How to turnaround a business – Practical experience Guest lecture

HANDOUT
selected slides
How to turnaround a business –
Practical experience
ETH Zürich, October 12, 2009
Guest lecture
This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent.
Agenda
• Who is Bain?
-What we offer to our clients …?
-What we offer to you …?
• How to do a turnaround? – Client example
• What counts? - Lessons learned
GXC
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This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent.
Bain's 4,800 employees work in 41 offices in
every region of the world…
Copenhagen
Oslo
Düsseldorf
Stockholm
Helsinki
Amsterdam
Frankfurt
Brussels
San Francisco
Chicago Toronto
Palo Alto
Los Angeles
Dallas
Mexico City
Moscow
London
Kiev
Boston Paris
New York
Atlanta
Madrid
Munich
Rome
Zurich Milan
Houston
Beijing
Dubai
New Delhi
Mumbai
Seoul
Tokyo
Shanghai
Hong Kong
Singapore
São Paulo
Buenos Aires
Johannesburg
GXC
Sydney
Melbourne
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This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent.
… a strongly growing presence in
Germany/Switzerland
Stockholm
Helsinki
Oslo
Amsterdam
Copenhagen
Moscow
Dusseldorf
London
Brussels
Frankfurt
Paris
Munich
Zurich
Madrid
Milan
Rome
iSince 1982 local
presence in German
speaking countries
iFour offices
Kyiv
i440 employees
iDouble-digit growth
p.a. over last 5 years
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This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent.
Bain covers a divers set of experience
Industries
100%
Other
Business issue
100%
Health Care/
Chemicals
80
Consumer
Goods
80
Technology/
Telecom
60
40
60
Financial
Services
Operations
Due Diligence
Orga/ Change
management
Size
100%
80
Large
Corporation
60
40
40
Middle
market
Blue chips
Strategy
20
0
Industry/
Automotive
By industry
20
20
0
By study type
0
By size of client
Note: Blue chips are publicly traded companies with > € 1,000M revenues; large corporations are mainly private companies with > € 500M rev.
(some exceptions of publicly traded companies with < € 1,000M rev.); middle market have < € 500M rev.
Source: Bain GER/CH data, 2004-2006 average
GXC
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This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent.
How is Bain’s approach different
• We deliver, measure and are
rewarded for our results – not for
reports
• We don’t work alone – we
collaborate with our clients
• We think and act like owners
• We tell it like it is – honest and
direct, based on facts and figures
GXC
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This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent.
A unique definition of results: We measure our
success by our clients' results
Bain clients outperform the market 4 to 1
Cumulative percentage change in share price
8,000
6,000
4,000
Bain clients
2,000
S&P 500
0
80
82
84
86
88
90
92
94
96
Note: Calculation and data attested to by PricewaterhouseCoopers through September 2008.
98
00
GXC
02
04
06
08
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This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent.
Agenda
• Who is Bain?
-What we offer to our clients …?
-What we offer to you …?
• How to do a turnaround? – Client example
• What counts? - Lessons learned
GXC
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This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent.
… the Bain "Entrepreneur Academy"
"Entrepreneur"
• Leverage experience and judgment
• Create superior returns
• Grow the company further
• Share in the economic
value created
Value
proposition
Specialist
• Focus on selected industries
and/or capabilities/study types
• Personal mission to make a mark
Generalist
• Experience building
• Exposure to different company
situations and challenges
• Building general management
capabilities
1
2
3
4
5
6
Tenure
7
8
GXC
9
10
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…an interesting financial support for your MBA,
Doctorate or Acceleration program
MBA
(1-2 years)
Consultant
part of the salary and
full coverage of fees
Associate Consultant
(2 years)
Doctorate
(1-2 years)
Acceleration
program
(6 months)
Consultant
Consultant
6 months base salary
and educational bonus
*Consisting of 3 elements: Educational, recreational and business/special elements; can include 3-monthsGXC
office transfer
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This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent.
… a springboard to opportunities beyond Bain
Bain Alumni Germany/Switzerland
100%
80
60
40
Other
Other
Manager/
Senior Consultant
Start-up
Senior Manager/
Director
SME
Consulting
Vorstand/GF/
Partner
PE/VC/Banking
20
Blue chip
0
By position
By sector
GXC
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This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent.
Agenda
• Who is Bain?
