Proactive Turnaround Management

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Proactive Turnaround™
M a n a g e m e n t

© Copyright 2009 Business Edge International, LLC all rights reserved.
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32000 Northwestern Hwy Suite 128 Farmington Hills, MI 48334 Toll Free: 888.305.4060 Fax: 248.671.0565

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Our Brand Statement

The Go-To Company for

bizedgegroup.com
Business Reinvention.

The Best Business &
Executive Coaching.

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32000 Northwestern Hwy Suite 128 Farmington Hills, MI 48334 Toll Free: 888.305.4060 Fax: 248.671.0565 2

The Business we are in
Business Edge International provides critical
conversation, distinctions, tools, leadership models and practices that
allow business leaders access to creating a fulfilling impossible
future, now.

We are in the business of listening for and reliably delivering that which
makes a measurable difference in what business leaders are dealing with
and what they really care about.

We are doing so through the following business propositions:

1. High Impact Business & Executive Coaching™
2. Business Reinvention
3. Proactive Turnaround Management™
4. Executive Advisory Board
5. Interim Management Services


Our Clients
•Bank One •HAP- Health Alliance Plan •People's Auto Choice
•BestInService.com •Harvard Resources •Power Stream
•Berisha & Associates •Help My Team.Com •Quinco Tools Inc.
•Breakthrough Resources •Henderson Financial Assoc. •Rose City Industries
•Center for Wealth Mgmt •Humax Corporation •Sterling Commerce
•Century 21 Town & Country •I.D.S Corp •Softura, Inc.
•Clean Team Incorporated •IMT Studios •Ripinski Real Estate
•Continental Automotive •Ingersoll Rand •Rose City Industries
•Connect Inc •IPS Ltd •Rosewood Family Solutions
•Credant Inc •JSC Consulting •RSL Ltd.
•DMC- Detroit Medical Center •Johnson Control Automotive •Family Justice Center
•DMB Group •JP Morgan /Chase •The Inspired Box
•EDS •Karcher Financial Services •The Rockmore Group
•Epilepsy Foundation of Mich. •Michigan National Bank •TransTech Inc.
•Doshi & Associates •MSX International •UGS
•Dynasty Funding •MYCO Enterprise •Vision IT
•Ford Motor Company •Nationwide Insurance •West Pole Technologies
•G. Long & Associates •National Australian Bank •XilliX Corporation


What makes us different?
1. What we do really works
2. Our principles are tested and highly effective
3. We are partners, not advisors – our skin is in the game!
4. We have great compassion for what it takes to be a leader
5. We listen
6. We talk straight
7. You can rely on our integrity
8. We don't shy away from tough, challenging work
9. We discover leadership talent everywhere
10. We love our work


Model Overview


The business case
Historically, when we ask a business owner or corporate executive the
question; “What do you think the problem is?” they often answer: “We
have a problem with ….” as if they identify the source of the real
problem.

We have learned that more often than not, they are actually describe
the symptom and not the root cause. If you address and treat the
symptoms alone, it will keep coming back again and again over time.

Our Proactive Turnaround™ model operates with the assertion that
there is a root cause for every symptom (a problem) and finding it is
80% of the solution. If you treat the root cause (source of the problem)
the symptoms will not keep re-occurring and your Organizational Health
i.e. higher performance becomes permanent.


Traditional Turnaround
Traditional Turnaround is a process that focuses on restructuring the
balance sheet and shedding debt to improve the cash flow of the
company.

It focuses primarily on financial indicators to determine a course of
action which relates to the company’s debt to assets ratio as a viability
matrix and not Healthy Organization’s Operating Habits™.


Traditional Turnaround
Symptoms

Financial Breakdown Low E.B.I.T No Sales Customer Retention Operational
Breakdowns Service Issues Customer Complaints Communication Problems High
Turnover Delivery Breakdowns Slow Production Credibility Issues Loss of
Productivity

Root Cause
Traditional
What is the cause of the
Turnaround symptoms?

Temporary Impact


Proactive Turnaround
Proactive Turnaround™ is a process that focuses on improving the
profitability and operating performance of a company.

Throughout the process, there is an emphasis on changing the
Management and Leadership Operating Habits™ so that the
implemented plans and improvements become permanent.

