Interim executives, or interims, have recently become an important tool that organizations can use to effectively address a variety of pressing needs. Having said that, many companies are either unaware that interims are even available or appropriate for their current situation. The most common understanding of the role of an interim is to fill an immediate need in the executive team caused by a sudden voluntary or involuntary departure. In this case, a seasoned executive can step right in and allow the company to progress unabated. While much of what an interim does is similar to consulting, successful execution is critical and unique to the role of interims. This blog presents seven case studies to help companies better understand other instances where interims can help. There are certainly more examples, but these are representative. While seven represents everything from the apocalypse to luck in gambling, we’ll stick with seven.
- Growing too fast – outgrowing the team
Rapid growth creates its own set of challenges. One of those is the existing management team running out of capacity as well as the skill sets appropriate to the larger business. A successful software business was growing rapidly as a result of both organic growth and a series of small acquisitions. Most of the C-level executives, including the CEO, CMO, COO were very experienced and capable of running a much larger company. The missing piece was an experienced CFO. Like many small companies, a traditional controller had been more than adequate. The CEO chose to bring in an interims as interim CFO to manage the acquisition of a number of smaller companies, evaluate the requirements for a permanent CFO and ultimately to recruit that CFO.
The interim was quickly able to manage all aspects of several small acquisitions including due diligence, legal, financial and integration. In addition, the interim was able to put in place the processes and systems to facilitate subsequent acquisitions. Together with the CEO, the interim developed a job description for a CFO appropriate to the expected future requirements of the business. The interim successfully recruited and on-boarded a very successful CFO.
- Who’s next – succession planning
Succession planning is often a challenge, but is nowhere more profound than in family-owned businesses. A large marketing services firm was founded by a very successful CEO with extensive experience in the industry. A serial entrepreneur, the CEO decided to start another business in a completely different industry. To run the marketing services firm, he chose one of his sons to step in as CEO. The son did have experience in the industry, having worked for the company, but had no experience as a CEO. He was well-liked and had had a successful career in sales. After a relatively short period of time the company had become unprofitable and was in violation of several of its lending agreements. The founder, understandably reluctantly, decided to bring in an interim to counsel the CEO.
Working with the CEO and the existing management team, the interim helped to develop a plan that addressed several issues:
- Customers were forced to deal with multiple departments within the company in order to successfully execute projects. This convoluted process resulted in inefficient delivery and very low customer satisfaction.
- There were a number of redundant functions across the multiple locations of the business.
- The company had been unprofitable for some time.
The plan established a new organization structure by focusing on creating a positive and efficient customer experience. The new organization, not surprisingly, required significantly fewer people. The resulting reduction in force led to immediate profitability and compliance with lending covenants. The interim, along with the CFO, then worked with the lenders to make sure the company had adequate capital moving forward. Finally, the interim worked with the founder and the CEO on succession planning. The decision was for the CEO become chief revenue officer and to recruit a permanent CEO. By using an interim, the founder was able to both address the company’s issues and to develop an appropriate succession plan.
- Business in crisis – turnaround needed
A national specialty retail company had grown very rapidly over the previous several years. The management team that oversaw that growth was relatively inexperienced and the company found itself in an existential liquidity crisis. It had been losing money consistently over that period and had massive cost overruns on expansion projects. A large term note was coming due in a few months and millions of dollars were due to contractors and vendors. The board chose to fire the CEO and bring in an interim CEO with extensive turnaround experience. The strategy to use an interim was twofold. First, turnaround expertise was appropriate to the crisis. Once the crisis was addressed and the company was stable, a successful permanent CEO with experience in education could be recruited. Second, bringing in an interim could be accomplished very quickly and time was of the essence.
The company clearly required additional capital which would be difficult to attract given the persistent losses. As a result, the first order of business was to take immediate action to get the company operating profitably. It was clear that the existing organization was quite dysfunctional. Lines of authority and decision-making processes were confusing and muddled. Working with the existing management team and a cross-sectional team of employees, a plan was developed that made the company immediately profitable. The changes were largely accomplished through personnel reductions and the restructuring of the organization. As is often the case, the smaller organization was able to function much more effectively.
Once profitable, a comprehensive fundraising process was initiated that resulted in a number of reasonable offers for both mezzanine debt and equity investments. The most attractive investment was selected in time to pay off the term note, address past-due expenses and provide more than adequate working capital moving forward. A search was initiated and a successful permanent CEO was hired.
- Grinding gears – broken business processes
Contrary to expectations, direct mail continues to be a valuable and growing marketing channel for many companies. A successful direct mail printing company was struggling with profitability- essentially operating at breakeven. Revenues were growing moderately and customer retention was reasonably high. The CEO and the board were struggling with how to improve profitability and realized that they lacked the requisite internal expertise. They agreed to hire an interim COO with extensive experience in printing operations and, in particular, Six Sigma methodologies.
The Interim COO spent the first few weeks talking to customers and employees and spent considerable time walking the shop and warehouse floors. He discovered that the company overcame an almost complete lack of state-of-the-art processes with significant manual effort. Lack of accurate sales and operations planning resulted in the necessity of overstocking raw materials inventory. Manual job scheduling resulted in production being assigned to less efficient presses and resulted in significant overtime. Working with a team of key employees who had a deep understanding of the current process, he developed a plan to implement state-of-the-art systems for sales and operations planning, inventory control and production scheduling. He was able to quickly identify the appropriate solutions and brought in a very experienced outside firm to implement those solutions. As a result, the company was able to reduce inventory, overtime and overall staffing, resulting in significantly improved profitability. Once the systems were in place, they were relatively easily adopted by current personnel.
