessary changes. Thus we come to a weakness of democratic systems, which are already developed over the long term. Societies are not ready to change unless there is pressure on all people or everyone has a deep understanding of the necessity for change. In democratic systems, elections take place every four to five years, and the politicians have only one interest: to keep the lobbyists quiet and maintain the status quo as much as possible, so as not to inconvenience people.
Let me take as the first example the energy transition in Germany. A fast reduction of CO2 is necessary to fight against climate change, and Germany was ahead of all countries in implementing renewable energies. This took place as long as the utility companies were not directly influenced. About two years ago, the utility companies recognized that they cannot hinder a further change toward renewable energies, and their old power plants will become more and more obsolete. Renewable energy sources are already the cheapest forms of energy one can produce. Last year the utility companies divided their business into a renewable part and a conventional part. They are now struggling more and more with the profitability of the conventional energy sources. Environmental activists are requiring a clearer scenario of how to end dependence on coal energy. Last week the German utility companies attended a conference, where the German minister of economy and energy affairs announced:” I will never agree to a scenario to get completely away from coal energy, if no one gives me a solution for the workplaces of the coal mine workers.”
There is a clear urgency to reduce CO2 emissions to keep our climate in balance. The minister also knows this. It is his duty to develop conditions to promote a solution for coal mine workers. It is clear to everyone that this has to be done, but the minister has announced the opposite to assure the coal mine workers not to fear and instruct the utility companies not to start with their change processes.
This is nothing other than purposeful propaganda to survive the next election. This hinders the necessary progress in energy transition. The society has to change to make the necessary changes in our energy system, and the politicians have to provide the framework. The above-mentioned statement of the German minister of economy and energy affairs shows that he is neglecting his duties to ensure that the utility lobby and the coal mine workers will further promote him.
The second example I will mention is TTIP, the free trade agreement between Europe and the US. US President Barack Obama and former EU President Barroso announced the beginning of TTIP negotiations at the G8 summit on June 17, 2013. The first of 11 rounds of negotiations so far was from October 19 to 23, 2015, in Miami. A 12th round of negotiations is scheduled for early 2016. There are a lot of lobbyists fighting to keep their areas protected. TTIP is mandatory, especially for Europe if it wants to strengthen its economic position. Some politicians have discussed that the European Union needs this free trade area, but the voices of the lobbies are louder. TTIP could be a good tool to finally overcome the European financial crisis. But because of political hesitation, this has not taken place.
My third example is the refugee crisis in Europe. After World War II, a lot of refugees came from the eastern part of Germany to the western part. There were skeptics and critics, but the refugees after World War II heavily contributed to what was called the “German economic miracle.” To finalize the economic growth in Germany, companies were asking for Italian, Spanish, Greek and Turkish workers. The additional workforce produced additional GDP and drove growth rates.
Why should this be different with the refugees who are coming now? I agree, there cannot be a never-ending stream of people coming to Germany, but the people who have arrived so far are not killing this country. This takes us back to the idle politicians, who are not actively building up the conditions for integration and who are not intervening early enough in the crisis regions of the world. They are only discussing how to protect the present situation by building up the borders again.
To summarize: Necessary developments that would bring the world to a sustainable future are blocked due to pending political decisions. Politicians are not making these decisions because they are not responding to needs; they are following the interests of lobbyists and trying to prevent societal change. If they did so, they would risk failure in the next election.
One reason for the economic strength of Germany is that Germany cleaned up its social security system. This was done under Chancellor Gerhard Schroeder’s “Agenda 2010.” It brought a lot of changes for society, but it made Germany stronger. After implementing these changes, he was not elected again. For this I very much appreciate him: He did what was necessary, even if it was clear to him that he would jeopardize his next election.
I wish Germany had more of this kind of politician to overcome the present problems. . Politicians must be clear: The problems like climate change, trade limitations and refugees will not disappear, and a late decision is even harder to make. In a mature democracy we need politicians who take responsibility and do not think only of the next election. Otherwise these societies will not change like necessary and the countries becoming weaker and weaker.