[The way a company (wins) operates is based on a collection of
Management and Leadership Operating Habits™.

There are habitual ways in which the organization is operating -
habitual ways management is thinking and acting - habitual ways
that management is listening and speaking to their employees,
customers and stakeholders. ]

A critical change in management culture and Operating Habits™ will
take place during the process.


Operating Habits Define
Habit - dictionary definitions:
• manner of conducting oneself
• the prevailing disposition or character of a person's thoughts
and feelings: mental makeup
• a settled tendency or usual manner of behavior <her habit of
taking a morning walk>
• a: a behavior pattern acquired by frequent repetition or
physiologic exposure that shows itself in regularity or increased
facility of performance b: an acquired mode of behavior that has
become nearly or completely involuntary <got up early from
force of habit>


Proactive Turnaround
Symptoms
Financial Breakdown Low E.B.I.T No Sales Customer Retention Operational Breakdowns
Service Issues Customer Complaints Communication Problems High Turnover Delivery
Breakdowns Slow Production Credibility Issues Loss of Productivity

Root Cause
What is the cause of the
Proactive symptoms?
Turnaround™
Management Operating Habits™
New and Changed
Operating Habits™

Business Transformation


The framework
Proactive Turnaround™
impacts and addresses the 1. Business
Model
(10) most critical factors in 10.
2. Strategy
organizational and business Customers
success.

The process focuses on 9. Finance
3.
improving the Leadership
profitability, operating Rock Solid
Business
performance and the overall
health of the company. 8. 4. People &
Operations Culture

5. Products
7. Sales
& Services
6.
Marketing


Ineffective Operating Habits

Poor cash flow management Emotional decision process
Poor or no communication Hope Reactionary
decisions Denial Do not want to know… Ignorance
Internally focused leadership Being right or “righteous”
Resistance to change Lack of accountability
Management by fear We’ve always done it that way…
We’ve tried that before… Whose fault is it? etc..


The (7) Seven States Process
Proactive Turnaround Business Reinvention

Traditional
Customer Turnaround
Business/ Organization Performance X-Ray

Financial
Supplier/ Analysis
Vendors

Employees

Management Success Built to Business
Probability Control Prevent Restore Accelerator
Rating Last Engagement
Business
Partners

Board
Members Market
Analysis Exit
Stakeholders Business Exit
Transaction
CPR
Voluntary
Input Liquidation or
Exit

State #1 State #2 State #3 State #4 State #5 State #6 State #7
Discovery Analysis Control Prevention Restoration Reinvention Fulfillment

Operating Habits Paradigm™ – High Impact Management Coaching


State One - Discovery
This is the first state in the process and one of the most important, we
will collect all of the relevant data and conduct a comprehensive
analysis of the current viability and health of the business.
Customer
The activities will include:

Business/ Organization Performance X-Ray
Financial
Supplier/ Analysis
Vendors
Organization Performance X-Ray:
Employees
(Include the 10 most critical Key Performance Indicators)
Comprehensive financial analysis – (Current and future) Management
X-Ray
Summary
Complete market analysis includes: - (Current and future) Report

Company positioning Business Partners

Competitive analysis Board Members
Service level and customer satisfaction review Market
Analysis
Brand management evaluation Stakeholders

Marketing department evaluation
Input
Sales department evaluation


State Two (2) - Analysis
This is the most critical state in the process. In this state we
will review all of the information, findings and summaries to
determine the Success Probability Rating – SPR to
Success
determine if to proceed with a proactive turnaround or to
Probability
move with a Voluntary Liquidation.
Rating


Complete review of the Discovery State
?
Conduct a strategy session
Complete a Probability Rating analysis Voluntary
Complete an immediate action plan 30-60-90 days Liquidation
or Exit


State Three (3) - Control

Cash management.
Projection of income and collections with time.
Prioritize cash outflow – critical expenses: Control
(payroll, payroll taxes, benefits, insurance, leases, utilities, bank
payments, CODs.)
Prioritize unsecured creditors & suppliers: category 1, 2, and 3.
Implement cash management control to keep the critical outflows
covered, with the residual available for partial distribution to the
unsecured.
Cash management must be forward looking – 4, 8, 12 weeks.


