Common habits that lead to business distress.

In the news this week, we heard of two UK giants who have admitted that it was time to change. For one, it may already be too late, and the other, well, we hope for the best.

But it’s the series of events which led to the demise of ToysRUs, and the challenging distress of Jamie’s Italian which are more shocking than they are complicated – more simplistic than calculated – and ones that any business, regardless of stature, size, standing or longevity, could be exposed to.

We look at 4 of the most common leadership habits that risk pushing a business into distress.

 

Complacency

The figures don’t lie, and when the results are out – it’s time to be upfront and candid. And that’s exactly what Jamie’s Italian chief executive Jon Knight did.

Speaking at the Casual Dining Show in London this week, he discussed the recent downturn in the business following a Company Voluntary Agreement to close 12 of its 37 restaurants, and its Barbecoa steakhouse in Piccadilly fell into administration this week.  And unfortunately, what Jon shared was more common that many of us like to admit.

Knight, who took over as CEO in October, mentioned that the Jamie’s Italian chain had become ‘complacent’ and failed to innovate in the decade since its launch. He added that the restaurant chain had rested on its laurels over the past 10 years and failed to “take stock of its competitors and how they were evolving”. A fate recognisable by many businesses facing the same challenge, and realising, albeit too late, that it’s time to change.

The company traded well for the first five years after launch, but started seeing problems in terms of covers and sales, and in 2016, recorded losses of £9.9m. “As a business, we lost our way. We hadn’t acknowledged how much the UK High Street had changed over the last 10 years,” he added. And why not? Knight believes that change simply wasn’t actioned quickly enough. Complacency had led to an inability to move. The inability move meant the lack of agility to keep up and out-perform – and as such, have seen 12 of the 37 restaurants close.

 

Procurement Fraud and Financial mismanagement

Rolls-Royce – a brand synonymous with British luxury, integrity, longevity. But, for this automotive stalwart, their almost-demise was steeped in something far less grand – a supply chain and procurement strategy steeped in fraud and bribery. In 2015 and 2016, we saw the business in the battle of its life as it tried to survive a financial crisis following revelations about long-running corruption within the organisation – leading to record fines leaving the workforce to believe that bribery was an acceptable work ethic.

According to the Chief Executive, Warren East, he didn’t quite know what he was in for, when he took over the business. In a very candid interview, he shares some insight into the behaviour that left to a financially crippled business that had become a British institution that supplied celebrities and the Royals.

“We had more than £14 billion coming in at the top of the business and absolutely zero at the bottom end. There was an accounting fog. We were reporting profit that looked good but if you looked at the numbers, we hadn’t faced up to the reality of it: a big gap had developed between profit and cashMr East also admitted the extent of the damage caused to the company by the £671 million of fines and penalties to settle bribery and corruption cases across five continents stretching back two decades through the years under the leadership of Sir John Rose back to Sir Ralph Robins.”

But the real crux of the matter had developed much deeper than accounting ledgers and record books. A culture had developed within the workforce that underpinned an acceptance of poor business practice.

“[The fines] could have been completely financially crippling for the business,” he said. “The workforce fell into two categories. Some were pretty devastated to learn that they were working for a regime like that. The other half took the view: ‘Didn’t we have to do business like that? Isn’t that how things were in those days?’

Although their turnaround strategy is still in its infancy, we can only hope that Rolls Royce continues to keep focussed on rectifying, saving money, and growing their business back to where it once was, financially, despite still continuing to pay their fines off through to 2021.

 

 

Over-complication:

Education giant Pearson posted its biggest ever loss in 2017 following a series of tough challenges it had been facing in the US Market. Having reported a massive pre-tax loss for the year of £2.6bn in February last year, it was clear that the business faced massive distress. Debt was mounting and in January 2017, the business posted the fifth profit warning in four years, reporting a sharp rise in debt to £1,092m, from £654m in 2015.   At the time, chief executive John Fallon said that 2018 marked a “pivotal year” for the company as customers shifted from a textbook ownership model to an “access model” through renting physical and e-textbooks.  Their plan of action: simplify.

They looked at what the market required, and instead of doing what they’d become famous for, they decided to switch tact. Digital and services revenue grew to account for 69% of Pearson’s business in 2017 and the firm continued to focus on Inclusive Access (direct digital access) solutions. It also reduced the rental price of 2,000 e-books, which boosted revenues growth by 22% during the year. They drastically cut costs, and focussed on implementing an efficiency program, and although print sales still continued to provide stable revenue, it was the development of the more digital, more accessible product offering that helped them turn the business around.  They put their K12 school courseware business up for sale and have, so far, seen positive results on their turnaround strategy. And the currently situation: the business has returned to profit a year after posting its biggest ever loss as efforts to simplify the business and cuts its debt pile started to pay off.  “Pearson has made good progress against its strategic priorities in 2017 with further simplification of the portfolio, strengthening of our balance sheet and delivering results at the top end of guidance.” – CEO John Fallon.

 

Failure to focus on Safety & Security

Our news feeds are littered with stories of customer data “going missing” or “being accidentally leaked” – and each of these stories inevitably result in organisations tightening up and securing where they can. But for the American fast-casual dining chain Chipotle Mexican Grill, this may have been a little too late.

The restaurant chain was founded in 1993 in Colorado and quickly expanded to 2,400 restaurants, including 37 outside the US. But in recent years, the business has stumbled as it faced competition from newer chains and a series of food safety incidents that hurt the firm’s reputation after an E.Coli breakout, resulting in a net income drop of 44% compared to the previous year, and a temporary closure of 44 businesses.  And although they managed to move through the breakout and get things back under control, the damage it had done to the business’ reputation was much worse – and they now face investor lawsuits in 8 US states, lawsuits from individuals that contracted E.coli, and a federal criminal probe filed by the state of California.

Following the health issues they experienced, the business also suffered a security breach involving customer payment data, which added insult to injury.

And while the business continues to battle on with the ramifications, they have appointed a new Head who will lead transformation and turnaround initiatives to get the business back on track.

 


If you’re ready to talk, and need specialist expertise to turn your business around, then speak to us today.


 

2018-03-12T16:33:01+00:00February 26th, 2018|News, RE:Focus|Comments Off on Common habits that lead to business distress.