Train to survive

 

Years of experience in the HR departments of multinationals left Tim Ryan well disposed to establish his own training company in Ireland. By 2006 the business was thriving, but a failure to diversify into IT and sales training left the firm vulnerable. Now he fears a merger may be the only way to save it

WHEN TIM RYAN left school in the early 1970s there was no automatic rite of passage to college. The emphasis was on getting a job. A good Leaving Certificate landed him a clerical position in one of the major banks and over the next decade Ryan worked his way up the ranks, eventually becoming a junior manager in what was then called the personnel department.

In this role he discovered a flair for training and was instrumental in setting up and managing a wide range of training courses. He went to college at night and built up strong academic credentials in management studies and was eventually headhunted to set up the HR and training department of a US multinational locating in Ireland.

After five years he moved to the company headquarters in the United States and while there he joined a multinational food group, which saw him relocate to Europe as HR director. When his children reached secondary school age he came back to settle in Ireland and decided to bow out of corporate life for a period to help establish a children’s charity. As part of this process, he found himself involved in the nitty gritty of training and management development once again and decided that, when his work with the charity was complete, he would set up his own training company.

Ryan was cautious and built the business slowly. It grew steadily and, by its 10th anniversary in 2006, employed 18 people. Ryan was fastidious in his choice of staff and his company earned a reputation for the quality of its personnel and service. Not wanting to put all of his eggs in one basket, he developed strong relationships with multinationals but also with indigenous companies and the public sector.

As the company grew, Ryan was encouraged to expand into new areas (such as IT and sales training) by two of his senior managers, who were keen to grow the business. Ryan had indicated an openness to shared equity as a means of retaining key staff but he was not prepared to be rushed. He took the view that the company should stick with its core competencies.

This push for diversification coincided with the beginning of the boom, and the two managers who were very keen for rapid growth jumped ship to join what they saw as more progressive companies. This was a setback for Ryan and, as the employment market tightened, he struggled to replace them with people of similar calibre on similar money. Wage rates were beginning to rocket and, while business was booming, the company began to lose staff to companies willing to pay them more. In particular he lost those with the ability to sell and was left with people who were competent trainers but who never won new business.

Ryan was reluctant to yield to spiralling wage costs but found himself with little alternative. Within two years he found his labour costs had leapt by 20 per cent and that recruiting good staff, even on what he saw as grossly inflated salaries, had become extremely challenging.

Like many companies during the boom, Ryan struggled to manage the speed of growth. He didn’t like many of the decisions it forced him to make but customers were willing to spend heavily and he didn’t want to turn them down. As a result, he was run ragged trying to ensure that standards were maintained. He says that living through the boom was like being in a speeding car with no brakes. All of Ryan’s instincts told him there would be a day of reckoning, but he was so busy he had little time to dwell on it.

All of this changed at the end of 2008 when business virtually dried up in the final quarter. There was a brief pick up at the start of 2009 but then the decline began in earnest and Ryan realised some hard decisions would have to be made very quickly. He wasted no time in offering a redundancy package to staff. The take-up was low but he finally reduced headcount by one-third. He cut overheads by consolidating staff who had been spread over three floors onto one floor and tried, unsuccessfully, to rent the remaining space.

Buying the building had been Ryan’s only extravagance during the boom and he had done so against his better judgment. His accountant had made a compelling argument for the purchase and Ryan eventually caved in. Now he sees it as a massive millstone around his neck.

Ryan’s remedial measure got the company through to early 2010 but by then it was very clear the market was not going to rebound. He went back to the drawing board and began a new round of cost-cutting. He looked again at staffing and let an additional five people go, while those left behind took a significant pay cut.

Work from indigenous companies has more or less collapsed. The multinationals are still training and this is keeping the company going, but the demand is more for certifiable skills-based courses than the development courses Ryan’s company specialises in. Now he feels the decision not to get involved in sales and IT training is coming back to haunt him. Work in the public sector has become both scarce and difficult to get due to new tendering processes, which Ryan says are largely box-ticking exercises. Writing tenders is a huge burden that offers little prospect of business, he says.

Underpinning the slow workflow is a collapse in prices and, surprisingly, an increase in the number of firms competing for work. Ryan says a plethora of new small operators have entered the market and are driving prices into the ground, not least because many are one-man bands with no overheads. According to Ryan, courses that were commanding fees of €1,000 or more a head a few years ago are now being offered for as little as €250. Ryan also says that reputation and experience now count for very little when it comes to winning contracts. Cost not quality is the primary factor driving the sector and standards are being seriously eroded, he says.

Adding to difficulties is the time lag between winning a contract, starting it and getting paid. At one time decisions were made quickly, training began soon after and payment followed. Now there can be months between the stages with payment pushed out further and further. This is compounding his cashflow difficulties.

Ryan feels his company is hanging by a thread. He has pared his operation back to the bone and is at a loss to see where further savings can be made without undermining the whole fabric of the business. He has put 15 years of his life into the firm and is struggling to see what he can do to pull things back from the brink.

His accountant is urging him to use the recession (and the company’s fast dwindling resources) as an opportunity to mop up some of his competitors. In particular, he thinks Ryan should try to buy a training company engaged in training for specific skills such as IT. On a good day, Ryan thinks he should probably try to merge with an existing company of similar size serving other niches. On a bad day, he thinks he should simply shut the whole thing down and walk away.

How can Tim ride out the current crisis?

THE EXPERTS’ ADVICE

TIM RYAN IS in quite the dilemma: should he shut up shop or should he seek to ride out the current crisis? He has experienced nothing but success until recent times and he has invested 15 years of his life in building his own training company. Without doubt he feels considerable emotional attachment to the business, not to mention that it currently represents his livelihood and that of his remaining employees.

