Transformation Office is imperative for a successful turnaround

11 October 2023 Consultancy.com.au 3 min. read

Transforming a distressed business requires a comprehensive set of initiatives that target various aspects of the organisation, including reorganisation, working capital optimisation, governance change, and potentially a divestment of underperforming assets. Andrew Birch, Executive Director at Vantage Performance, gives five reasons why establishing a Transformation Office is imperative to facilitate a successful turnaround.

1) Significance of Change
Realistically expecting a different outcome requires significant changes, especially when sub-par board and management are major causes of distress.

2) Rebuilding Credibility
An external transformation office plays a crucial role in quickly rebuilding stakeholder credibility.

Andrew Birch, Executive Director, Vantage Performance

3) Expertise and Experience
A transformation office brings fresh perspectives, energy, resources, skills, financial acumen, strategic capability, and experience working with financiers and external stakeholders.

4) Objectivity and Communication
Independence and objectivity ensure rational decision-making and rapid implementation, while clear and concise communication facilitates organisational alignment.

5) Urgency
The sense of urgency embedded in a transformation office fosters timely actions.

The Transformation Office

The Transformation Office will ensure the following hygiene factors contribute to a successful transformation.

Matching Personalities: The transformation team must match the personality of the equity holders to establish effective collaboration.

Alignment: The transformation team comprising the board, management, and advisors should be in lockstep agreement, working cohesively towards the common goal.

Decision-Making and Implementation: A structured and coordinated approach facilitates decision-making followed by efficient implementation to minimise delays and bottlenecks.

Hands-on Approach: The transformation team should actively engage at the operational level, working closely with the staff to drive change.

Navigating risks

Meanwhile, the board and management should be aware of potential risks that can hinder the success of a turnaround:

Weak Board or Management: A sub-par or under-resourced board and management team can undermine the chances of a successful turnaround. If key personnel were not replaced before the turnaround, they may need to be replaced during the turnaround to signal to external stakeholders that the board is managing the situation appropriately.

Lack of External Expertise: Neglecting the establishment of a transformation office led by external advisors or a dedicated Transformation Officer may limit the effectiveness of the turnaround efforts.

Superficial Improvements: Focusing solely on cash flow improvement without addressing the underlying strategic issues may result in temporary relief without sustainable progress. A successful turnaround or transformation usually requires one to two significant strategic changes.

Delayed Action: Failing to address the causes of distress promptly can impede the progress of the transformation.

Lack of Focus: Inadequate prioritisation of initiatives can dilute efforts and spread resources thin, impeding progress.

Adaptability: Knowing when to stick to the plan and when to adapt it based on changing circumstances is crucial to navigate the complexities of a turnaround.

In summary, successfully navigating a distressed business towards recovery requires a holistic approach that addresses the root causes, establishes a transformation office, and ensures strong collaboration among the transformation team. By implementing strategic initiatives, swiftly addressing distress, and staying focused on the long-term vision, businesses can achieve sustainable transformation and enhance their enterprise value.