- Why strategy execution unravels
- You need an innovation strategy
- Why organisations don’t learn
- Restructuring: An international case study
WHY STRATEGY EXECUTION UNRAVELS
Donald Sull, Rebecca Homkes and Charles Sull debunk five of the most pernicious myths about how to implement strategy and replace them with a more accurate perspective that will help managers execute strategy effectively
Since Michael Porter’s seminal work in the 1980s, we have had a clear and widely accepted definition of what strategy is – but we know a lot less about translating a strategy into results. Books and articles on strategy outnumber those on execution by an order of magnitude. And what little has been written on execution tends to focus on tactics or generalise from a single case. So what do we know about strategy execution?
We know that it matters. A recent survey of more than 400 global CEOs found that executional excellence was the No 1 challenge facing corporate leaders in Asia, Europe and the United States, heading a list of some 80 issues, including innovation, geopolitical instability and top-line growth. We also know that execution is difficult. Studies have found that two-thirds to three-quarters of large organisations struggle to implement their strategies.
About a decade ago, one of us (Don) began a large-scale project to understand how complex organisations can execute their strategies more effectively. The research includes more than 40 experiments in which we made changes in companies and measured the impact on execution, along with a survey administered to nearly 8 000 managers in more than 250 companies. The study is ongoing but has already produced valuable insights. The most important one is this: several widely held beliefs about how to implement strategy are just plain wrong.
MYTH 1: EXECUTION EQUALS ALIGNMENT
Over the past few years, we have asked managers from hundreds of companies, before they take our survey, to describe how strategy is executed in their firms. Their accounts paint a remarkably consistent picture. The steps typically consist of translating strategy into objectives, cascading those objectives down the hierarchy, measuring progress and rewarding performance. When asked how they would improve execution, the executives cite tools that are designed to increase alignment between activities and strategy up and down the chain of command. In the managers’ minds, execution equals alignment, so a failure to execute implies a breakdown in the processes to link strategy to action at every level in the organisation.
Despite such perceptions, it turns out that in the vast majority of companies we have studied, those processes are sound. More than 80% of managers say that their goals are limited in number, specific and measurable and that they have the funds needed to achieve them. If most companies are doing everything right in terms of alignment, why are they struggling to execute their strategies?
To find out, we ask survey respondents how frequently they can count on others to deliver on promises – a reliable measure of whether things in an organisation get done. Fully 84% of managers say they can rely on their boss and their direct reports all or most of the time. When we ask about commitments across functions and business units, the answer becomes clear. Only 9% of managers say they can rely on colleagues in other functions and units all the time, and just half say they can rely on them most of the time.
When managers cannot rely on colleagues in other functions and units, they compensate with a host of dysfunctional behaviours that undermine execution: they duplicate effort, let promises to customers slip, delay their deliverables or pass up attractive opportunities. The failure to coordinate also leads to conflicts between functions and units, and these are handled badly two times out of three – resolved after a significant delay (38% of the time), resolved quickly but poorly (14%) or simply left to fester (12%).
MYTH 2: EXECUTION MEANS STICKING TO THE PLAN
When crafting strategy, many executives create detailed road maps that specify who should do what, by when and with what resources. The strategic-planning process has received more than its share of criticism, but, along with the budgeting process, it remains the backbone of execution in many organisations.
Unfortunately, no plan can anticipate every event that might help or hinder a company trying to achieve its strategic objectives. Strategy execution, as we define the term, consists of seizing opportunities that support the strategy while coordinating with other parts of the organisation on an ongoing basis. When managers come up with creative solutions to unforeseen problems or run with unexpected opportunities, they are not undermining systematic implementation; they are demonstrating execution at its best.
MYTH 3: COMMUNICATION EQUALS UNDERSTANDING
Senior executives are often shocked to see how poorly their company’s strategy is understood throughout the organisation. In their view, they invest huge amounts of time communicating strategy, in an unending stream of emails, management meetings and town hall discussions. But the amount of communication is not the issue: nearly 90% of middle managers believe that top leaders communicate the strategy frequently enough. How can so much communication yield so little understanding?