We can certainly make the case for him to exit his business, but let’s consider riding out the crisis. Tim has significant experience, a solid reputation and good contacts with multinationals. For the most part, he seems to have a good instinct, if only he would follow it. And, for a knowledge economy seeking to pull out of a devastating crisis, investing in “human capital” remains vitally important.

Though price now appears to be driving the industry, it is not in the long-term interest of Tim’s company, industry clients, competitors or Ireland to ignore the quality of training. There is mutual dependence here and it is in everyone’s interest that the industry not be discredited through a race to the bottom. You can only sell a pig in a poke for so long before clients catch on that they have been duped. Thus, there is room for Tim to ram home the message that standards cannot be sacrificed at the altar of cost.

What we are talking about, then, is survival “with”, not “against”, his environment. The instability created by fallout from the current crisis presents an opportunity for Tim to shape and create a context within which his company can survive. This entails engaging the mindsets of client decision-makers and reputable competitors, among others, such that they see standards as paramount. For example, it is in the interest of management in the Irish arms of multinationals to ensure that training quality remains high so as not to jeopardise their own operation’s viability.

Survival “with” his environment also means Tim achieving certification (such as Fetac) for the courses his firm offers, raising the question of how to go about this (for example, spend time going through the accreditation process or buy/merge with an already accredited company) and at what cost. Likewise, he should look into joining training networks to drum up business and benefit from expertise.

A question Tim must answer for himself is: Does he have the desire, energy and funding to engage in what will be a tough enough slog? Now in his late 50s, with his kids grown and significant experience behind him, he has other options. What would he prefer to do? – Dr Paul Donnelly, lecturer in organisation studies and international business at DIT

TIM RYAN’S SITUATION is a painful one, shared by a lot of small business owners just now. He has worked hard, taken prudent risks, created employment, prioritised quality and been open to expansion while retaining caution. He surely had reason to be confident that his future and that of the business were secured. Instead, growth and success have melted away in this fundamentally changed environment to the point of the business being on the brink of survival.

This is almost unspeakably painful to face. Even so, he has faced into it; taking the tough choices of letting staff go and driving down costs several times. He is now encountering yet more uncertainty and doubt as he grapples with which road to take next.

It would be very easy in this context to sink into despair, paralysis or exhaustion and, on that bad day, to walk away. However, this is the time that real business skill is needed. It is clear that Tim has strong instincts, making choices in his career that involved stepping off the obvious trajectory. There is also a sense that at key moments he lost connection with those instincts and that he needs to prioritise and trust his instinct and guiding values, and be alert to any noise distracting from them.

Key to this is Tim’s own outlook, emotional resilience and space for him to think. It is not easy when there is so much external pressure but one job is managing himself – securing a sense of calm, possibility and hope alongside the values that have taken him this far. One way to achieve this is to form a small peer group with others in the same or diverse fields, and commit to meeting regularly to talk frankly on a confidential but informed, supportive basis, to safely air anxieties and to sound out possibilities with each other.

Another priority, despite the environmental determinism that seems so strong just now, is to retain that sense of having choices – to be in business at all, to be in a particular sector, to be in a particular business model, to retain the building in its current use.

All these are and will continue to be choices. Empowering his core team to develop new business and use their ingenuity and strengths is obviously important. An acquisition or a merger is worth investigating, but both have the hallmarks of business as usual. The peer- group model engages the power of collaboration and the possibilities of a few good people working together. In time, it may lead to new and unexpected opportunities in a changing business paradigm, but meanwhile a strong peer group will provide valuable testing ground and ballast for these decisions. – Maeve Houlihan, senior lecturer at the UCD Quinn and UCD Smurfit schools, lecturing
in organisational behaviour and work

TIM RYAN HAS been in business for a number of years and consequently the timeframe around his plans to retire will influence the strategy he decides to pursue. One of the other determinants of his strategy will be his view of the market for training and development services. To inform this view Tim would benefit from undertaking a review of the market. Such a review should provide an indication of the nature and extent of training and development services that are required by multinationals, indigenous companies and the public sector. One way of effectively completing this review is for him to undertake a “voice of the customer” exercise with a sample of his past and current clients and if possible, potential clients. By asking targeted questions, Tim can gather information on the types of services that clients are interested in buying; what they value; and what they are willing to pay a premium for, if at all. The key question is then whether or not Tim’s organisation has what it will take to deliver these services?

Given the focus in the market on certified skills-based training, it doesn’t sound like the answer is a resounding “yes”. If the answer is “somewhat” or “no”, then to stay in business, Tim must enhance the capabilities and service proposition of his organisation. To do this he can hire in new skills or acquire an existing company with the necessary skills, but both of these require investment. Alternatively, he could consider a merger, a strategic alliance, a network or a subcontract arrangement. Such options may not require initial funding. For an alliance or subcontract arrangement, payment may only be required or shared when work is delivered. Identification of the financial, market and operational impacts of each option will assist in identifying the preferred option. Financial considerations will include impact on revenues, costs, profits and cash flows. Market considerations will include the impact on customers, service offerings, marketing and sales channels. Operational considerations may result in cost savings from shared premises and other overheads.

Regardless of the option, with knowledge of market demand for training and development services, Tim should align his business to these demands to ensure he can deliver the services the market requires. The three key business alignment actions include:

(i) Tailoring course content to meet market demands. For example, leverage certified skills-based courses provided by subcontractors or network partners.

(ii) Proving a competitive, or a sufficiently differentiated service to warrant a price differential.

(iii) Reducing costs by synergistic savings. – Dervla McCormack, strategy consulting partner with PricewaterhouseCoopers