Every business has its ups and downs. Whether the pressures stem from external or internal forces, management must monitor the company’s financial pulse rate and bring the necessary resources to bear on troubled areas. If management stops paying attention, the company’s very survival may soon be at stake.
This study details how CFOs in particular helped steer their companies back to profitability when they ran aground financially. It explains how the finance function can learn to identify early warning signs and prevent financial trouble. Being a visionary CFO means knowing that things are changing, why they are changing, what you can do about it, and how you can accomplish the necessary changes. Therefore, to help financial officers understand when and where problems crop up and which turnaround methods work best, we examined 20 companies of varying sizes, industries, and levels of financial difficulty. We focused on the causes of their financial woes as well as their turnaround strategies.
The story that emerges is not new, but as a cautionary tale it bears repeating. Every successful business has a model that assumes the company can profitably deliver a product or service. This assumption, in turn, is based on certain projections about the economy, customer behavior, product volume, revenues, and costs. With that model in mind, the CFO and the finance function work in partnership with the CEO and line management. The CFO must develop and gain consensus for a realistic plan to run the business profitably and the performance measures to track whether the company is meeting its targets. To put it simply, management must understand how the numbers work and know how to spot when they are off track. Although this seems elementary, we found case after case in which that did not happen, for many different reasons.
Here’s a quick glance at the companies we studied. The case studies listed in table 1.1 show the broad range of industries they span—manufacturing, retailing, high technology, real estate, and service.
Table 1.1. Case-Study Companies by Industry Sector
Manufacturing | |
|---|---|
Asset-Heavy | Asset-Light |
Maytag—appliances | Forstmann—garment fabrics |
Navistar—trucks | Pepsi-Cola Bottling, Charlotte, N.C.—beverages |
USG—building products | Sampson Paint—coatings |
Retailing | |
Ames—discount general merchandise | Forzani—sporting goods |
Jos. A. Bank—menswear | Musicland—recorded music and accessories |
Edison Brothers—apparel and footwear | Red Rooster—auto parts |
High Technology | |
Computervision/Parametric Technology Corporation—imaging systems | |
GenRad—test equipment and software | |
Kollmorgen—periscopes, weapon-positioning systems | |
Real Estate | |
Cadillac Fairview—office buildings and shopping malls | |
Service | |
Asset-Heavy | Asset-Light |
Burlington Motor Carriers—transportation | Microserv—computer maintenance and repair |
Fairmont Hotel Management—hospitality | |
St. Luke’s Hospital—health care | |
After this introduction there is an executive summary covering the principal themes of the book, the main points in each case study, and a discussion of our principal findings. Then we offer an analysis of the early warning signs, followed by a comparison of the case studies by causes of financial difficulty and turnaround methods. The section concludes with implications for financial officers of healthy companies. The remainder of the book contains the 20 case studies grouped by industry, an annotated bibliography, a glossary, plus a listing of turnaround experts we interviewed.