- When customers revolt – fixing the negative customer experience
A publicly traded supply chain software company was facing a crisis. On the surface, the issue was rapidly declining revenue, persistent losses and a pending liquidity crisis. The company had burned through virtually all of the cash raised through the public offering over a period of five years. The crisis forced the board to remove the CEO and CFO and bring in an interim CEO to quickly address the issues. An interim was chosen for speed and because the board was frankly unsure of what the issues were. A search for a new CEO would have taken too long and the condition of the company made the position relatively unattractive.
After talking with employees and key customers, it became clear to the interim CEO that, for a variety of reasons, there was open revolt among the customers. Most customers were Fortune 100 companies with complex supply-chain challenges. Many, if not most, were looking to replace the company’s products with competitors and several had filed or were threatening to file lawsuits. Publicly available customer satisfaction measures placed the company at or near the bottom of the industry. The root causes included:
- Substantial amounts of capital had been invested in product development. But, this development was focused on exploring new architectures and not enhancements desired by customers. In fact, virtually no customer input was sought. Customer saw no viable upgrade path going forward.
- Virtually no interaction with customer decision-makers was taking place. This exacerbated the view that there was no path forward with the company’s products.
- Day-to-day customer service was viewed by the company as largely an annoyance. Customer issues were left unresolved for extended periods.
Working with a cross functional team of key employees, the CEO developed a new organization structure focused on resolving customer issues. A knowledgeable senior employee was assigned to each key customer. That employee and the CEO visited every customer. The new organization was empowered to mobilize the company’s resources to resolve issues immediately. At the same time, it was necessary to refocus product development on features critical to customer success. The new architectures were abandoned. The importance of customer satisfaction was reinforced throughout the company in order to shift the culture.
As a result of these changes, the liquidity crisis was averted, revenue growth was restored and the company became profitable. No customer losses occurred. The company was able to recruit a very senior permanent CEO.
- Why acquisitions fail – integration needed
A number of studies including a recent Harvard Business Review article, found that over 70% of acquisitions fail by some measure-that is they failed to perform to expectations. The studies identified a primary root cause of this failure to be poorly executed integration. A rapidly growing software company had made several acquisition-both new products and additional customer base. They experienced significant difficulty in integrating new products into the product line, higher-than-expected turnover in acquired customers as well as turnover among acquired employees. The board told the CEO to put a moratorium on additional acquisitions until they determined the cause of these issues. The CEO recommended to the board that an interim Corporate Development Officer be hired to triage the issues in the recently completed acquisitions and develop a strategy for future successful acquisitions.
The interim spoke to both current and former customers and employees. He also met with the CEO and the board to get a better sense of what their acquisition strategy was and what they hoped to accomplish through that strategy. He discovered that acquiring customers and new technology was often much quicker and usually more cost-effective than de novo efforts. He found that once acquisitions were completed, there had been no integration planning in advance and that customers were leaving due to inadequate communication post acquisition. The same issues plagued employee retention. He developed an acquisition strategy, further refining the types of companies to be targeted. He also developed a detailed integration plan for potential acquisitions including a focus on improved employee and customer communication.
Based on these plans, the board then authorized the next acquisition. The interim director remained through the entire process and managed the post-acquisition integration using the plan he had developed. Throughout the process, he worked extensively and closely with existing staff to help them understand the plan and support them in its implementation. As a result, the acquisition was considered to be very successful and the company has since done a number of successful acquisitions.
- Innovate or die – cool stuff nobody wants
It’s difficult to miss discussions of artificial intelligence these days, even in the popular media. The premise is that, while artificial intelligence has been around for decades, it is just becoming practical. A highly publicized artificial intelligence company in the 1990s had burned through its initial investment and had no marketable products. The board, dominated by those early investors, was growing impatient and decided to bring in an interim CEO. They decided to use an interim both for speed and to help them determine the direction of the company. Absent that, they felt they couldn’t bring in an experienced permanent CEO.
The interim CEO was an experienced software industry executive. The company felt they had developed very innovative technology and was staffed with brilliant PhD’s from leading universities. The interim CEO quickly determined that the company misunderstood the basic definition of innovation. Innovation does not occur through the development of interesting new technology. Innovation occurs when that technology becomes a commercial success. This company was caught in the same trap that so many technology startups fall prey to. That is, developing technology of interest to the developers that may not be technology that any customers would be interested in actually buying. The interim CEO held several extended sessions with all key members of the company to explore in more detail what made the technology unique and what was felt to be commercially viable. Then several industry experts with extensive knowledge of relevant markets were brought in to meet with the team. Out of these discussions, several unmet market needs were identified that could be addressed by the features of the technology. There was some disappointment in the development team since the application was not considered to be artificial intelligence. Nevertheless, with significant potential customer input, a product was developed and launched within six months. The product became and continued to be the leader in that niche. A permanent CEO with experience in the space was hired. A few years later the company was successfully sold to a larger technology firm.
These seven case studies are representative of successful interim engagements, but here are certainly many more cases that are either similar or completely different. We’ve tried to use these to stimulate thinking around the creative use of interims to help companies succeed.