State Four (4) - Prevention

Product line profitability evaluation
Product pricing evaluation
Customer profitability analysis
Inventory analysis
Cost reduction identification Prevention
Direct cost evaluation
SG&A cost evaluation
Financial structure evaluation
Refinancing options identification
Establish metrics to track implementation
Evaluate and change management reporting system


State Five (5) - Restoration

Debt restructuring and refinance
Implement plans for product line rationalization
Implement change in pricing and bid practices
Implement all cost reduction programs
Restoration
Implement short/long term improvement programs
Establish metrics to track implementation
Establish management operating budget


State Six (6) - Reinvention
After restoration of the company’s vital signs, it is now
becomes critical to determine the future direction of the
company.

Determination may be done based on any of the
following factors: Built to
Grow ?
Owner(s) Stakeholder(s) preferences
Financial viability and capabilities
Access to expansion capital Or
Valid market data
Business lifecycle
More… Exit ?


State Seven (7) - Fulfillment
Identify the strategic objectives
Create and agree on 3-5-10 year financial goals
Complete a strategic business plan framework
Define the project/engagement scope and size Business
Agree on a fulfillment and delivery format Accelerator
Program
Agree on a budget and timeline

Or
List the company for sale
Complete a potential buyer profile
Complete a certified business evaluation
Complete a possible term sheet Exit
Create a sales promotion campaign Transaction
Align and agree on deal financial structure


Operating Habits Workout™
Parallel to working on the immediate financial and operational
issues, Business Edge senior executive coaching staff will conduct an
Operating Habits Workout™ with the company’s management team and
other individuals that are critical to the future success of the company.
The process includes a quick and effective overview of state 1 to 4 in the
corporate reinvention model:

Built to Business
Accelerator
Operating Source Corporate Last
Management Engagement
Habits Document Strategy
Realignment
Workout Design Review

•Discover •Reason for Existence •New Operating Habits •Brand Design Exit
•Retire •Redefine your business •Management Constitution •Biz Model Design Exit
Transaction
•Reinvent •Brand Statement •Leadership Accountability •Market Positioning
•Organizing Values Statement •P/S Realignment
•Operating Principles •Cultural Design Platform •Balanced Scorecard
• Vision(Context) •Transparency Model •R&D Model
•BHAG 5-10Y •Talent Development
•Focus 1-2Y Model


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Case Studies

24
32000 Northwestern Hwy Suite 128 Farmington Hills, MI 48334 Toll Free: 888.305.4060 Fax: 248.671.0565

Case Study
Commercial & Industrial
Electrical Co - Toledo, Ohio.
CS No. 080906 ■ Senior Project Advisor: David W. Martyn 01
Engagement Profile ____________________________________________________________
A $50 million, minority owned, commercial and industrial electrical contractor had been reporting $2
million in net losses for several years. The owner had focused on growing the company’s top line revenue
but was not paying attention to the net income of the corporation. The company needed a new business
strategy to allow it to become profitable and a new capital structure to be able to cash flow its existence.
The company suffered from poor employee morale and a declining reputation in the industry.

The company was faced with:
• An imminent bankruptcy filing.
• The company’s bank had called its $10.5 million line of credit.
• The company was virtually out of operating cash.
• Loss of key management personnel.

The Predictable Future: - The company was within weeks of going out of business and having its assets
auctioned.

THE BREAKTHROUGH TARGET______________________________________________________

1. Secure operating cash for the short term.
2. Identify actions needed to improve profitability in the short and long term.
3. Establish a business strategy to allow the company to recover from its near disaster and begin growing
profitable sales for the future.


Case Study
Commercial & Industrial
Electrical Co - Toledo, Ohio.
ACTIONS TAKEN__________________________________________________________________

1. Negotiated a standstill with the company’s bank to have access to operating cash from its line
of credit.
2. Implemented immediate cash and supplier management.
3. Implemented immediate cost cutting, shutting down 2 of 5 offices that were not generating
enough cash to cover their operating cost.
4. Retargeted the marketing efforts to bid only on projects that were profitable or that paid a
premium for minority owned company participation.
5. Modified the bidding practices to win only profitable projects.
6. Sought an equity partner willing to invest new capital into the business.

