MANAGEMENT SPECIAL..................... The Transformer

The Transformer

Europe’s highly acclaimed turnaround CEO, Samsonite’s Tim Parker on the art of revival

TimParker was asked to head  a company At the age of 26, Parker has led  half-a-dozen companies  in his 33 year old career. He was brought in for turnaround, now Samsonite.

In a chat he said :

You were made CEO at 26, how did that happen?

It’s a funny story. I was working for a guy, an ex-Navy man who was very senior in British Industry. He was Chairman of the Post Office and he believed in young managers being a bit like naval officers. When you are 26 you should get your first little ship to command. So he gave me a business to run at an incredibly early age. I made a lot of mistakes, but in a way, the best time to make mistakes is when you are young and hopefully have forgiving superiors, which I had.

What do you look at in a restructuring situation?

There are two key requirements in a turnaround. The first is that you communicate with people. When it comes to difficult situations, you have to explain to people your predicament, and then you have to explain your recipe for turning the company around. And it’s imperative to pick the right people. I am just a general businessman; I am not an expert in anything, so I have to listen to the opinion of specialists, people who have worked in the company all their lives. You have to pick the right opinions on which to base your decisions. If you are able to judge people and you can communicate and you are willing to go out and be a little bit unpopular in the short run, you can do a lot.

Why do you never bring new people into the distressed company, like many turnaround specialists CEOs do?

The people are already there. It’s just that they have been doing the wrong thing or they got the wrong boss or they have been following the wrong strategy or some combination of the three. Most big companies have got the resources inside them to do what they need to do. It annoys me when I see managers who are just not capable of harnessing the people that they have. And a lot of it has to do with internal politics or unwillingness to promote people who are good.

What mistakes do CEOs commit while turning around companies?

Management is all about action and a lot of managers are inclined to spend too much time analysing and not enough time getting out there and doing things. Most decisions are reversible. It is important that people should see you are not embarrassed about making the wrong decisions, because they want to know that they can rely upon you to be non-judgmental and non-partisan in the way that you take decisions. Time is very critical. It is always the main constraint, you got to be willing to go out and take initiatives and try things out and often what you learn from your mistake can be re-applied to a new decision and you can improve the quality of that decision. I am a great believer in giving a lot of responsibilities to people, with clear accountability. A lot of businesses get sidetracked because they have matrix structures and there isn’t clear accountability.

What advice would you give a CEO going into a restructuring situation?

First, I would suggest that you have a good look at the senior team and decide whether those people are right. Secondly, I would have some very clear hypotheses about why the business is going wrong and what needs to be done. Thirdly, I would initiate a massive review of all the costs that you could possibly cut out. You have to make sure you have adequate resources to do a turnaround. If you are going to restructure something, it is going to cost money in the short term and if you do not have those resources, it is very difficult to turn things round.

When the slowdown started, what surprised you and what shocked you?

We were a very typical consumer goods company and our sales went down 20% in the space to about six months. We went from being a company that was making 10-15% EBITDA margin to losing money on a monthly basis. Stocks were starting to back up. That in turn created some cash flow issues and the whole thing was getting very difficult. We had an LBO in 2010 and so had very high levels of debt. We had to negotiate the debt down and so we did a debt-for-equity swap. We had to figure out ways of bringing down the breakeven point for the company very quickly. That is really what we did, and sometimes, you have the leeway to do that because the company has not been run in always the most successful way.

    It was just very fortunate that we had a lot of costs that could be taken out of our American and European businesses and we did that very quickly. This was the end of 2008. In 2009, we had a poor year and then by 2010, we had a record year. We went from being absolutely in trouble to having our best year ever in two years and that was all a mixture of good fortune. Ramesh Tainwalla, our Asia CEO, was running an extremely successful business. We had a company on the one hand that was doing very well in Asia and another which had a high cost structure in America and Europe. Once things turned around, we were able to get the benefits of business increasing across the world.

How have you managed your relationship with private-equity (PE )?

I've managed to work with very good PE people. We are always asking the same question - If you are going to buy us, what is the company going to be worth in five years’ time? The only way a company is worth more, apart from improving profitability, is that you have to have a long-term growth platform. If you want to try an IPO, the institutional investors are only interested in earnings that are going to grow and if you aren’t able to create that growth platform, you'll find you have a business that you can’t sell for a profit. My experience is that they do add value to the company. A lot of IPO floatations have done very well. A few haven’t and those attract attention. The old image that PE is about asset-stripping and cost-cutting is way out of date. If you can’t achieve growth in a company, you won’t achieve return on your investment.

How important is cost in turnaround situations?

Cost is the beginning of all successful transformations. If you can take a decision today, if you can talk to the unions, change your suppliers, not spend much in advertising, it can affect your bottom-line now. The ability to shape the cost structure correctly is absolutely critical. Partly because it’s not just a question of saving money to increase the profit, but often saving money to invest in the right places.

Do you challenge any established management notions?

Business is not science, it’s much more an art. The circumstances in which you take decisions are not like doing a scientific experiment. It’s about I know this person and market and this is my experience and I’m going to put it together and synthesise. I’ll try and protect my downside. The one thing we try not to do is take decisions where getting it wrong can cost a huge amount of money. We try to be careful about these decisions where if it’s wrong, you will lose a lot. Most decisions are not like that.

Is there a difference between turnaround leaders and growth managers?

It’s a completely empty dichotomy. I see only good managers and bad managers. You need the ability to do everything.

You have done many diverse things. Does it help being a good manager?

As you become more senior, you have to know what’s going on in the world. Having more outside interests helps you frame your decisions in a wider perspective. It means that you as a person are not uni-dimensional. If you are a well rounded person, you will be able to relate to people better.

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