Changes of ownership, changes of the management board and generation change in a company

This is not a complete guideline of how to manage changes of company ownership, changes in the management board or generation change. We will discuss how to set up a process, how to manage this situation and which options should be taken into consideration.
The most common change in company ownership is done by selling a company.
What are the main differences in selling a company?
1. The share deal: In this case, the company’s shares or part of the company’s shares are changing ownership. The company continues with its business and its liabilities for its business, as done in the past. These deals are done to clean investor portfolios, to merge companies to get the new company a more complete portfolio or sometimes also to extend market share. In the post-merger phase, very often the management structure will also be adapted. This will normally be done with a post-merger integration (PMI) project.
2. The asset deal: With an asset deal, the company sells its assets or parts of its assets. These deals are often done because the buyer is not ready to take liabilities from the company he or she buys or only a part of a company is sold, which makes it often difficult to share its liabilities. Asset deals provide a lot of possibilities to shape a necessary restructuring process or to enable a good PMI project. The problem with an asset deal is always that the old company, which is now out of assets but still has liabilities, then has to be liquidated or sent to insolvency. A lot of legal requirements have to be considered for such a process.
The possibilities and needs involved in shaping a company sales deal are important. Shaping the deal in a good way opens for the new company the possibility to place itself better in the market or to make its existence further on possible. There are some Founds in the active market that deal only with this kind of company, which they are bringing back in more healthy conditions to the market. This is a hard job, but with the right management team, which can properly handle these kinds of change processes, this business model guides to good profits.
This brings us to the next subject: management change in the board of a company. In the case of company sales, there is normally automatically also a change in the supervisory board. This new supervisory board defines and decides upon a new or changed board of management.
To keep companies healthy, to develop them in a good direction and to assure successor availability, changes in the board of management in a company are necessary and should be planned accordingly. Most of the contracts of management board members are given for a period of three to five years. This assures that the supervisory board has to decide from time to time about every management board member. Let us make a small list of reasons why management board members should be changed from time to time. This list cannot be complete, but it shows the situations that should be taken into consideration:
1. The management team is not playing as a team together. This will provoke a situation in which, for strategic decisions, there is no consensus in the team, and so these decisions can be pushed by the CEO only.
2. There may be performance issues. If a board member cannot deliver the agreed-upon target results or is not capable of bringing a company back to profit after a certain period, he or she has to be changed.
3. After, for example, heavy restructuring phases, a lot of uncomfortable decisions could have to be made, which could make it difficult to work together afterward. In this case, a management change may be necessary.
4. Sometimes it may be necessary to make changes in the management board to bring new ideas in. Especially companies with long-term continued good business have the risk of losing track. Only to emphasize: we are the best! Makes blind for changes in the surrounding.
After these examples of why change is necessary, we should now think about what may be the best source for our candidates. We can get candidates from inside the company or from outside the company. From inside the company it will always be a candidate who will be assigned to the management board for the first time, but the internal candidates have the advantage that they know the conditions within the company quite well.
External candidates can be from the board of another company or can provide special skills, for example, MBA educations, a specialist in some science fields and so on.
The perfect candidate will be someone who is accepted from the supervisory board and the board of management.
The management board is like a good meal: The right mix makes the difference!
Choosing candidates for a board of management, we have to consider their mindset for this task. The board of management, and in the end the chairman of the board or the CEO, is responsible for everything that happens in the company. The board of management has all the power to decide on changes in the company. They must be ready to do so.
Until now, we have discussed only companies, which are composed of shares, and the organs (supervisory board and annual general meeting) of these companies are deciding on data. This becomes somehow more complex when it comes to family-owned companies. It starts already with the problem that the owner often for 20 to 30 years (one generation) stays in charge of all board decisions. The whole company is relying on his or her intelligence, decision-making skills and capability to change. This is a high risk for the development of a company.
My proposal for this kind of company is always to put at least the organs for a limited company in place. Try to define criteria at which a wider circle of people will participate in decision making.
The same is to be taken into consideration for the successor planning. The children of the owners do not always have the best skills to continue the business.
My advice is this: Children of company owners should have at least 10 years’ experience in another company and should have developed in the external company to a management position. If this cannot be fulfilled, the organization of a limited company should come in force.
This article is a reflection of my experience and not a scientific analysis. I would be happy to discuss the aforementioned subjects.