Part of the problem is that executives measure communication in terms of inputs rather than by the only metric that actually counts – how well key leaders understand what’s communicated. A related problem occurs when executives dilute their core messages with peripheral considerations. When asked about obstacles to understanding the strategy, middle managers are four times more likely to cite a large number of corporate priorities and strategic initiatives than to mention a lack of clarity in communication. Top executives add to the confusion when they change their messages frequently – a problem flagged by nearly one-quarter of middle managers.
MYTH 4: EXECUTION SHOULD BE DRIVEN FROM THE TOP
Concentrating power at the top may boost performance in the short term, but it degrades an organisation’s capacity to execute over the long run. Frequent and direct intervention from on high encourages middle managers to escalate conflicts rather than resolve them, and over time they lose the ability to work things out with colleagues in other units. Moreover, if top executives insist on making the important calls themselves, they diminish middle managers’ decision-making skills, initiative and ownership of results.
In large, complex organisations, execution lives and dies with a group we call ‘distributed leaders’, which includes not only middle managers who run critical businesses and functions but also technical and domain experts who occupy key spots in the informal networks that get things done.
If common beliefs about execution are incomplete at best and dangerous at worst, what should take their place? The starting point is a fundamental redefinition of execution as the ability to seize opportunities aligned with strategy while coordinating with other parts of the organisation on an ongoing basis. Armed with a more comprehensive understanding, managers can focus on the factors that matter most for translating strategy into results.
ABOUT THE RESEARCH
Five years ago we developed an in-depth survey that we have administered to 7 600 managers in 262 companies across 30 industries to date. We used the following principles in its design.
- Focus on complex organisations in volatile markets. The companies in our sample are typically large (6 000 employees on average and median annual sales of $430 million) and compete in volatile sectors: financial services, information technology, telecommunications, and oil and gas are among the most highly represented. One-third are based in emerging markets.
- Target those in the know. We ask companies to identify the leaders most critical to driving execution, and we send the survey to those named. On average, 30 managers per company respond. They represent multiple organisational layers, including top team members (13%), their direct reports (28%), other middle managers (25%), front-line supervisors and team leaders (20%), and technical and domain experts and others (14%).
- Gather objective data. Whenever possible, we structure questions to elicit objective information. For example, to assess how well executives communicate strategy, we ask respondents to list their companies’ strategic priorities for the next few years; we then code the responses and test their convergence with one another and their consistency with management’s stated objectives.
- Engage the respondents. To prevent respondents from ‘checking out’, we vary question formats and pose questions that managers view as important and have not been asked before. More than 95% of respondents finish the survey, spending an average of 40 minutes on it.
- Link to credible research. Although the research on execution as a whole is not very advanced, some components of execution, such as goal setting, team dynamics and resource allocation, are well understood. Whenever possible, we draw on research findings to design our questions and interpret our results.
A version of this article appeared in Harvard Business Review, March 2015
© 2015 Harvard Business School Publishing Corp.
AUTHORS | Donald Sull, Sloan School of Management, Massachusetts Institute of Technology; Rebecca Homkes, Centre for Management Development, London Business School; and Charles Sull, Charles Thames Strategy Partners
YOU NEED AN INNOVATION STRATEGY
The problem with innovation improvement efforts is rooted in the lack of an innovation strategy. Innovation strategies must evolve and this process involves continual experimentation, learning, and adaptation, says Gary P Pisano
Despite massive investments of management time and money, innovation remains a frustrating pursuit in many companies. Innovation initiatives frequently fail, and successful innovators have a hard time sustaining their performance. Why is it so hard to build and maintain the capacity to innovate? The problem is rooted in the lack of an innovation strategy.