-What we offer to our clients …?
-What we offer to you …?
• How to do a turnaround? – Client example
• What counts? - Lessons learned
GXC
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This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent.
Set up comprehensive turnaround program
Review vision
& strategy
Fix structures &
drive EBIT improvements
Adjust to mid- and
long-term structures
• Create
transparency
1• Streamline
• Reduce to lean and
flexible structure
• Define
strategic
guidelines
2• Drive
• Implement new
operations concept
• Set baseline
& targets
3• Shift
portfolio &
set structures
significant cost
reductions and push
sales
to execution mode
4• Build
capabilities &
people
• Optimize global
organization
• Establish sustainable
performance culture
5• Proactive
& clear
communication
1-2 months
6 months
6 months
GXC
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Set a strategic goal: Reinforce market
leadership and achieve sustainable profitability…
Vision
2-business segments
strategy
Sustainable
profitable
market leader
Focus on
Segment A:
Remain #1
leader
• Towards CHF XxxM sales
• Avg. Yy% ROS across cycles
Drive Segment
B along "hard
gates" to #2
Enforce technology leadership
• Deliver "Innovation A" on-time
Main battles/
enablers
• Maintain segment B technology lead
Drive to profitability
• Achieve significant cost reductions
• Leverage global business model and move Equ. B to Asia
GXC
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Phase 2: Fix business & drive EBIT
improvements
1
2
Streamline
portfolio & set
structures
Drive significant
cost reductions
& push sales
3
Shift to execution
mode
• Focus product portfolio
• Revise business model/ move to Asia
• Achieve significant cost reductions across all
functions
• Push sales
• Get main R&D program back on track
• Drive execution with disciplined program office
4
Build capabilities
& people
5
Proactive & clear
communication
• Fill key positions
• Build capabilities
• Clear (esp. employee) communication
GXC
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1
Business Model refined: Global excellence
"Old" Plan
"New" - Global Excellence
Sourcing
• Full move to Asia
• Globally sourced lowest costs, highest
quality, shortest leadtime
Assembly
model
• All platforms to be
assembled by
integrator in Asia
• Chip Segment B offshore to Asia
Product
lines
• Both complete product
lines in Asia
• Chip Equ. B SBU move to Asia
R&D and
• 90% move to Asia
engineering
• Chip Equ. A assembly to stay at own
home production
• Chip Equ. A product line lead to stay
at home base
• Keep core innovations at home base
• Move product engineering Segment B
to Asia
GXC
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2
BOM reductions of up to 40% targeted combined with
cycle time reductions
Segment A
Innovation A
-20% to -30%
Target costs
(-30%)
-10%
Old BOM
New BOM
Note: BOM = Bill of Material
Old BOM
Segment B
-32% to -40%
New BOM
Old BOM
GXC
New BOM
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3
Focus on most profitable sub-segments
Average segment
contribution p.a. (in(avg.
CHF M, 05-08)
Sub-segment
contribution
p.a.)
High 100
Target segments
Sub-segm.
2
50
Sub-segm.
1
Sub-segm.
11
Sub-segm.
6
20
Sub-segm. 4
10
Sub-segm. 16
Sub-segm. 17
5
Sub-segm. 10
Sub-segm. 5
Sub-segm. 8
Sub-segm. 3
2
25
Segment
contribution
p.a.
(in CHF M)
Sub-segm. 7
Opportunistic
Low
-2
Low
-1
0
2
1
Relative
competitive position
Relative
competitive
position
Addressed "Chip Machine A" target segments
New target segments
GXC
High
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3
Disciplined initiative tracking
D
PRELIMINARY
Financial
Model
Confidence levels still generally at 50%
Total
Program
C
A
Initiatives
Functions
overview
B
EBIT improvements
(€M)
COS*
R&D
S&M
PRELIMINARY
G&A
"Security Player" aligning short-term profitability with sustainability…
30
Impact of portfolio options
EBIT (€ M)
Idle cost risk p.a.
"Security" vs. "All
Segments": ~€ 7M
22
20
20
20
0
"C80"
"All
"Security"
segm."
Baseline (06/07)
Target (as comm.)
347
247
Loss of Pay-TV gross profit (w/o
ZUK) compared to ”All 4
4
Segments” and “Security”:
• 07/08: € 21M
• 08/09: € 27M
-40
"All
"Security"
segm."
