raising the profitability bar - jamaica employer's

Raising the Profitability Bar: Strategy Lessons from Firms in Jamaica

Dr. William W. Lawrence

Email: [email protected] Copyright 2011 William W. Lawrence

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Contents

1. Need for raising profitability

2. Turnaround strategies at four firms

3. Roadmap for profit turnaround

4. Key lessons

Copyright 2011 William W. Lawrence

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Need for Raising Profitability Jamaica Stock Exchange (1969 – 2010)

Business Area Listed Decline Recovery

Financial services 23 4 2

Manufacturing 20 17 9

Insurance and Real Estate 9 4 2

Conglomerate 9 4 2

Mass communications 5 5 3

Trading 5 3 2

Hospitality 4 4 2

Gaming and Entertainment 4 3 2

Utilities and Transportation 3 3 1

Storage 2 1 0

Total Firms 84 48 25

Copyright 2011 William W. Lawrence 3

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Recession explains 18% of Losses

Liberalization Oil Crisis

Financial Crisis


TCL Group - decline before recession

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Gleaner - recovery during recession


Research Question

How are some firms able to raise profitability

for turnaround from onerous environmental

pressures and internal weaknesses?


Recognizing Decline (JSE Firms)

External Cause Internal Cause Total

Distress 13 18 31

Non-Distress 6 11 17

Total 19 29 48

Does the going concern value of the firm exceed

its liquidation value?


Financial Restructuring (JSE Firms)


Turnaround Strategies (JSE Firms)

STRATEGY

SITUATION JSE FIRMS

Expansion Unmet demand

Firm has competitive advantage and resources

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Cutback Underperforming assets

Firm needs to improve liquidity

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Restructuring Low competitiveness

Firm has core business strength

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Stability Low productivity

Firm has competitive advantage and resources

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Decline & Recovery at Four Firms Courts Jamaica

Gleaner Company

Salada Foods

Desnoes & Geddes

Industry Home furnishings

Mass media Coffee Beverage

Source of decline

Complacency High costs Productivity Competition

Severity of decline

Losses Losses Losses and cash crisis

Losses and cash crisis

Financial restructuring

None None Sale of assets; Rights issue; Refinancing

Sale of assets; Rights issue

Strategic change

None Sold Sangster’s Book Store

None Sold wines & spirits and Soft drinks SBUs

Efficiency increase

Add products & branches; Inventory technology

Reduce waste in operations; new circulation Technology

Staff cutback; More distributors

Exports; Staff cutback; Upgrade plant technology


Making Decisions for Profit Turnaround

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Recognize decline

Cash

crisis?

Financial

restructuring

Decline

source

external?

Change

strategy

Increase

efficiency

Y

N Y

N

Recovery?

N

TURNAROUND Y


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Aligning Strategies & Tactics Desnoes & Geddes (1993 - 1999)

Level Strategy Key Factor Key Tactic

Corporate Restructuring Core strength Sell non-core SBUs

Business Differentiation Value-added Premium quality

Functional Develop markets Brand appeal Promote Red Stripe

Functional Better efficiency Throughput Upgrade technology

Functional Reduce debt Liquidity Rights Issue


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Perspective Objective KPI Targets Initiatives

Customer Focus on brewing business

Sales volume growth

20% p.a. growth in Export sales

Build “Red Stripe” brand as premium quality beer

Financial

Reduce debt burden

Debt % Assets 30% Debt to Assets ratio

Sell non-core SBUs & Rights Issue

Internal Process

Increase efficiency of operations

Net profit margin

15% ROS p.a. Upgrade plant technology

Learning & Growth

Globally competitive productivity

Benchmarks against global breweries

Be on par within three years

Cross-functional teams to launch new projects

Balanced Scorecard Desnoes & Geddes Limited


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Building Culture for Strategy Execution

• Lead by example and transparency

• Prioritize initiatives

• Set standards to guide performance

• Generate excitement

• Open lines of communication

• Encourage teamwork

• Reward achievement

• Deliver on promises


“We had to learn to manage

the process of change itself” (Peter Hall, Desnoes & Geddes 1999)

FINSAC helped Salada Foods

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Relapse at Desnoes & Geddes


Key Lessons

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1. Resolve financial distress using a combination

of asset retrenchment and debt restructuring

2. Develop the Insolvency Act into a full

Bankruptcy Code (Government policy)

3. Choose a set of strategies that mitigate the

source of decline

4. Align strategies and tactics, build the correct

culture and monitor changes in slack


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