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Kellogg teams prove victorious in turnaround study competition

Careful strategic assessment reveals how companies can stay on right path, say Kellogg students

By Romi Herron

9/8/2006 - Distressed companies became "de-stressed" thanks to the analytical rigor of Kellogg School scholars participating in a prestigious annual competition in August.

Two teams of Kellogg students tackled the challenges facing a grocery store chain and a family-owned electronics company, producing rewarding insights— as well as first place and honorable mention honors for Kellogg from among 11 schools entered in the Turnaround Management Association 2006 Carl Marks Student Paper Competition in Chicago.

Recognizing outstanding student achievement in the field of corporate renewal, the contest is open to teams or individuals enrolled in an accredited MBA program or equivalent. Winners announced Aug. 25 included recipients of the $3,000 first place finish in the case study category with “Albertson’s Turnaround.” In it, the Kellogg team of Ben Farris and Jason Schauer, both ’06, and Hayoung Lee, John Maitrejean, and Neil Seyffert, all ’07, analyzed the financial restructuring and reorganization of the grocery store chain, which was acquired in 2006 by SuperValu, CVS, Cerberus Capital Management and Kimco Realty for approximately $9.7 billion.

Earning honorable mention and $600 for its submission, “Penfield Electronic: A Turnaround Analysis of a Small Company,” Kelloggians Emily Wang, Justin Twitchell and David Wittkowsky, all ’06, and Amanda Brimmer, Ryan Clark and Elizabeth Stevens, all ’07, highlighted their study of a family-owned technology company that underwent a successful turnaround.

Clinical Professor of Management and Strategy James B. Shein advised both teams, which, he noted, were randomly selected from students enrolled in Managing Turnarounds (MGMT 934). The students wrote their papers as final class projects, without specifically gearing them toward the competition.

“Interestingly, the teams were not put together by choice,” Shein said. “In Managing Turnarounds, our group dynamic is created to simulate real-life turnarounds, where, in most cases, the team assembled to deal with it is not hand-picked, but designated.”

With that framework and the depth of their analysis, the groups embraced collaboration and decided to submit their papers to the TMA contest, standing apart from the competition, which included The London Business School and Columbia Business School, Shein said. Industry or topic criteria were flexible, allowing students to focus on profit or nonprofit arenas undergoing turnaround or corporate renewal.

Stevens pointed out key findings from her team’s Penfield analysis, explaining that the organization was a small embedded systems company whose owners were initially quite aggressive, naïve with respect to the prospects for their company and excessive in borrowing.

The focus of the Kellogg team’s study was the company’s turnaround, led by a venture capitalist in Ohio.

“We talked to the CFO and analyzed the financials and insights into the culture,” said Stevens. “We learned that one of the management team’s priorities was turning around the culture with a clear business plan, being forthcoming with employees and setting the stage for change.”

Cutting dozens of product lines down to about eight also proved effective for Penfield, as staff were focusing on too many projects simultaneously, according to the Kellogg team. The students’ analysis also highlighted the benefits of improved accounting practices, introduction of one new product per quarter and the acquisition of a small software company to gain additional software expertise.

Shein’s class gave the team necessary skills to assess multiple levels of the turnaround process, Stevens added.

“We learned to identify a distressed company, how to look at financials and how to manage employees during those periods,” Stevens explained. “We studied effective and ineffective techniques of other turnarounds, and through role playing as creditors and debtors, for instance, we could see the undercurrent of conflicting interests that can arise.”

Shein, who is also affiliated with the Kellogg School’s Larry and Carol Levy Institute for Entrepreneurial Practice, emphasized the relevance of corporate restructuring applications in today’s business arena.

“More and more, companies are realizing that at any given time, one or more subsidiaries or divisions of the company are underperforming, so Managing Turnarounds is designed to teach students and future executives useful applications to deal with those problems as well as issues arising when the whole company is in trouble, particularly with the huge pressures of global competition,” said Shein. In his role as counsel at McDermott, Will & Emery, Shein’s primary practice areas included corporate financial and operating restructurings, business startups and acquisitions, and fiduciary duties of officers and directors.

The Turnaround Management Association is an international nonprofit association dedicated to corporate renewal and turnaround management. With headquarters in Chicago, TMA has 7,100 members in 38 regional chapters comprised of turnaround practitioners, attorneys, accountants, investors, lenders, venture capitalists, appraisers, liquidators, executive recruiters and consultants.