A strategy is nothing more than a commitment to a set of coherent policies aimed at achieving a specific goal. Good strategies promote alignment among diverse groups within an organisation, clarify objectives and priorities, and help focus efforts around them. Companies regularly define their overall business strategy (their scope and positioning) and specify how various functions – such as marketing and operations – will support it. But during my more than two decades studying and consulting for companies in a range of industries, I have found that firms rarely articulate strategies to align their innovation efforts with their business strategies.
CONNECTING INNOVATION TO STRATEGY
The process of developing an innovation strategy should start with a clear understanding and articulation of specific objectives related to helping the company achieve a sustainable competitive advantage. A robust innovation strategy should answer the following questions:
How will innovation create value for potential customers?
Unless innovation induces potential customers to pay more, saves them money or provides some larger societal benefit like improved health, it is not creating value. Of course, innovation can create value in many ways. It might make a product perform better or make it easier to use. Choosing what kind of value your innovation will create and then sticking to that is critical, because the capabilities required for each are quite different and take time to accumulate.
How will the company capture a share of the value its innovations generate?
Value-creating innovations attract imitators as quickly as they attract customers. Companies must think through what complementary assets or capabilities could prevent customers from defecting to rivals and keep their own position in the ecosystem strong. Apple designs complementarities between its devices and services so that an iPhone owner finds it attractive to use an iPad rather than a rival’s tablet.
What types of innovations will allow the company to create and capture value, and what resources should each type receive?
Certainly, technological innovation is a huge creator of economic value and a driver of competitive advantage. But some important innovations may have little to do with new technology. In the past couple of decades, we have seen a plethora of companies (Netflix, Amazon, LinkedIn, Uber) master the art of business model innovation. Although each dimension exists on a continuum, together they suggest four categories of innovation:
- Routine innovation builds on a company’s existing technological competences and fits with its existing business model – and hence its customer base. An example is Intel’s launching ever-more-powerful microprocessors.
- Disruptive innovation requires a new business model but not necessarily a technological breakthrough. For that reason, it also challenges, or disrupts, the business models of other companies.
- Radical innovation is the polar opposite of disruptive innovation. The challenge here is purely technological. The emergence of genetic engineering and biotechnology in the 1970s and 1980s as an approach to drug discovery is an example.
- Architectural innovation combines technological and business model disruptions. An example is digital photography. For companies such as Kodak and Polaroid, entering the digital world meant mastering completely new competences in solid-state electronics, camera design and software.
Executives often ask me, ‘What proportion of resources should be directed to each type of innovation?’ Unfortunately, there is no magic formula. As with any strategic question, the answer will be company specific and contingent on factors such as the rate of technological change, the intensity of competition, and the rate of growth in core markets. Businesses in markets where the core technology is evolving rapidly (like pharmaceuticals) will have to be much more keenly oriented toward radical technological innovation. A company whose core business is maturing may have to seek opportunities through business model innovations and radical technological breakthroughs.
An explicit innovation strategy helps you understand which practices might be a good fit for your organisation. It also helps you navigate the inherent trade-offs.
Consider one popular practice: crowdsourcing. The idea is that rather than relying on a few experts to solve specific innovation problems, you open up the process to anyone. One common example is open source software projects, in which volunteers contribute to developing a product. Crowdsourcing has a lot of merits: By inviting a vast number of people to address your challenges, you increase the probability of developing a novel solution. Research by my Harvard Business School colleague Karim Lakhani and his collaborator Kevin Boudreau, of the London Business School, provides strong evidence that crowdsourcing can lead to faster, more-creative problem-solving.
But crowdsourcing works better for some kinds of problems than for others. For instance, it requires fast and efficient ways to test a large number of potential solutions. If testing is very time-consuming and costly, you need some other approach, such as soliciting a handful of solutions from just a few experts or organisations.
Crowdsourcing is not universally good or bad. It is simply a tool whose strength (exploiting large numbers of diverse problem-solvers) is a benefit in some contexts (highly diffused knowledge base, relatively inexpensive ways to test proposed solutions, modular system) but not in others (concentrated knowledge base, expensive testing, system with integral architectures).