Is it possible to empower the European Union?

This question should be answered in the context of a global world view. The European Union is composed of 28 countries. A trade union connecting these countries defines an internal market in Europe that makes its own conjuncture and allows itself to disconnect for a certain time from global conjuncture.

Nineteen countries of the EU have introduced the euro as their common currency. The introduction of the euro has caused many problems, which will be discussed later in this article. Despite these issues, the euro, along with the U.S. dollar and the renminbi, is currently one of the three most important currencies in the world.

The security that the EU has caused should also not be underestimated. In its history, Europe has never had a period of peace lasting more than 50 years. Today, Europe has had 70 years of peace, and most Europeans cannot imagine any violence between European countries.

Furthermore, the EU promotes democracy. Presently, two Eastern European countries show autocratic tendencies, but there are also reactions that criticize and hinder such tendencies.

Now we come to the question in the headline above: Is it possible to empower the EU? If the answer is yes, it is necessary to explain the obstacles to such empowerment. Those are described below.

1. The economic trade union connects the European countries in one economic bloc. This makes the countries depend on each other. Stronger countries thus claim that they are suffering due to the bad performance of weaker countries. However, these stronger countries forget that one powerful reason for their economic strength is that they are able to do business in a larger economy. The overall economic performance of the EU is not really a disaster. There are some strong-performing countries and some black sheep. The solution lies in finding tools for achieving better balance in this situation.

2. Because EU countries all use the euro, they have an additional interdependency. This interdependency is strong because certain parameters must be kept in place to ensure that the euro thrives. Recall the never ending discussions about Greece. It is important to recognize that the Greek economy accounts for only 2.5 percent of the gross domestic product of the eurozone. This small country did more damage to Europe than it would have if the European countries had been as strong and connected as the states of the U.S.

3. All states of the EU are members of NATO. Thus, these countries are connected in a large society and cooperate to help any member country threatened from the outside. This is surely also a guarantee that the countries will likely not have disputes with one another. Presently, there is a dispute with the new Polish government, but, with luck, the dispute will be resolved soon. A year ago, the Polish government asked for NATO to have a stronger presence due to the violence between Russia and the Ukraine. Now the new government is concentrated only on itselfs and does not consider foreign affairs. This nationalism is disturbing the EU.

4. The EU is promoting democracy. Much needed is a common understanding of law and order and that the rules defined by the EU are necessary. These are preconditions for the functionality of the EU.

Collectively, the aforementioned points raise one issue: The EU works only if common behavior and common rules can be applied in all countries of the EU. How can that be done?

All four points above also have one idea in common: if there were a common approach by all countries to the above mentioned issues, the EU would be much stronger, and questions about its long-term existence would never be raised. Some ideas have been proposed that seem like steps in the right direction. One of these is giving the European Central Bank the task of managing the euro.

For all the above mentioned subjects, member countries must give up some of their sovereignty. At the present time, it seems to have become even more difficult to repair even a few of the design weaknesses of the EU. Some longtime members of the EU are now changing their democratic constitutions and moving toward autocracy or nationalism. Hungary has been moving in this direction for some years, and now Poland, since its last election, is strongly and visibly pushing toward autocracy and nationalism. In France, it was only possible to stop the successes of the nationalistic Front National in the second round.

The different EU countries have very different approaches toward Syrian refugees. Every European country follows its own agenda in this respect. Here, it would be advantageous for the EU to make itself clear. Additionally, journalists should help to inform society and not always to ask: “Will the EU brake on that subject?” This question makes uncertain people even more uncertain.

