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In Profile – With Ross Stuart
When Ross Stuart was hired for a six month turn-around assignment by the European parent of an established China-based manufacturer, he wasn’t expecting a life changing experience. According to Ross, an interim turnaround manager, all of his assignments are different, but in some form or another he gets thrown the same issues. By the end of this assignment, ‘the Foreigner’, as he was commonly known, could look back at his experience as “unusual, yet all the more gratifying for it.”
He knew it wouldn’t be easy. The company had lost its General Manager just months before Ross set off to Shanghai in the second half of 2008. The situation was made more complicated when the former GM, along with other senior managers who had left, set up a similar facility a few miles away. This together with accounting discrepancies focussed the mind.
“At the time of my appointment the business had started to incur losses, working capital had nearly doubled and the systems were breaking down,” Ross remembers.
“As you would expect the new management team was struggling to get up to speed and there were still major gaps to fill. But I had to go in there and understand what the problems were and find what was causing them. I had to come up with a fast action plan just days after arriving. Companies do not go wrong in two minutes, it can take some time for hidden issues to pop out, and then when you find one problem you can be sure that there will be others.”
From what Ross has learned, financial discrepancies are not uncommon in China authorities often turn a blind eye.
The to-do list
The first task on his action list was to understand the accounting problems, along with exactly who and what were behind them. Within the first six weeks, through James Wheeler now at PILOTpartners, he brought in a French financial controller who spoke fluent Mandarin and this helped in finding the financial problems. The next item on the list, literally changing the mindset of the employees, was much more difficult.
 Ross explains: “I soon found out that if you confronted a member of management they may not tell you the sum total of all the issues. They did not want to own up to problems.”
This lack of communication led to mounting unsolved problems ranging from unsent invoices to crippling pricing margins. Ross had to instill the ideas of honesty and solidarity. There didn’t necessarily have to be a loss of face if something went wrong.
Ross was able to do this with the support of new local talent, many of whom had multinational experience and had earned MBAs in Europe. These new hires started to share his proactive approach and soon began to filter down to all levels of the business.
But the problems did not stop there. “As you can imagine,” Ross says, “language was a major barrier. What we found most productive was communicating by email. No matter how well management spoke English, their written English was much stronger, leaving less room for misunderstanding and error.”
Controlling the uncontrollable and forming partnerships with dominant customers
In addition to internal changes, uncontrollable external factors, such as raw material price increases had started to put severe pressure on margins. Traditionally, management did not believe that they could justify passing raw material increases to customers and thought the right thing to do was to absorb the costs, says Ross.
“Much of the staff had not experienced market forces working in favour of oil prices. In some cases we had to justify 50% price increases. I had to teach them to be dogged about it; to be firmer with dominant customers, while retaining quality. And to approach customers when necessary as partners.”
Ross says it was their first experience of putting the company’s livelihood before the customer’s favour. “We had to establish the real margins and put through appropriate price increases to recover raw material price increases; tackle the high levels of stock, by amongst other things, having a make-to-order policy; put in place systems to manage the business; while strengthening the management team.”
 “Towards the end of 2008 the market started to downturn substantially, adding further pressure. Lower raw material costs, so higher margins, and better efficiency offset some of these issues, but nevertheless a decision was taken to make redundant about 25% of the employees as the market did not look like it was going to pick up in the near future.”
When it was announced that job cuts would be made, many of the staff asked for voluntary redundancy. “They had never seen a recession before and at the time thought they could easily get another job. Coinciding with the voluntary redundancies, many of the staff’s first fixed-term contracts were coming to expiry. In the end, the expiry of contracts and voluntary redundancies made his rationalisation of the headcount not such a bugbear after all. “It all came down to timing and luck,” says Ross.
Those that did stay on soon learned that they could have a hand in turning the business around. The company’s success was their success—a foreign concept to them until Ross’ arrival. But in order for Ross to do his job, management had to stop running to him for all the answers and to sign off every paperclip order. The management had to start seeing their department’s problems as their problems--not just Ross’.
“When they came to me with a problem, I had to keep asking them: ‘What do you think you should do?’ It took a while, but eventually they had answers,” he says.
Change for the good
 The implementation of a new fully integrated computer system was started, which forced in a great deal of new processes and systems. Before this, 24 hour order requests would turn to 48 hours. “I had to convince them that tomorrow wasn’t good enough. Eventually, margin information by SKU was obtained and prices increased. A robust system of ensuring price increases were put through, which meant the old culture to absorb raw material increases was eliminated.”
The make-to-order system also soon started to have an impact on stock and as a result some machines were deliberately left idle. This was a hard concept for factory workers to understand, says Ross. “They felt they had to fill time. I had to re-educate the operations manager to stop running machines for stock and, for example, make staff take holidays. We had to be strict. They were slow to accept change.”
By the end of Ross’ contract, he was still referred to as the ‘Foreigner’, a man that worked seven days a week, but had earned a mutual respect among his employees. The company had returned to profitability and had generated cash in the second half of the year; as working capital initiatives based around substantial stock reductions and improved debtor control paid dividends.
When he arrived back in the UK, he came home to an Inbox full of thank you letters.“When I left, all bar one of the management team had sent me a personalised letter of commendation. In all my assignments, I had never come across this before. They were genuine letters, which was unusual and above all gratifying. We all had a tough six months, but it was worth it.”
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