THE RESULTS ____________________________________________________________________

1. The company’s financial performance improved from a $2 million net loss to a $1 million net
profit in 12 months.
2. Located an investor to inject new capital into the company while maintaining its minority
owed status.
3. Structured a sale of assets to the new investor by putting the company into a voluntary
receivership. This allowed the assets to be sold while setting the stage for a negotiated
settlement with the unsecured creditors.
4. Negotiated an agreement with the company’s bank to have the bank finance the purchase of
assets by the new investor.
5. Developed a business plan to allow “profitable” growth at 20% per year.


Case Study
Hazardous Waste Treatment.
Detroit, Michigan.
Engagement Profile ________________________________________________________________

A $250 million environmental company had a $15 million division that treated inorganic hazardous waste in a
RICRA licensed facility. The division suffered from flat sales, poor facility conditions, a difficult, manual
paperwork tracking system required by federal regulations, and mediocre operating income of $600,000/year.

The division was faced with:
1. Inability to grow sales.
2. Low profitability
3. Capital investment was needed to upgrade the facilities to keep up with tightening regulations
4. Capacity was bottlenecked by the manual tracking system for handling hazardous waste treatment.

The Predictable Future: - The division would be shutdown or sold off. A shutdown would require $5 million in
environmental remediation and closure costs for a facility that was handling hazardous waste.


1. The breakthrough targets were as follows:
2. Identify actions needed to grow sales.
3. Identify actions needed to improve profitability.
4. Determine whether the business could generate sufficient cash flow to pay for the needed upgrades.


Case Study
Hazardous Waste Treatment.
Detroit, Michigan.
ACTIONS TAKEN__________________________________________________________________

1. Identified the key decision making criteria that customers were using in deciding which treatment
facility to use.
2. Implemented an electronic tracking system to track each step in the approval process for waste
acceptance from customers. The goal was to reduce the time between the receipt of a customer’s
waste sample and the issuing of a permit to allow shipment to the treatment facility.
3. Implemented an electronic tracking system to track each step in the treatment process from waste
shipment receipt to final disposition. The goal was to eliminate the paperwork constraints on
production capacity.
4. Implemented improvements in communications between the different departments and functions in
the business to streamline all business processes.

THE RESULTS ____________________________________________________________________

1. Response time to customer requests to ship waste was reduced from the industry average of 6 weeks
down to 2 weeks.
2. The faster response time was the key factor in winning customer orders.
3. Improvement in winning customer orders allowed pricing to be increased without a loss of orders.
4. Elimination of the paperwork tracking constraints increased plant capacity by 30%.
5. Increased capacity, higher pricing, and growth in the percentage of customer orders won increased the
operating income of the division from $600,000 to $3.5 million in three years.
6. Sales began to grow at a rate of 15% per year.
7. The division was able to generate sufficient cash flow to finance the upgrades required to stay in
business as a healthy, growing business.


Case Study
Fortune 500 Food Manufacturing Co.
Decatur, Illinois.
This company had a $50 million revenue division manufacturing specialty products for use in food products and
for industrial applications. The division was administered as part of a $1 billion commodity products division.
Manufacturing consisted of seven small production plants scattered across 6 states in isolated locations. The
division was generating a mediocre $500,000 in operating income on $50 million in sales and had been stagnant
for years.

The division was faced with:
1. No growth in sales or operating income for a period of years.
2. Lack of leadership in establishing the direction for the business.
3. Lack of capacity to launch new, high margin, specialty products.
4. A need for capital investment to address the lack of capacity.
5. A lack of communication between the manufacturing locations for capacity and talent allocation.

The Predictable Future: - The division would be shutdown or sold off piecemeal for lack of return on invested
capital.


1. Identify and implement structural changes to the business and its management to improve profitability.
2. Address the capacity issues.
3. Establish a direction and management culture to allow the business to grow in the future.