305
266
FRFC 05/06 (Dec.)
"All
"Security"
segm."
76
69
232
62
"All segm."
"Security"
"Comm."
05/06
Rev.
384
384
384
26
GM
21%
21%
21%
Note: Commodity without PayTV
"Security"
"All
"Security"
segm."
"Commodity"
"All segments"
16
13
33
31
55
-60
* COS savings excluding "Orginärwertänderung", idle costs, provisions of €11M
24
06/07
Rev.
348
328
333
12
GM
29%
29%
27%
12
07/08
Rev.
370
333
309
Output:
Tasks:
- Overall P&L
- Initiatives
- Complete
P&L
- Overall P&L
impact
Proj. leader
- Overall P&L
- Function
consolidation by
project
office
- Total
Savings
- Status and
Trend line
- Overall
EBIT impact
- Track
savings per
function
- Initiative
consolidation by
project
office
- Savings per
function
- Status and
Trend line
- Function
wide
savings
calculation
- Initiative
monitoring
per resp.
- Direct input
by responsible per
initiative
- Savings per - Tracking
initiative
of savings
(e.g.
progress
project, cost per
center)
initiative
- "All Segments": ~€ 9M
- "Security": ~€ 4M
9
7
-20
Input:
CFO
• 150nm/Alu BEOL
0
"C50"
Cost type:
- "All Segments": ~€14M
- "Security": ~€ 10M
18
14
10
Owner:
Additional upside:
• Low cost C9 Flash
frontend (Kulim)
AIM CC
GM Page 11
31%
32%
25%
08/09
Rev.
397
336
286
• xxx
GM
31%
32%
23%
AIM CC
Page 46
• xxx
Function head - Function
P&L
• xxx
• xxx
• xxx
• xxx
Initiative
responsible
• xxx
• xxx
• xxx
- Project
costs
- Cost
centers
GXC
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4
New team, skill mix and streamlined
organization
CEO
K. Clever
R&D
Dr. A. Forsch
Operations
H. Günstig
A. Secri
Global Sourcing
M. Pressure
Communications
I. Tong
Business Excellence
B. Quali
IT
W. Server
PL Chip Equ. B
E. Chipper
PL Chip Equ. A
H. Chopper
Sales &
Marketing
O. Werb
Finance &
Controlling
D. Zahl
Mechatronic Systems
P. Blessing
SCM Asia
K. Ong
Assembly
D. Ortner
Product line 1
M. Limmacher
Country S&S
O. Jud
Electronics
F. Betschon
SCM Local
P. Erni
Software Processes
S. Kumar
Product line 2
S. Arsalane
Key Account Mgmt
O. Jud
Processes
M. Rapp
Production
M. Iseli
Hardware
Y. Wang
Product line 3
T. Tschan
Global Services
T. Mok
Software
M. Emmenegger
PES
P. Willimann
Head Chip Equ. B PL
A. Goh
Engineering Singap.
(S.S. Chang)
Marketing
R. Kyburz
Projects
B. Rickenbacher
Quality Mgmt.
Operations
P. Iten
Documentation &
Training
A. Müller
Sales Support
O. Jud
Tools & Support
J. Noak
Global Spares
D. Gerletti
HR
G. Hunter
Facility Management
M. Ordelman
New positions
GXC
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What counts - Lessons learned
• Use quick strategy review and transparency as baseline
• Build comprehensive plan & invest in clear communication
- It's not only about cost reductions and sales push; building new management team, drive key
strategic projects, clear communication and new structures are at least as important
- Develop & excessively communicate a clear and easy to follow turnaround overview
• Clear goals & focus based on transparent decision base
- Set clear sales & savings goals early on based on break-down of gap to regain profitability
and validate them bottom-up
- Focus on largest potentials and balance short term savings with long term strategic goals
- Invest in transparency, especially financials and headcount plan
• Right team with full buy-in
- The right capable management team is a huge lever for success – push mgmt. team
assessment and changes from the beginning
- Align management team around "their" plan and let them present to create essential buy-in
• Execution, execution, execution
- Define initiatives on a very pragmatic and directly implementable level
- Define clear accountability, rigorously track savings and drive decisions
- Functional (not cross-functional) allocated teams facilitate execution
Note: Profitability crisis with sufficient liquidity to get back on track
GXC
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This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent.