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Case Study

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Interlochen helps distribution company return to profitability

Company Profile

A privately-held company that was a leader in its industry for more than seventy years. Extremely high name recognition. Revenues in the upper eight figure range.

Problem

Market leadership and profitability were declining. Twelve months of falling profitability including six consecutive months of losses. The company's culture and work ethic had deteriorated significantly as a result of poor leadership typified by marketing complacency and ineffective management of strategic partnerships. The company had no strategic goals or tactical direction, or "will to win." Working capital management out of control. A systems conversion twelve months earlier remained a source of internal and external problems. Company-wide staff reductions and the imposition of an indefinite salary reduction and freeze adversely affected employee morale. CFO, assistant controller and CIO resigned. The company's lender had lost confidence in management. Cash was projected to run out within 90 days. Interlochen was hired to assess company's viability.

Action

After an analysis of the company's operations that lasted two months, Interlochen presented its findings and recommendations to the board of directors. The board approved all of Interlochen's recommendations, financial, operational and governance. The incumbent president was terminated and the board hired an Interlochen professional to serve as interim president. Interlochen's acceptance of the engagement was conditioned upon the Board's commitment to improve corporate governance and increase Board membership.

Tight control of cash via careful management of all payments was instituted immediately along with a clear, coordinated communications campaign with critical vendors. Implemented strict control and accountability for inventory purchases and sales contract approval. Increased product and service prices that were accepted by the market. With key business managers, prepared new budget for remainder of fiscal year. Established direct responsibility for performance goals. Implemented more incisive and comprehensive analysis of business strategies and tactics. Aggressively managed performance through monthly operating reviews and intra-month follow-up with groups falling behind budgeted performance. Sold idle assets. Interim president communicated frequently with all constituencies: customers, suppliers, the Board and, especially, employees. Commenced retained search for new President, CEO and director to expand the board by one member.

Results

Company achieved the new budget's goals for all eight months remaining in the fiscal year including a return to profitability within two months of the Interlochen professional being engaged. Working capital investment reduced by $4 million. Bank borrowings reduced by 50 per cent. Company restored to good standing with its lender. Avoided further staff layoffs. Employee morale, confidence and enthusiasm restored. Employees embraced accountability and took ownership of their goals and responsibilities; they developed a positive, "can do" attitude toward business challenges. A new permanent President, CEO and director; CFO and CIO hired. Despite significant losses early in its fiscal year, the company achieved full year profitability.