Clarity around which trade-offs are best for the company as a whole – something an innovation strategy provides – is extremely helpful in overcoming the barriers to the kind of organisational change innovation often requires. People don’t resist change because they are inherently stubborn but because they have different perspectives – including on how to weigh the trade-offs in innovation practices.
THE LEADERSHIP CHALLENGE
Senior leaders must take prime responsibility for the processes and structures that shape how an organisation searches for innovation opportunities, synthesises ideas into product designs and selects what to do.
There are four essential tasks in creating and implementing an innovation strategy. The first is to answer the question ‘How are we expecting innovation to create value for customers and for our company?’ and then explain that to the organisation. The second is to create a high-level plan for allocating resources to the different kinds of innovation. Ultimately, where you spend your money and effort is your strategy, regardless of what you say. The third is to manage trade-offs. Because every function will naturally want to serve its own interests, only senior leaders can make the choices that are best for the whole company.
The final challenge facing senior leadership is recognising that innovation strategies must evolve. Any strategy represents a hypothesis that is tested against the unfolding realities of markets and competitors. Like the process of innovation itself, an innovation strategy involves continual experimentation and adaptation.
© 2015 Harvard Business School Publishing Corp.
A version of this article appeared in Harvard Business Review, June 2015
AUTHOR | Gary P Pisano is the Harry E Figgie Professor of Business Administration and a member of the US Competitiveness Project at Harvard Business School
Virtually all leaders believe that to stay competitive, their enterprises must learn and improve every day. But even companies revered for their dedication to continuous learning find it difficult to always practise what they preach. By Francesca Gino and Bradley Staats
Why do companies struggle to become or remain ‘learning organisations’? Our research has led us to this conclusion: biases cause people to focus too much on success, take action too quickly, try too hard to fit in, and depend too much on experts. We discuss how these ingrained human tendencies interfere with learning – and how they can be countered.
BIAS TOWARD SUCCESS
Most of us try to avoid mistakes, and when they do happen, we try to sweep them under the rug. This tendency is heightened in companies whose leaders have institutionalised a fear of failure. They structure projects so that no time or money is available for experimentation, and they award promotions to those who deliver according to plan. But organisations don’t develop new capabilities unless managers tolerate failure and insist that it be openly discussed.
Psychologist Carol Dweck identified two basic mindsets with which people approach their lives: ‘fixed’ and ‘growth’. People who have a fixed mindset believe that intelligence and talents are largely a matter of genetics; you either have them or you don’t. They aim to appear smart at all costs and see failure as something to be avoided. By contrast, people who have a growth mindset seek challenges and learning opportunities. They don’t see failure as a sign of inadequacy and are happy to take risks.
It is common for people to ascribe their successes to hard work, brilliance and skill rather than luck; however, they blame their failures on bad fortune. This phenomenon, known as the attribution bias, hinders learning. Unless people recognise that failure resulted from their own actions, they do not learn from their mistakes.
Leaders can use the following methods to encourage others to find the silver lining in failures, adopt a growth mindset and overcome the attribution bias.
- Destigmatise failure. Leaders must constantly emphasise that mistakes are learning opportunities rather than cause for embarrassment or punishment.
- Embrace and teach a growth mindset. When people are taught a growth mindset, they become more aware of opportunities for self-improvement, more willing to embrace challenges and more likely to persist when they confront obstacles.
- Use a data-driven approach to identify what caused success or failure. Most leaders know that data is critical to uncovering the true causes of successful performance, but they don’t always insist on collecting and analysing the necessary information.
BIAS TOWARD ACTION
How do you usually respond when you are faced with a problem in your organisation? If you’re like most managers, you choose to take some kind of action. You work harder and put in even longer hours.
This bias toward action is detrimental to improvement for two reasons. Unsurprisingly, exhausted workers are too tired to learn new things or apply what they already know. And being ‘always on’ doesn’t give workers time to reflect on what they did well and what they did wrong.