To assure the long-term existence of the EU, member governments must relinquish some of their sovereignty and establish organizations that will apply common rules to all member states and that will have the power to punish if the rules are not followed.

At the same time, it is necessary to more clearly inform the world of the advantages of the EU. This must be done as soon as possible if Europe intends to play an important role in the world economy over the next few years.

I hope this article opens up a discussion that will develop a road map to improve process, to finally set action in motion and to repair the design mistakes that were made when the EU was established.

Worldwide Megatrends; some of them we cannot avoid. Why we do not promote them?

A mega trend is a collection of trends, patterns of economic, social or environmental activity that will change the way people live and the science and technology products they demand.

I would adhere to a CSIRO Project, issued in 2012, which defines the mega-trend as follow:

The six interrelated mega-trends identified in the report are:

1.   More from less. The earth has limited supplies of natural mineral, energy, water and food resources essential for human survival and maintaining lifestyles.

2.    Going, going … gone? Many of the world’s natural habitats, plant species and animal species are in decline or at risk of extinction.

3.   The silk highway. Coming decades will see the world economy shift from west to east and north to south.

4.   Forever young. The aging population is an asset. Australia and many other countries that make up the Organization for Economic Cooperation and Development (OECD) have an aging population.

5.   Virtually here. This mega trend explores what might happen in a world of increased connectivity where individuals, communities, governments and businesses are immersed into the virtual world to a much greater extent than ever before.

6.   Great expectations. This is a consumer, societal, demographic and cultural mega-trend. It explores the rising demand for experiences over products and the rising importance of social relationships.

The following diagram, also from the CSIRO project, shows the interlinks between the mega trends. It will not be possible, to follow only one of the mega-trends, because it is linked to others. So we should go for the whole system of mega-trends and consider its dependencies.

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Let us bring the mega-trends to our subjects in this blog. The mega-trends describe from different angles that we have to deal with limited resources and that we have to go for alternatives and savings of this resources. Further on they show us the clear trend to globalization and connectivity. They show also, that the aging society and the shift of economic strength to newly industrializing countries has to be kept in consideration.

We should understand that the study I took here as an example is only one study of numerous studies. All this studies come to the same result for the mega-trends. There is a different wording from study to study; the contend is always similar. We should appreciate these results and direct our actions accordingly.

What we can derive out of the mega-trends?

1.       We should save resources. This guides us directly to the energy production. Only the sun energy is “unlimited”. We have no right to use other energy sources than sun energy sources. The crude materials are all limited and have to be saved for the following generations.

2.       The connectivity is a precondition to go in the direction of a global world and to more social contacts. The connectivity is also a precondition to deal with all the challenges; we will get with an aging society. We have to develop fast internet connections and services and to use this connection to increase convenience life style possibilities.

3.       The homo economics, who is an egoistic behaving human, has to change to a homo socialist. The social competencies and behaviors will count much more in the future than now. We have to stop the purely egoistic behaviors, which are blocking every change in our world at present time.

Than we get clear options for action to shape our future:

1.       We have to change as fast as possible to sun energies (wind power, photovoltaic, Thermal solar energy, water power).

2.       We have to build on the internet physically and we have to extend possible services.

3.       We should accept that the globalization will bring economically strength to regions, which we receive as poor countries today. To assure, that the developed countries are not losing everything, they have today; we need global connectivity and the possibility to participation on global business for everyone.

4.       To make these changes possible, we have to change the homo economics to home socials. This will become the most difficult task in future.

To summarize, I would say: The mega trends show us the changes we have in front of us. All these changes seem to be blocked today. We will not stop them, because they are derived out of certain logic. We need enough people, ready to put this changes in place, to eliminate the road blockers.

 

To achieve your targets, you have to be convinced that you and your team can achieve them.

