A RELEVANT CASE STUDY

The Background - A long-established and relatively successful canned food importing business with a £6m plus turnover got itself in to all sorts of most unpleasant difficulties, even before the current Recession / Depression bit hard, this because the newly-elevated Non-Executive Chairman became way over-obsessed with looking at potential takeovers / mergers / acquisitions, within that which he perceived as his key (non-executive) role in long term strategic planning - and frankly because he had become bored rigid  !

He also (critically) dragged in to that process considerable quantities of the time and expertise of members of the senior management team, particularly that of the newly-appointed CEO/MD

The Owner / Founder / Chairman had done an amazing job in starting and building and developing this significant enterprise over a number of decades. He had also recruited, when he wished to retire, an eminently sound and driving and progressive CEO, and the Chairman had in fact behaved impeccably during the relevant hand-over period, and had stood aside completely thereafter from any form of day-to-day involvement in the executive management of the business - which surprised hugely not a few people, and not least the new CEO  !   

The Problem - Over the first 12/24 months of his appointment, the new CEO/MD had been mandated to, and had planned actively to be dealing with some pretty intransigent net profitability and net cash generation issues - and to be undertaking all of that key activity with the support of an OMSG Group Non Exec specialising in SME businesses 

However, the incipient and then very real boredom of the Non-Executive Chairman began to rear its ugly head, and instead of his taking up sailing, or improving further his already much-improving golf handicap, he decided, without being asked to do so, to start thinking (and plotting and planning) actively that which he saw as the long term strategic planning aspects of the business. Of itself, no bad thing at all, and in fact in most cases to be a recommended role for a Non-Executive Chairman, but this particular individual really over-egged the relevant thoughts and processes  

The OMSG Group Non Exec, who had continued to be involved in supporting the CEO with all of the planning and implementation aspects relating to the quite serious net profitability and net cash generation issues which were facing the business, was asked quite forcibly to become involved in this “Strategic Planning” work, as was the CEO, and to a lesser degree certain other members of the management team  

The new CEO had already discussed strategic planning matters on a number of occasions with his Chairman, and with his OMSG Group Non Exec, both in a deux and a trois situations, and all concerned had decided (supposedly) to put any serious thought or active work as regards long term strategic planning matters on to the back burner for at least two years, whilst agreeing still to be reviewing same from time to time, but only say on a maximum of a once per annum basis

The chairman was though not to be thwarted and he continued to press loudly and at length month after month for A & M action now / immediate, Reluctantly the CEO finally acquiesced and agreed to involve himself with the Chairman in looking together, preliminarily at least, at various potential acquisition and merger options, but only on the basis of a (supposedly) very time-limited involvement

Well, you know what comes next ! - Yes, within weeks, the CEO was working three or sometimes four days each and every week on various and manifold meetings and plans relating to these A & M matters, and he was therefore most definitely NOT working on his primary role of the hands-on managing – and effectively turning around - the business     

Whilst the CEO tried to compensate for this distraction by working evening and weekends on the core business activity, other members of the management team became thoroughly dis-enthused and disenchanted – middle management and staff ditto – major customers ditto – and in essence the business model began to fall apart, and with the business itself wandering perilously close to failure  

The Action - At this point, the OMSG Group Non Exec felt that he had no choice but to speak individually and then collectively, with both the CEO and the Chairman about the serious dangers as he saw them of what was going on. Thankfully both individuals, and most particularly the Chairman, listened actively, carefully and thoughtfully

As part of this exercise, the OMSG Group Non Exec had explained just one key aspect* of the process which had escaped totally the Chairman (and the CEO in fact), namely, as most Business Schools know only too well, that 80% of initially-proposed mergers and acquisitions do not ever even get to the alter, and that 80% of those which do make it to the alter, then fail effectively or actually within five years, ie a potential likely success rate out coming from all of the frantic such A & M interest and activity at our client firm of just 4%  !

The Outcome - The Chairman accepted the folly of his ways, and agreed to pull immediately all of his interest in progressing any thoughts of potential A & M matters, other than at the appropriate annual review of strategic planning matters, and to put all such specific A & M thoughts on to one side for at least two years - and to take up sailing !  

The CEO now got on with that which he had been asked originally to be doing with his first two years in post, and proceeded with the support of his OMSG Group Non Exec to dramatically improve the bottom line performance of the business from just marginally net profitable, to way up to £600k Pre-Tax Net Profits per annum, in year one alone, this partly by improving Gross Margins, partly by closing down four regional stockholding points, partly by relocating the business out of London, and partly by cutting back simultaneously the office staff head count by approx 66%, (largely via appropriate IT inputs, and then via early retirement and natural wastage)

Thus both the Chairman and the CEO were now once again very happy bunnies indeed, and both could look forward to be moving on to a significant consolidation and developmental – say five year - stage within the newly-significantly net-profitable and net cash generative business, before looking again (just maybe) at A & M options some 2/3/4 years down the line, and, if so doing, to then be doing so from a position of vastly-increased financial and commercial strength 
 
The moral of this story / case study – Having on board a strong-minded, independent detached objective and highly-experienced and expertised OMSG Group Non Exec specialising in SME businesses made all the difference to the Chairman and to the CEO – and to the management and staff - and to their business - and to their peace of mind !  -

• This in order to be able to be analysing monthly with the Chairman and CEO - and clearly and speedily - the detailed nuts and bolts of all of the perceived strategic and tactical problems and opportunities within their business
• And, to be discussing and examining with them - and validating and proving appropriately - the relevant and workable alternative strategies and tactics with which to deal successfully with those problems and opportunities
• And for the said OMSG Group Non-Exec to be willing to commit to stay with and support the client firm and all of its people for three or four years, or more,  and to be planning with them and then supporting (and cajoling) them through the various implementation stages of the changes which had been jointly discussed and agreed
• And, to then be working with them to be growing the business once again strongly and safely for the medium and long term
• And, ,,,,,,,,,,,,,,,,,,,,,, to provide the business owners with a massive Return on Investment on the outlay of fees to OMSG Non Exec Group for the services of the said Non-Exec - of some 20 times ROI in Year One alone  !

And, Yes, we would say all of that wouldn’t we !  , ,,,,,,,,,,,,,,,,,,,,, but true it is !

More next month, on another topical issue for SME businesses

November 2011

©OMSG Non Exec Group Ltd – 2011