To avoid these outcomes, leaders should do the following:
- Build in breaks. Make sure workers take sufficient time to rejuvenate and reflect during the workday and between shifts.
- Take time to think. Block out a short period each day to either plan your agenda or think about how the day went. If time is really scarce, try to reflect on your way to or from work.
- Encourage reflection. Through reflection, we can better understand the actions we’re considering and their likelihood of keeping us productive.
BIAS TOWARD FITTING IN
When we join an organisation, it’s natural to want to fit in. So we make a significant effort to learn and adhere to written and unwritten codes of behaviour. But here’s the catch: doing so limits what we bring to the organisation. In fact, being unafraid to stand out can actually garner respect, despite beliefs to the contrary. When members of an organisation feel free to stand apart from the crowd, they can exercise their signature strengths, identify opportunities for improvement and suggest ways to exploit them. But all too often, individuals are afraid of rocking the boat.
Leaders should encourage people to cultivate their strengths. To motivate and support employees, some companies allow them to spend a certain portion of their time doing work of their own choosing. Although this is a worthwhile practice, firms should strive to help individuals apply their strengths every day as a normal part of their jobs.
BIAS TOWARD EXPERTS
Beginning in the early 20th century, the scientific management movement introduced a rigorous approach to examining how organisations operate. In the process, though, it solidified the notion that experts are the best source of ideas for improvement. Today companies continue to call in consultants, industrial engineers and the like when improvement is needed. The bias toward experts creates two challenges:
- Challenge 1: An overly narrow view of expertise: Organisations tend to define ‘expert’ too narrowly, relying on indicators such as titles, degrees, and years of experience. However, experience is a multidimensional construct. Different types of experience contribute to understanding a problem in detail and creating a solution.
- Challenge 2: Inadequate frontline involvement: Frontline employees – the people directly involved in creating, selling, delivering, and servicing offerings and interacting with customers – are frequently in the best position to spot and solve problems. Too often, though, they aren’t empowered to do so. Even in organisations that espouse ‘lean thinking’, standard work practices seldom change and only expert recommendations are implemented.
OVERCOMING THE TENDENCY
The following tactics can help organisations overcome the tendency to turn to experts.
Encourage workers to own problems that affect them. Make sure that your organisation is adhering to the principle that the person who experiences a problem should fix it when and where it occurs. This prevents workers from relying too heavily on experts and helps them avoid making the same mistakes again.
- Give workers different kinds of experience. We looked at how data-entry workers performed when they were doing the same task repeatedly (‘specialised experience’) and when they were switching between different tasks (‘varied experience’). We found that over the course of a single day, a specialised approach was fastest. But over time, switching activities across days promoted learning and kept workers more engaged. Both specialisation and variety were important to learning.
- Empower employees to use their experience. Organisations should aggressively seek to identify and remove barriers that prevent individuals from using their expertise. Solving the customer’s problems in innovative, value-creating ways – not navigating organisational impediments – should be the challenging part of one’s job
Leaders should identify ways they can truly empower employees – whether by giving them more privacy, publicly acknowledging their contributions, or providing monetary rewards.
It may be cheaper and easier in the short run to ignore failures, schedule work so that there’s no time for reflection, require compliance with organisational norms, and turn to experts for quick solutions. But these short-term approaches will limit the organisation’s ability to learn. If leaders institute ways to counter the four biases we have identified, they will unleash the power of learning throughout their operations. Only then will their companies truly improve continuously.
AUTHOR | Francesca Gino is a professor at Harvard Business School and Bradley Staats is an associate professor at the University of North Carolina’s Kenan-Flagler Business School
RESTRUCTURING: AN INTERNATIONAL CASE STUDY
Restructuring is an exercise in strategy and tactics, as evidenced in the case of iSOFT, which is run by two CAs(SA) in London. This very successful restructuring resulted in a better than expected outcome for all stakeholders
Restructuring is a high-risk period in the life of a company, in which value can easily be destroyed. One way to mitigate these risks is to bolster the board and management team with specialist experience. The success of this approach was evidenced in the case of iSOFT.
iSOFT plc, a UK-listed business, was one of Europe’s largest dedicated international healthcare software and IT services business. In 2007 it was acquired by IBA Health, a smaller Australia-listed competitor, funded by its major shareholder Oceania Capital Partners (OCP), a listed private equity fund.
