A near-impossible turnaround project in France for a major Italian industrial group

The Problem

An Italian group owned by a family with a long business history and active in the paper industry calls in the Contract Manager team to solve a problem in their French subsidiary. The Italian Group has invested tens of millions of Euros in the French company, but this has only produced losses. The situation is sliding towards a dangerous financial crisis that threatens its very solidity. In March 2006 the owners ask Contract Manager to conduct an audit and to assess the feasibility of a turnaround.
A team of Italian managers goes to France and analyses every part of the company. After a month they present the results of their analysis to the owners, along with a restructuring plan.
The French company is a state of severe economic crisis.  This is due to several causes, but mostly to a lack of leadership by management and of a proper strategic vision.

The analysis may be summarized as follows:

  • Commercial: commercial strategy completely off target (80% of products sold at entry price). Inability to manage customer relations so as to achieve decent margins. Poor communication with other functions in the company.
  • Production: low quality of finished products, high downtime of equipment, low productivity, lack of coordination between production planning and scheduling of inbound raw materials.
  • Logistics: poor traceability of products in stock, high turnaround time for dispatch of goods, overstaffing and low productivity, too many off-contract carriers and no precise plan for national coverage.
  • Management control: non-existent, no notion of item-by-item production costs, no management accounting, no communication with other functions to analyze negative deltas.
  • Professional culture: poor at all levels
  • Company management: the company is managed remotely from Italy, no local General Manager, only occasional visits by the owners.
  • Quality control: subject to customers’ requests, QA lab not doing its job, no quality control on production lines.
  • Administration: adequately managed as far as tax laws are concerned, complete lack of financial and economic forecasts.
  • Personnel: pay slips correctly produced, no training plan, company / workforce communication dominated by the trade unions.

The situation is serious and highly dangerous. Given the owners’ heavy investments and the negative repercussions on the group should the company have to be closed, Contract Manager proposes to restructure the French subsidiary. A member of Contract Manager’s core team is chosen and the project starts in July 2006. The interim manager decides first to do an intensive course to improve his French.  There is no way he can manage over 150 French people without knowing their language.

The Solution

Here follows a summary of over two years of intervention.

  • The commercial strategy is revised, moving from entry price products to more profitable private label products, and targeting the HoReCa market.
  • The commercial staff is replaced with people who have a background in the industry and a different approach to the job: a commercial attitude, openness to dialogue, team-work approach.
  • Product quality is improved thanks to training of production personnel, focusing on technical maintenance and set-up of production lines.
  • Creation of a climate of teamwork, in which the General Manager is always present and involved, this thanks to a system in which personnel and the trade unions participate in decision-making in the plant.
  • Warehousing and transport are outsourced to improve service levels and cut costs.
  • Buy-in by production personnel and full commitment to quality control on the lines.

The key to the success of this assignment was the involvement of people, sheer hard work and the willingness to work with them day by long day, speaking their language and complying with French working practices.

In July 2006 the losses amounted to several million Euro, accounting for around a quarter of total revenues. After two and a half years of assignment, some months showed a positive contribution margin.
The mission was accomplished with success. The assignment lasted 27 months from start to closure, in line with the agreed timeline.

Halfway through the intervention we selected a new General Manager, who worked alongside us until the end of the assignment. He took over a company which had been returned to health.

But that is not all….

Given the positive results achieved, given also a positive market situation and the presence of the new General Manager, the owners decided to raise the stakes. Instead of closing or selling off the company, they decided to acquire another company which provided a good fit with the existing one. Revenues from France, which amounted to 40 million Euros at the start of our assignment, increased to 65 under our management, and to 120 with the acquisition of the competitor. The interim manager was tasked with the integration of the two companies, a six-month assignment during which he worked with the new company. He recently returned to Italy, proud of the results he achieved and of the esteem in which he was held by his French workforce.