In The Spotlight – Simon Clarke, BIE Interim FD

Simon Clarke is an interim FD with experience across sectors, including FMCG, retail, logistics and healthcare. Simon combines the skills of a finance director with commercial and operational nous.

The client is a privately-owned UK healthcare provider, which was undergoing a business turnaround.

The brief

Entering the fray as interim FD in early 2014, Simon's initial brief was to support the recently-appointed managing director (MD). Having recognised that the existing senior management team were not operations-focused and did not possess the right skillset, the MD had set about recruiting a new management team, with the FD role being the last to be put into place.

The business recognised that many of the issues being faced were well outside of their comfort zone and as a seasoned interim, with experience in a variety of sectors and situations, Simon was well-equipped to manage these seemingly daunting challenges and to add value.

When Simon joined, the sales team had recently been restructured. Additionally, the healthcare provider was in the process of disposing of a non-core piece of business. One of Simon's roles was to support that sales process, working alongside a colleague from the corporate centre. Once the deal was completed and a purchase made, the business was freed from a significant distraction.

In terms of the core business, the main objective was to stabilise things from a financial point of view. At this point in time, the healthcare provider was making a significant operating loss every month.

The three initial priority areas were identified:

1. Core operating system (ERP) – this had been neglected and presented a major opportunity. An upgrade was swiftly implemented, enabling greater bolt-on capabilities for additional modules and greatly enhanced functional capability.
2. Core finance system – changes were made so that gross profit could be viewed not just at contract level, but also at service-line level – i.e. logistics, nursing, manufacturing services etc. This allowed the business to see which part of any contract was either not making an appropriate gross margin or was unprofitable.
3. End-to-end review of commercial contracts – this was a particularly daunting task, as the documentation was not readily accessible. All but the smallest contracts were reviewed by a cross-functional team in workshops over a two-month period, revealing a disconnect between the contracted services, services actually being provided, and services being billed. Four or five contracts were coming up for imminent review and so this prompted the business to take a hard look at where they needed to price these, in order to generate a sustainable level of profit.

The business landscape

Before Simon joined the healthcare provider as interim FD, a key competitor had exited the market. Having gone through a trade sale that failed at the eleventh hour, they had been forced to shut down the business. This had caused a lot of disruption within the industry, as customers and patients had had to be absorbed by the top three providers within a very short period.

This unsettled backdrop presented a good opportunity for the healthcare provider, into which Simon was placed, to initiate open and honest customer discussions of the pricing of contracts and service quality - and paved the way for successful renegotiations. Consequently, significant improvements in profitability were locked in as new contracts were put into place over the next few months. Following this, a far more structured approach to new business opportunities was implemented, incorporating the lessons learned from the contract reviews.

Implementing business turnaround

A very detailed business plan was drawn up for 2015 and the key metrics agreed. One of the challenges Simon faced was that the sector has not been good about planning for growth – even though it has typically grown at 15+ per cent per annum over the past few years. This growth looks set to continue amid optimism about expected take-up of new drugs and the resulting impact on patients and patient services.

However, because growth has not been planned for, it has been managed in a very reactive and inefficient way – that is, through increasing the amount of resource available. By building a robust business plan, Simon and his team were able to paint a detailed and structured picture, to show the required levels of resource in each of the operating areas – and to plan accordingly.

There were several core business areas where significant changes were identified. For instance, there were a huge number of localisations where people were doing their own thing in spreadsheets. Initiatives were put in place to migrate key activity onto the core ERP system, thereby introducing more structure, order and control to operational processes. Additionally, changes were made to pay structures, to help attract and retain high quality people.

Furthermore, the business had been identified by the parent as not to be a good fit with the parent. Simon and the Exec prepared an information memorandum (IM), which subsequently went to market in June 2015. At this point, a further phase was added to the sale process, for vendor due diligence. Additional interim resources were secured to support the sale preparation and to backfill key roles within finance so that highly knowledgeable, analytical resource could be made available.

The number of interested parties was whittled down to three before the purchaser was chosen in early 2016. There was a further five-month delay due to a Competition and Markets Authority referral, which was successfully completed in June 2016.

Once the business turnaround was gaining momentum Simon turned his focus to working capital. All the supply contracts were reviewed (some were renegotiated), inventory levels were fine-tuned through a combination of systems changes and target setting, and a restructure of the sales ledger and billing teams created a much improved focus on cash collection. Ultimately, a £25 million reduction in working capital was achieved over a 15-month period. 

All this work entailed heavy reliance on SMEs within the business. The overarching business turnaround entailed smaller work steams, which required project-based resources. Several interims were recruited in addition to Simon, within a PMO, and contract workers were brought into the IT department. Ultimately, a transformation director was also appointed to lead the business transformation.

People and culture

Leadership from the top was key in this successful business turnaround for the healthcare provider. As the business started to make a small operating profit, people began to feel confident that the things they were doing were making a real difference. There had been a lot of overly stressed people throughout the organisation, due to the history of unplanned growth and lack of systematised processes; people who genuinely wanted to do a good job. As things became more ordered and structured, people could spend less time "firefighting" and more time thinking about improvement and future sustainability, which was key to maintaining momentum.

The overarching cultural challenge was to simplify things and remove the barriers to efficiency and opportunity.

Data quality remained a persistent challenge, to ensure the healthcare provider had robust information and a clear understanding of what was going on in the business. This was a key focus that required multiple attempts to address.

There were four or five key areas that were identified as requiring major systems changes - the manufacturing system needed replacement, and a warehouse management system was also required, a scheduling tool was required to improve the effectiveness of planning and management of skilled resources, and there were several smaller projects, such as implementing electronic proof-of delivery, automated cash match etc. to eliminate manual processes.

Simon and his team exceeded the financial objectives outlined in the 2015 business plan by a comfortable margin. The combination of an acute focus on operational metrics, the identification of core areas for transformation, and the enhancement of a core operating system created a business that was attractive for the ultimate purchaser.

Simon's view

"There were several key ingredients to success. It helped to have a core operating system that provided the opportunity for a short, sharp upgrade. We had a very highly-committed team of subject experts and middle managers in the business, as well as the commitment of an executive team, who were prepared to look at challenges in the business while setting aside any functional bias. 

"We had the freedom to act in the best interests of the business. There was nothing that we weren't prepared to consider - and didn't consider - during the turnaround journey. There was a huge amount to do and we had to reassess four or five times during this period. Nevertheless, there was openness and honesty on all parts."