While the board and senior executives of the enlarged IBA (now renamed iSOFT) were situated in Sydney, the centre of global operations and the senior debt facilities remained UK-based. These facilities (£112.5 million) had been refinanced in December 2009.
iSOFT had ambitions to become the market-leading global healthcare IT provider and growth became the driving ethos behind the enlarged group. By 2009, revenue had grown to A$500 million; installations to 13 000 in 40 countries; products to 100; and headcount to 4 600. Major markets included the UK, Ireland, Australia, Germany, Netherlands, Spain, Mexico and Southeast Asia.
By early 2010, it became evident that the growth had been pursued without sufficient heed to proper planning or funding requirements. A liquidity problem was followed by a covenant breach, barely six months after the new facilities had been put in place! The company, led by the executive chairman, was then forced into difficult debt restructuring negotiations with the lending syndicate comprising six banks led by Barclays. The board and executive had no direct experience of restructuring, and in particular: the intensity of the process; the stress of operating with constrained liquidity; the complexity of managing multiple stakeholders and advisors; and the distraction that such a process brings to the running of the business. The distance between London and Sydney provided an additional challenge.
The lending syndicate appointed KPMG to produce an independent business review (IBR) which, in assessing the options available to the company, concluded that a new investor capable of refinancing the senior debt, or a sale of the business were the only viable rescue alternatives. However, there were significant downside risks. Chief among these was that any hint of distress in the marketplace would have deterred trade buyers and instead have resulted in a fire sale to opportunistic financial predators. Another consideration was that the value of the business, being in the intellectual property field, would have been destroyed by any formal insolvency process.
Hence it was vital for iSOFT to maintain strong liquidity, to present a strong and viable business to the outside world, and to conclude the new investment/refinancing or sale rapidly. The lending syndicate was the only source of liquidity while the solution was being delivered and naturally they wanted to mitigate their risks, particularly as it seemed likely that they would suffer a loss on their original lend. To this end, they engaged in a dialogue with the company about strengthening governance, primarily through bolstering the board and executive team by adding restructuring experience, robust management of liquidity, and a significant cost-cutting exercise.
OCP and the board agreed and the company reached out to, and engaged, Ron Series as a full-time chief restructuring officer (CRO), with overall executive responsibility for managing the restructuring process and a seat on the main board. Ron in turn engaged Alan Gullan to assist him with all the key financial aspects of the restructuring. The appointment by iSOFT of both Ron and Alan provided significant comfort to the stakeholders that the restructuring and governance experience was now in place to deal with the situation, and the executive team could now focus on the business with minimal distraction.
VIEW FROM THE BRIDGE
If Ron was the newly appointed navigator of the good ship iSOFT, with responsibility for guiding and mentoring the captain and senior crew through dangerous waters, he needed to understand what the route ahead looked like. With time being of the essence, his first priority was a re-run of the business plan,
The implementation of the business plan including the A$50m cost-cutting programme had to be done whilst ensuring that business remained robust enough to withstand a parallel due diligence programme. Some of the major initiatives were: centralisation of R&D from 23 locations to five ‘centres of excellence’; downsizing of executive headcount and expansion plans; rationalisation of the product portfolio from 100 down to 50; reduction of global office and facilities costs; closure of loss-making businesses and disposal of non-core businesses; and a payroll and hiring freeze.
DOWN IN THE ENGINE ROOM
Ron needed the support of Alan, as an experienced chief engineer down in the engine room, to take control of the critical financial tasks.
