Papers

The increasing importance of Interim  Management (14th November 2013)
The concept of Interim Management describes the temporary provision of effective business solutions, management of resources and skills. Interim management is a short- term und flexible executive solution with long- term benefits for organizations going through changes, crisis, transformations, transitions, mergers or acquisition. The purposes of Interim Management can be also business improvement, turnaround, project or strategy management. Interim managers use their well-qualified professional skills and expertise in a short time seeking the long term outcomes and results for the client’s organisation. They consult, plan, advice and handle strategic and tactical interventions in multiple sectors and disciplines. The interims do not only offer advice to companies, but also offer expertise free of company politics, culture and take responsibility for delivering successful results. There are several main factors that make Interim Management so important and cost-effective to clients’ organizations. These factors are characterised as value propositions and are typical for interim managers:

Efficiency. Interim managers can be placed within days and get up to speed quickly. Due to their skills and professional experience, they can conduct and complete assignments with high speed and efficiency.

Objectivity. Interim managers leave unencumbered by specific company culture and politics, so they are capable to keep a position of neutrality and to concentrate on things or decisions which are the best and most beneficial to a client’s organization.

Professionalism. Interim managers are well qualified and have right skills, knowledge and experience to be experts in successful business management.

Cost-effectiveness. Interim managers operate near board- level, they have the credibility and authority to effect significant changes and important transitions in a company. Interims are very cost-effective due to delivering required results within a finite time period. They also ensure that relevant skills or professional abilities are already transferred to permanent employees in a company.

Results-orientation and commitment. Interim managers maintain high professional skills, apply high standards and seek the most beneficial results for a client’s company, because their future work and reputation rely upon their successful job history and already achieved results. So they try to complete every job with the best professional abilities, knowledge and skills. Typical roles of interim managers are:

  • Chief Restructuring Officer
  • Chief Executive
  • Managing Director
  • Chief Financial Officer
  • Procurement Director
  • Finance Directors
  • Operations Directors and Managers
  • Commercial Directors
  • Project/Programs Directors and Managers
  • Chief Engineers and Manufacturing Directors

Always ahead of the curve (September 9th, 2013)
Modus operandi and challenges of a commercial due diligence within the context of distressed M&A transactions

After the recent macroeconomic developments it is time, especially for medium-sized enterprises, to move from a strategy focused on production and technology to a market-oriented corporate management. In the future, the ignorance of the transformation of the external environment and thus, the sole reliance on the own strengths will not work anymore. Flexibility has become the most important success factor and competitive advantage.

Missing market orientation
Most enterprises operate in cyclical markets that are partially also characterised by a strong seasonality during the year. Thus, it is even more surprising to note that corporate planning often acts on rigid assumptions. External influences as changing commodity prices, exchange rate fluctuations or competitive pressure on sales prices are often insufficiently considered in the sales and gross-margin plan. Subsequently this leads to inaccuracies in the production, personal or investment plans, and thus, significantly influencing the earnings and liquidity situation of a company. Often, the reason for the inaccuracies is the absence of a structured and systematic collection and analysis of quantitative and qualitative market-related information, although the information is available in the firm in most cases. Due to the scarcity of resources and the focus on the daily business the necessary processes are not initiated and the set-up of an appropriate IT-system and information architecture is often missing.

Strategic analyses in turnaround situations
Particularly for companies in a critical situations, market orientation is more and more important. The crucial question for potential investors or lending banks is: “How does the market environment of the firm develop and to what extent is the firm able to grow with the market or against a negative market trend?” The clarification of this question and other market-oriented questions is the main task of a Commercial Due Diligence (CDD). Generally, in the context of a commercial due diligence the business model of the target company is analysed, the development of the relevant market is forecasted, the client structure and dependency determined, the competitive environment surveyed and the sales and gross margin planning validated. The special challenge of a commercial due diligence within distressed M&A transactions lies in the differentiated examination of internal strengths and weaknesses against the present external chances and risks.

