Contraction scenarios
The objective, here, is to scale down all or part of the organisation in line with market
or company internal requirements and affordability. As stated before, the advisability of
contraction does not necessarily stem from wrong decisions in the past. In most cases it
simply serves to follow the cyclical pattern dictated by external factors, the shifts in
enterprise priorities, product lifecycles or manufacturing/supply chain innovations.
Furthermore it may very well be topical, contraction in one dimension being paired with
expansion in others.
Discontinuation or liquidation (of business lines, organisational entities or the
enterprise as a whole) is probably the most rigorous and dramatic example of
contraction, and also has the strongest connotation of mismanagement. In this case the
principal may even be outside the enterprise itself (e.g. curator, creditors conference,
receiver).
Restructuring or rightsizing refers to the need to adapt the operation to transient or
permanent shifts in demand or supply side economics, thus strengthening the
competitive position or improving financial performance. If performed periodically and
as part of a well considered business plan, this may very well point to management
strength, and often is rewarded as such by analysts and stakeholders.
In this case the divestments usually are topical, and have positive economic value,
contributing to operational cash flow. The implementation paths include
sell-offs, spin-
offs, management buy-outs and management buy-ins.
As always, the scope of my involvement is outlined in my brief and typically combines
activities in identifying take-up candidates, conducting or supporting negotiations,
closing transactions and reaching agreement with the social partners and/or regulatory
authorities, who seek the best possible safeguards for their specific audience.
Especially in countries with a strong consensus culture (e.g. Germany, Holland, France)
the latter aspects may even take precedence over the deal making side.