Case Study
Fortune 500 Food Manufacturing Co.
Decatur, Illinois.
ACTIONS TAKEN__________________________________________________________________

1. Established a management structure to run the business as a specialty business rather than as a
commodity business.
2. Modified the commodity division accounting system to break out the specialty division accounting
separately. This allowed the individual plant economic performance and product line profitability to be
evaluated.
3. Established each plant as a free standing profit center.
4. Closed and sold one unprofitable plant.
5. Changed out two of seven plant managers to instill new life and fresh ideas into the plants.
6. Eliminated several unprofitable product lines which made capacity available.
7. Eliminated the need for capital investment by using the now available capacity for new, high margin
products that were waiting on the capital investment.

THE RESULTS ____________________________________________________________________

1. Over a period of 18 months, the division moved to an annual operating income of $5 million/year, up
from $500,000/year.
2. The business culture was changed from running a commodity division of high volume, low margin
manufacturing to a specialty culture of low volume, high performance, and high margin products.
3. The plants now ran as free standing profit centers but functioned as a team to allocate both personnel
and production capacity across the division to maximize the profitability of the specialty division as a
whole.


Case Study
Health Care Management Systems.
Farmington Hills, Michigan.
CS No. 050120 ■ Senior Project Advisor: Doron York 01
After 7 years of operating the company is straggling to cause a significant growth in revenue and market share.
The company is facing the following challenges:

1. Lack of ability to cause significant revenue growth
2. The revenue stream is sufficient to cover operating expenses and to provide the owners with average yearly
income
3. Lack of ability to penetrate a largest market share
4. Creating an effective marketing strategy and marketing management
5. No proactive sales approach
6. Some level of frustration on behave of the management and some sense of resignation
7. To reinvent the company that will live and operate beyond its founders
8. Do the management team has the confidence and the know how that is require to cause the breakthrough

The Predictable Future: -
The company will continue to straggle in its attempt to growth the business with high level of frustration.
The revenue will continue to growth in a very unsatisfactory rate. The financial state of the company will
stay the same and more likely will be deteriorated gradually

The company owners created the following breakthrough targets:
• 230% increases in total revenue
• 200% increases in hourly billing
• 300% increases in the number of active contract
• Create a consistency in owners compensation on a monthly basis
• 100% increases in owners personal net worth

Case Study
Health Care Management Systems.
Farmington Hills, Michigan.
ACTIONS TAKEN__________________________________________________________________

After a year of coaching we produced some remarkable breakthroughs towards the company’s future:

1. 186% increases in total revenue
2. 128% increases in hourly billing
3. 220% increases in the number of active contract
4. Create a consistency in owners compensation on a monthly basis
5. 35% increases in owners personal net worth

THE CLIENT SAY __________________________________________________________________

“It is very difficult to measure the return on investment for this remarkable
transformation. It is significantly more than 10 fold and over the next 5-10 years
will be beyond measure.”
Managing Director
New Product Development


Case Study
West Coast Software Development Co.
Palo Alto California.
A three year old West Coast Application Development firm that specializes in corporate collaboration tools was
facing the following challenges:

1. Lack of ability to cause significant revenue growth
2. Lack of ability to penetrate a largest market share
3. Creating an effective marketing strategy to effectively communicate their value proposition
4. Sales force that is scattered and not focused lacking a define sales strategy and management
5. High level of frustration on behave of the management and investors

The Predictable Future: -
The company will continue to straggle in its attempt to growth the business with high level of frustration.
The revenue will continue to growth in a very unsatisfactory rate. The financial state of the company will
stay the same and more likely will be deteriorated gradually


The company owners created the following breakthrough targets:

• Breakthrough in the ability to generate revenue
• Dramatic increases in profitability
• Creation of a viable operating model
• Complete alignment between the founders
• Increase effectiveness to match increasing demands
• Creation of a bold future for the company


Case Study
West Coast Software Development Co.
Palo Alto California.
THE RESULTS __________________________________________________________________

After a year of coaching we produced some remarkable breakthroughs towards the company’s future:
• Company increased revenue by 146% year-over-year
• Profit rose from $58K in loss to $63K in profit
• The founders are aligned and committed to speaking “straight” and full self-expression
• Created a bold strategic intent for the company that reached years into the future

THE CLIENT SAY __________________________________________________________________

“After 18 months into the engagement, we have merged with a complementary
development firm increasing the overall company value in excess of 200%. The
personal equity of each partner increased over their initial investment in excess
of 1000%.”
Founder & CEO


Proactive Turnaround Management

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