The biggest obstacle is overcoming any uncertainty among the management. Only when management truly believes in the team’s ability to achieve its goals can the possibility to achieve them exist. This is especially a problem within bigger companies, where top management sets the targets that need to be achieved. The problem arises when the next level management is not convinced that these top management targets are achievable. If the next level management is not convinced that they can achieve these targets, the targets will not be achieved. What solutions exist to overcome this problem?

1.       We can employ a restructuring consultancy to formulate the necessary action to achieve these targets. Then, the middle management has to apply the action, defined by the consultants.

2.       The middle management can hold a workshop with all next level reports and explain the task. In an open and creative atmosphere, the necessary action may emerge from these workshops. In this situation, it is necessary that the middle management convince the next level management that the achievement of these targets is possible.

3.       The middle management can break up the target set by upper management into smaller targets to be achieved by the next level management and leave it to them to work out the necessary, more manageable actions.

What is the preferred solution? For this problem, I always remember the question: How do you eat an elephant? The answer: Slice by slice. What does this mean? The preferable solution is to break down the targets of the upper management to targets that can be deployed to the next level management. Then, convince your next level management that it is absolutely necessary that these targets be achieved. You first have to convince yourself that they are absolutely necessary, since relaying this message requires authenticity and genuine urgency. If some of your people are not capable of defining and performing the necessary actions, grant them the opportunity to employ the help of consultants. Sometimes, the fresh view of a consultant can help to unveil new solutions.

Of course some tasks should not go to consultants, such as the following: Bring the business back on track.  No consultant can achieve this task, if you, the specialist of the business, cannot show the way. Consultants will always come with their specific toolbox and apply this toolbox to your business. While this can produce helpful ideas, it cannot really shape your business into a new direction. For this task, you are the only person who can do it.

For this kind of task, the biggest help I ever got in my career came from the book: It’s Not Luck by Dr. Eliyahu M. Goldratt. The novel depicts the behavior of a manager – how it should be. A manager has to understand the needs of the business and has to fight for this business in both directions, from upper management to next level management. For this, the manager is in a so-called “sandwich position.” This is a difficult position for middle management, but this it is the role they have to play if the business is to be successful.

So, to sum up: Take on targets, find your position, and fight to achieve the targets with creative ideas and authenticity.

Implementing TPM Improves Nearly all KPIs of a Production

Total productive maintenance (TPM) is a concept that has a huge impact on most of the Key Performance Indicators (KPIs) of a production. These KPIs include:

–          Productivity  (value added per employee, working productivity)

–          Quality       (number of bad parts or number of customer claims)

–          Costs        (maintenance costs, energy costs)

–          Storage      (warehouse frequency, value of the storage)

–          Work safety  (number of accidents, number of missed working days due to accidents)

–          Employee involvement (number of improvement proposals by employees, improvement workshops)

TPM influenced all of these KPIs. The best KPI for checking the efficiency of TPM implementation is the “overall equipment efficiency” (OEE).

The three main categories of equipment-related losses—downtime, speed loss, and defect or quality loss—are also the main ingredients for determining the OEE. Overall equipment effectiveness is calculated by combining three factors that reflect these losses: the availability rate, the performance rate, and the quality rate.

To calculate OEE, we multiply the three factors together:

OEE = Availability Rate x Performance Rate x Quality Rate

 

 

 

 

 

 

 

 

 

 

 

Every responsible person should read about the philosophy of TPM in order to be capable of implementing it. As with most of these kinds of systems, you will be successful with the implementation only if the management understands the concept exactly. The TPM philosophy is based on eight pillars:

  1. Continuous improvements: The target is to achieve zero defects in all production processes.
  2. Autonomous maintenance: Machine workers provide inspections and smaller levels of maintenance by themselves.
  3. Preventive maintenance: Assurance must be given that the machines are always ready for production.
  4. Employee training: The target is to improve employees’ usage and maintenance capabilities.
  5. Equipment monitoring: The startup time for machines will be shortened.
  6. Quality management: excellent quality due to elimination of all bad parts
  7. TPM in administrative areas: Waste is eliminated in non-producing departments.
  8. Work safety and health protection: The target is to have zero accidents in the company.

