Recognising

serious distractions

It’s time for management to recognise serious distractions!

Eastern Air Lines Flight 401, carrying 163 passengers and 13 crew members, left New York's JFK Airport on Friday, 29 December, 1972 at 9:20 p.m., en route to Miami International Airport. The flight was routine until 11:32 p.m., when the plane began its approach into Miami International Airport. 

After lowering the landing gear, the first officer noticed that the nose landing gear indicator was not illuminated. The pilots lowered the landing gear again, but still failed to get the confirmation light. The captain, who was working the radio during this leg of the flight, told the tower that they would discontinue their approach to the airport and requested to enter a holding pattern. The approach controller cleared the aircraft to climb to 2,000 feet, and then hold west over the Everglades. The cockpit crew removed the light assembly and the second officer was dispatched into the avionics bay beneath the flight deck to check visually if the gear was down through a small viewing window. 50 seconds after reaching their assigned altitude, the captain instructed the co-pilot to put on the autopilot. For the next 80 seconds, the plane maintained level flight. Then, it dropped 100 feet, and then again flew level for two more minutes, after which it began a descent so gradual it could not be perceived by the crew, with the jet finally crashing into the Everglades. The final NTSB report cited the cause of the crash as pilot error, specifically: “the failure of the flight crew to monitor the flight instruments during the final four minutes of flight, and to detect an unexpected descent soon enough to prevent impact with the ground. Preoccupation with a malfunction of the nose landing gear position-indicating system distracted the crew’s attention from the instruments and allowed the descent to go unnoticed”. A film of this flight can be seen on YouTube (more than 326,000 hits) and, like me, you’ll probably think “how could this happen?”. But it did happen and this time to professional pilots.

Interruptions and distractions happen on a regular basis in the boardroom. In our experience, many distressed company situations are actually caused by such events. In 2013 we were asked by the shareholders to support the management of a medium-sized international company in resolving a significant business problem. How did it all start?

For many years the company had been a highly successful machinery and parts distributor. Its relationship with its prime manufacturer was great and, year after year, management received the ‘Best European Distributor’ award. In 2012, the shareholders were convinced they had received an offer they couldn’t refuse and started M&A negotiations which, unfortunately for them, were terminated, very late in the process and quite unexpectedly. The manufacturer, a fairly traditional global company, was informed of the process and its abrupt termination rather late. This interruption was the start of a serious management distraction. The manufacturer felt badly shocked, which triggered a rethink of its own European distribution channel strategy. The relationship between the manufacturer and the shareholders instantly became strained. The distribution agreement was due to be renewed but the manufacturer decided not to extend the contract. Instead it granted a grace period of one year in which it could review its options, whereby the company was allowed to continue its distribution activity, but with minimal or no financial support. Suddenly management found themselves stuck between a rock and a hard place, were seriously distracted and started to become highly preoccupied with the problem between the manufacturer and the shareholders. Instead of staying focused on the business, they froze and delayed tactical decisions, with the situation being the main topic on the agenda of every management meeting. The company’s financial performance quickly deteriorated and its cash flows melted away which, combined with the year’s working capital peak fast approaching, could rapidly lead to a breach of covenants or worse. As if that wasn’t enough, the working capital facility agreement was also coming to an end within a couple of months and discussions about an extension had not yet started. And with no new distribution contract and just a one-year grace period with the prime manufacturer, this was unlikely to lead to much enthusiasm from the bankers about continuing the agreement, to put it mildly.

The shareholders decided to ask for our support. As part of our process, based on a quick scan, we performed an option analysis, but it turned out the company was far too dependent on the key manufacturer and there were no other serious alternatives. In fact, there was really no seriously viable plan B. Once the contract came to an end, the company was facing immediate bankruptcy. It took us nine months to reconfigure the relationship with the manufacturer, which led to a new five-year distribution agreement. The basis for this was the design and implementation of a new business plan, to transform the company into a state-of-the-art distributor with a strong focus on integrated sales and marketing of machinery, parts and after sales, with a revitalised sales management team and process, tighter internal controls, lower overhead costs and, last but not least, the implementation of a new ERP system. This system could be connected seamlessly with the manufacturer’s system to optimise order management and logistical processes. Based on this, the working capital facility was also extended for five more years. We supported the company with the implementation of the transformation plan by providing our interim professionals and, quite rapidly, the company’s financial performance and cash flows improved again.

An offer the shareholders couldn’t refuse had led to serious management distraction. Fortunately the shareholders recognised in time that things weren’t going well and asked for third-party expert support, to put management’s focus where it should be: “managing the business and letting the experts deal with the distraction”. We, as BCM, were able to pull management and thus the company out of the way just in time as, due to a stakeholder dispute, management never saw the disaster approaching.

I would be delighted to discuss this and any other topics with interested clients or candidates.

PS. for the readers who are also pilots: this blog is based on one of my contributions to IFR Refresher published by Belvoir Aviation Group LLC, November 2013 issue, Interruptions and Distractions: few accident causes are insidious and those that divert the pilot’s attention cause loss of focus.

Klaas Wagenaar

Partner
  • March 6 2015
  • 346