The re-run business plan showed that even with the new money and the significant cost-cutting programme, headroom would be close to zero within the next few months. There was no time to lose and Alan made an immediate start on managing the cash and complying with the very onerous terms of the new money facility.
Ron’s major requests of Alan were twofold:
- Don’t run out of cash.
- Build credibility and a good working relationship between, on the one hand, the company and its advisors (Alix Partners) and, on the other, the lender group and its advisors (KPMG and Freshfields).
When Alan arrived down in the engine room, he found that the forecast showed all of the £40 million new money would be fully drawn and spent within three months.
Therefore, the forecast could give the navigator a precise idea of when the ship would hit the iceberg, but there was no alternate plan to sail around it! To develop this, Alan needed first to establish a professional treasury team and second to understand what the central cash funded and how many subsidiaries contributed cash to the centre.
The plan Alan took to Ron was to create a simple internal bank, based on a bespoke cash delivery requirement agreed for each major subsidiary. This was rapidly implemented and the group executive gained comfort from their participation in the regular meetings that Alan ran.
The upshot was that three months later, when available liquidity had been forecast at zero, the outturn was headroom exceeding £20 million. The iceberg had been missed! By the time the business was sold, some £10 million of the new money facility was still available to draw down.
While all of this was going on, there were a number of difficult board and executive changes being made, and Ron was also overseeing the project management office (PMO), which was directly charged with taking out A$50 million of annual running costs.
In addition to the significant additional challenges of the company being listed, there were numerous difficult conditions attached to the new money facilities and a tight M&A timetable. The group finance function had to be moved from Sydney to the UK and a UK-based interim CFO was hired to take over from the incumbent.
Ron also had to manage a potential conflict of interest issue with the major shareholder OCP, which was itself in restructuring and controlled by its banks. It provided two directors on the iSOFT board, and also an A$30 million convertible note which would prove problematic in the final twist of the restructuring.
This was addressed by appointing Ron as chairman of the strategic options committee (SOC) of the board, which considered all M&A options available to the company. The representative directors of the majority shareholder OCP favoured the new investment/refinancing option, and this was pursued by the SOC while strictly adhering to the milestones contained in the facilities documentation. Ultimately the company ran out of time in pursuing the new investment/refinancing option, leaving a sale of the business as the only viable option.
The information memorandum was circulated to a wide international buyer base and on 2 April 2011 iSOFT announced a recommended takeover offer by CSC (one of iSOFT’s major customers and a global IT services provider) at A$0.17 per share, a 227% premium to the last traded share price, and full repayment of all the senior facilities (including the £40 million of new money), and of the OCP shareholder convertible note.
Interestingly, the decision by the purchaser to offer to redeem the convertible note at par when it had 18 months to run to maturity caused one final very choppy wave to be navigated during the scheme of arrangement in the Australian courts. This resulted in Ron having to spend a number of weeks in Sydney working hard with all parties to resolve this through the court. This was ultimately achieved by moving the noteholder (OCP) into a separate voting class of shareholder.
With this resolved, the scheme of arrangement was approved, first by the court and then by the shareholders in general meeting, and then implemented on 29 July 2011.
LEARNING THE ROPES
The iSOFT case study shows how the leadership and decision-making of experienced CAs(SA) introduced as turnaround and restructuring executives can help equity owners, boards and management teams execute high-risk and complex restructuring strategies on a cross-border basis, while maintaining a stable platform.
In this case, all stakeholders benefited from the restructuring: the lenders were repaid all of their money; the shareholders received a significant premium to the market price of their investment; most of the workforce retained their jobs; suppliers and creditors suffered no losses; and the business continued as normal under its new ownership.
Ron Series CA(SA) and Alan Gullan CA(SA) trained and qualified in South Africa, and since the early 1990s, mainly based in London, they have focused on restructuring and business turnaround in large and complex cases. They are now recognised by investors, debt providers and the restructuring advisory community in London and internationally as pre-eminent chief restructuring officers (CROs).