Founded on these eight pillars, the TPM system is developed.

If a company starts to implement TPM but has no experience with doing so, it should involve an experienced consultant in the beginning. Doing so is very powerful in implementing the TPM philosophy in a company. An old wisdom says: The prophet in his own country is less powerful than fresh blood. However, it is necessary that management together with the consultant pushes the process.

TPM improves much more than simply the equipment availability: If the implementation process is well set up, it will ultimately change company culture.

The right management is needed to overcome a crisis situation.

In the previous two articles in this blog we have been talking about restructuring and managing  a crisis. A company needs a clear and open mind to overcome a crisis to come out of it invigorated. During the research for these articles I found a quote from Berthold Brecht, which is in my opinion perfectly describes the behavior of different people during a crisis. Loosely translated, Brecht said “The unworried, who have never doubts /meet the worriers, who never act. They do not worry about coming to a decision, but just avoid the decision. They only use their heads to shake them in the negative. With a worried face they warn the passengers of a sinking ship about the risks of the water.”

These words from Berthold Brecht perfectly describes in my opinion about what management has to avoid during a crisis. A crisis situation needs to mobilize the thoughts  that come out of the situation. It needs the discussions about solutions and it needs decisions, which guide a brighter future. The notorious “worriers” are demotivating and counterproductive in such a situation. They will demotivate the whole team and they will block the actions to overcome the crisis. They have to change their mind-set or they have to be eliminated in order to not hinder the recovery of a company in a crisis.

Making decisions requires readiness to take risks. This should never be done without evaluating the risks. Especially in a crisis situation, it is necessary to make decisions. The notorious “worriers” are not capable of managing a crisis.

In this situation it is advisable to decide and not to expect every decision to have a consensus. And there is another wise advice which should be considered for crisis management: First keep your feet on the brakes and then use the turn signal. Avoid people who put their hands on the turn signal and accelerating at the same time.

Seeing a risk and not slowing down, and only saying “there is a risk,” means you are avoiding the crisis situation. Do things in the right order to eliminate the risks.

These are two wise words that managers should consider for their action during a crisis.

A simple restructuring project will fail if a change management is necessary!

We discussed in this blog a few weeks ago the restructuring of projects (see: http://www.managementism.com/2012/restructuring-is-necessary-but-it-has-to-be-done-with-the-target-in-mind/ ). We already discussed the target setting of a restructuring project. A restructuring project is normally focused on improvements. It helps only in the evaluation of the situation. If a real change in a business model and product portfolio is necessary, we must amend the restructuring project with a change project. What is the difference between a restructuring project and a change project?

Restructuring adjusts the weak points of a company and implements improvement actions, which strengthen the weak points. These adjustments are normally implemented by the organization itself and are followed up by management. In single cases, small projects are implemented to assist the organization in implementing the defined actions. Real change in a company always requires a project structure to be implemented. Very large changes will alter the organization of a company, changing business models and product portfolios, as well as the qualifications of employees. Implementing these changes using the existing organizational structure will fail, because the organization must change itself. No organization can do this.

An independent change project can do this, however. The project team can work out solutions for organizational changes or changes in qualifications. The need for these changes can be explained without having a personal impact on the team members involved. For a change project, it is necessary to have project leaders with very strong psychological skills. The different interests of the people who are impacted by the changes must be understood perfectly. If these preconditions are not fulfilled, the change in the company will fail.

Another key to making change projects successful is explaining the necessity of these changes and why exactly the defined changes will lead to success. The better this is done, the better will be the acceptance of the company, and the fewer will be the number of opponents. Opponents can slow down the speed of changes drastically. It is necessary to convince opponents or to eliminate them. To assure that the explanation for a change is accepted, it must indicate the clear direction of the changes. For this, the management must assure consistent and clear information.

Let us summarize: If drastic changes in a company are necessary, they should be carried within the context of a change project with independent project leaders. Important during the phase of changes is consistent and clear information being provided by management.

