Restructure before privatisation, says Tram

Michael R Tram has been involved with about 125 privatisations across the globe and is a privatisation specialist with German consulting fi...

Michael R Tram has been involved with about 125 privatisations across the globe and is a privatisation specialist with German consulting firm A.T. Kearney. It has experience in privatization in Germany, erstwhile USSR, Poland, Hungary and the Czech republic. In an interview with Pranjal Sharma, he says that restructuring is the key to the success of any privatisation process. In all the privatizations we have done, a clear pattern has emerged. This pattern is not linked with the political situation; the geographical location of the country; its economic status, whether emerging or developed; or even the form of Government. There are local differences and political peculiarities. But the pattern is the same.

The pattern for success is simple. Before the privatization of a company restructure it first. If you don’t restructure the company, the privatization is going to fail. This is one clear statement I can make after being involved in about 125 privatisations personally. Where ever we saw the opposite thing being done, the result was a failure. You also have to be very clear about what you want from privatization. Do you want to create value for the firm. Or do you want increase the money from the sale to meet the Government’s needs. You must restructure the company so that the strengths are promoted.

Financial restructuring is only a little part of the process. Actual restructuring involves identifying its vision, strategy for future. What is it doing? What are its areas of strength and how should they be achieved. Which businesses should it concentrate on. Where can I out source my components so that the costs are lesser. What can I do to make my the company more attractive to the new owner.

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In a survey done by us, we measured very extensively the results of a company before and after restructuring. In one company from the UK, the market share went up by a factor of five. Can you imagine what it means for the value of the firm if you come with numbers like those to a potential buyer.

The top performers are 30 per cent quicker in restructuring that average companies. You don’t need a new management team for the restructuring. With the help of some consultants and with a fresh mind, the existing management can restructure. Because they know the strengths and weaknesses of the firm.

The privatization and restructuring cannot be done by politicians or the Government. It has to be done by the leadership of the firm. The only reason why management does not make changes is for the fear of its own power and position.