Against the current backdrop of uncertain times as a result of Brexit, economic cycles and continued change, Head of our Financial Restructuring & Recovery (FR&R) team, Andrew Thompson, looks at what businesses could be doing to protect themselves and deliver the best chance of success. Find out more in the second article of a four part series.
A leadership challenge
Decisive decision-making from a strong and united management team are vital for business success
Strong leadership is critical to business success, particularly during periods of challenge or change. The senior management team must have a clear and compelling vision of the future, and a coherent strategy for getting there, while making sure those around them understand and buy in to the direction of travel as well.
The chief executive, the finance director, and other C-suite executives must be united in their approach to both long-term goals and short-term objectives. However, they must also be able and willing to challenge each other appropriately in order for decision making to be as productive as possible.
They must be exceptional communicators, not only inspiring employees but working effectively with all stakeholders – customers, investors, suppliers and banks.
In addition, management teams must be adaptable. A business will require a different leadership approach in an economic downturn than in periods of explosive growth. And, of course, market disruption is now ubiquitous. Almost every sector, from retail to manufacturing, is changing at an unprecedented pace, driven by globalisation and technological advancement. The ability to change with them is vital.
Having the correct processes and reporting lines to thoroughly understand what is occurring across the business is also key, as are defined KPIs that monitor and control performance progress. Having access to accurate and insightful information is important if the management team is to make the right decisions, and crucially, at the right time.
When things go wrong
When these fundamental tenets of strong management break down, poor decision-making inevitably follows and businesses can quickly unravel. Last year we dealt with the administration of a company resulting from a failed merger, a prime example of ineffective management and incoherent strategy.
The longstanding owner of the business bought a competitor with a view to integrating both businesses onto a single operating site. But the process was badly planned and incurred an unsustainable amount of additional costs and factory down time. This impacted the company’s ability to supply existing customers and had a catastrophic impact on the business. Insolvency quickly followed.
Another management team flaw that we see regularly, which can have deleterious effects, is the pursuit of scale at the expense of profit. Companies led by CEOs with a strong sales background, or with highly influential sales directors, can often be blinded by promising new customer, or huge contract, particularly if they are not challenged by a strong FD.
These frequently turn out to be vanity projects, with no meaningful impact on the bottom line or leading to shortfalls in cash. Companies end up trapped in contracts with terms dictated by big name clients but which deliver little by way of margin.
These situations emphasise the importance of balance and challenge in a management team, to ensure smart decision-making for the long-term good of the business. Ensuring you have the best blend of individuals, the right skills to compliment the particular challenges that a company is facing and a solid contingency plan, are paramount for sustainable success.
Read the third article of a four part series here: Understanding and Managing the Key Risks in Your Business