What does it mean to come out of a crisis invigorated?

A typical statement of managers who have overcome a critical or a crisis situation is “We are coming out of this crisis invigorated.” I always ask myself “What does that mean? What did they do to invigorate?”  Let us first describe the three main phases of a typical crisis for a company:

 

We can define the three phases of a crisis as the downturn, the low point of the crisis, and the recovery phase. To assure that we will come out of the crisis invigorated requires specific action in every phase.

The downturn:

In this phase we have to make sure the company is not struggling financially. This normally means keeping cash in-house. We have to reduce the stock, keep labor costs reasonable and reduce all budgets as much as possible. We have also to define the actions necessary to overcome the crisis make sure we are not weakening the company during this time.

Low point of the crisis:

During this time we have to use the limited resources available to assure the recovery of the company. This may involve developing new products, changing the organization, or whatever else is necessary to eliminate the weak points of the company. This is always a balance between available cash, needs, and necessary resources. A motivated workforce who believes we can manage the crisis will secure our success. The longer a crisis lasts, the more dangerous this phase is. This is also the time to plan the actions for the recovery phase.

Recovery:

In the recovery phase, we must enact the plans made in the earlier phases. These actions will involve hiring (or rehiring) and training employees and applying the changes worked out during downturn phase.

The company can use the crisis and be able to say after the recovery “Our company comes out of this crisis invigorated.”

The management of a crisis is the most stressful time for a company’s management. The decisions are hard and often it is necessary to make decisions that have high impact on the employees. During the phase in which such decisions are necessary, the management has to have the recovery conditions already in mind. However, a company can come out of a crisis invigorated, if the management takes the right decisions.

See also: http://www.managementism.com/2012/how-to-follow-the-volatility-of-markets-with-a-production-plant/

Restructuring is necessary, but it has to be done with the target in mind.

To assure profitability, a company needs to continuously follow the business and adjust to market requirements. In some previous articles, we discussed these issues. We talked about continuous improvement and change management. But if a company is slipping deeper and deeper into losses, it is necessary to put a restructuring project in place. This is a dangerous situation for a company for two reasons:

  1. the change has to be done decisively so as not to put the company in danger due to cash or finance problems; and
  2. the restructuring has be targeted at bringing the company back onto a path to healthy performance. It cannot focus on cost cutting only.

What does this mean? It means that cost cutting is necessary and all possibilities for improving the structure and reduce costs should be put in place. This all has to stop at the point when the company becomes unable to prepare for the future anymore.

A proper restructuring project shows not only the possibilities for cost reduction, but also the possibilities to adjust to market needs and puts the resources in place to design this future. Even more, a good restructuring project puts everything in place to construct this future.

I always keep in mind a statement of Wilhelm Rabe: Look to the stars, take care on the road.

That means that when restructuring is necessary, we have to have a clear view of how to position our company for the future, but we cannot do it without taking action to assure our functionality at present time.

What does this mean practically if we have to decide to restructure?  A restructuring project normally focuses on four main areas:

  1. production costs;
  2. cost of purchasing;
  3. costs for development and distribution; and
  4. benchmarking products and productions.

It is necessary to evaluate these four areas to look for savings. This will eliminate waste that is accruing in an organization. If restructuring is done early, it will help the organization recover. Very often, restructuring projects are done when the company is already in deep trouble. In this case, it is necessary to focus on the four areas, but it is also necessary to question the business model of the company and to put in place the resources to change that model, if necessary.

This subject is often overlooked in restructuring projects. Failing to take this into consideration causes a lot of restructuring projects to fail or to not offer a sustainable business case. For this reason, a restructuring project should always focus on five subprojects:

1.            production costs;

2.            cost of purchasing;

3.            costs for development and distribution;

4.            benchmarking products and productions; and

5.           reviewing the business model and its profitability.

Focusing on all five areas will lead to a healthy and sustainable business in the future.