Strategic repositioning as a result of the commercial due diligence
Within the context of turnaround acquisitions a commercial due diligence is more than the sole analyses and valuation of the current situation. It should deliver a starting point for the realisation of unexploited potential as well as approaches for managing the crisis. A consequence of the commercial due diligence work is often the strategic realignment of the company in combination with operative restructuring measures.

Summary
Companies cannot afford to ignore market developments and trends. Companies need to be close to the market and need to establish structures and processes which support a market-oriented company culture.

Planning Methods: Death of the Crystal Ball (March 4th, 2012)
One of the basic management tasks is the preparation of solid, resilient budgets and medium-term plans (generally 3 to 5 years). In many cases, the biggest challenge lies in the determination of adequate assumptions with respect to the expected sales and gross margin growth. The importance of a reasonable sales plan arises from internal constraints (e.g. personal and production plans or determination of an incentive system for the sales department) and from the need to report towards external parties (particularly shareholders and banks). There is a range of planning methods available and widely used:

  • Extrapolation of historic trends: based on the development of the previous years and historic growth rates the top-line is extrapolated linearly into the future. This implies constant market conditions respectively customer needs. However, for the majority of companies this method is not appropriate because market conditions often change (especially in high-tech industries). Also the linear extrapolation often does not cope with the specific situation of the company because most firms are subject to periodic seasonality (e.g. tourism) and cyclicality (e.g. mechanical engineering). A linear extrapolation is only applicable to saturated markets with little dynamics (e.g. food market).
  • Planning based on order intake and order backlog: Within some industries future sales are determined by the existing order backlog. This is particularly suitable for large-scale plant construction or mechanical engineering. In general, the conversion of order backlog into turnover depends on the lead time of an order. The challenge lies in forecasting project delays (e.g. due to technical or logistical reasons). Moreover, additional order inflows must be forecasted which compensate the decrease in existing backlog over time.
  • Client oriented bottom-up planning: the integration of key customers in the planning process is one of the best possibilities to plan turnover and margins. This includes the collection of feedback from customers regarding the prospective expected quantities ordered and prices. The requirements to use this method are good client relationships (not every customer is willing to share insights on his own planning), a manageable number of key accounts and a small volatility in the business. In the project business, forecasts are usually more difficult. Thus, this method is especially applicable to producers of industrial products and hardly to end-customer industries.
  • Market-oriented top-down planning: This method includes the collection of market information for the relevant market or market segments and the estimation of market shares to identify the sales potential. Examples of market information are industry statistics, market reports, analyst reports or market research studies. Additionally, the selective conducting of interviews with industry experts and competitors can widen the information basis. The important criterion is hereby to check the credibility of the source. If only historical data exists mathematical-statistical methods can be applied for an extrapolation (e.g. regression analyses). After the determination of the market size and growth, every company needs to decide, whether it wants to grow with the market, outperform the market or if a growth “inline” with the market growth is not realistic. In the first case, it must documented, how the market share growth is going to be achieved and who the competitors are that lose market shares.
  • Product-oriented bottom-up planning: The most frequently used planning method is the preparation of a price-quantity-grid on the basis of individual products or product groups. Existing price pressure in the market needs to be included.
  • Creation of analogies: Especially when launching highly innovated products or entering new markets, a track record is missing and market studies are rarely available. In this case, analogies to similar markets can be a vital tool. In some cases the market dynamic and development can be transferred to the market under review (especially when the ramp-up takes place).
  • Scenario-based planning: In any case it makes sense to develop different scenarios: worst case, realistic case and best case. The definition of a limited number of influencing parameters and the quantification of these parameters form the basis for the development of a quantitative model that can easily be changed.

Planning is an art. Our practical experience shows that companies often have big problems to create accurate and comprehensive plans based on realistic assumptions. Partially political reasons play a role. Planning is often seen as a cumbersome duty and its importance is underestimated – often with a crucial aftermath. Frequently, there is a failed investment policy and sunk costs. The perfect planning method does not exist, it is more about the combination of different methods, the inclusion of different persons in the planning process and a good intuition or “business understanding” of the planners. The combination of qualitative and quantitative information often leads to the desired results. Thus, the question is not: planning versus intuition, but planning and intuition.