The Art Of The Turnaround

Given the continuing economic challenges one of the more popular projects I get to work on these days is the turnaround. Not the pure financial turnaround, as this is not what I specialize in, but rather the nuts and bolts comprehensive company turnaround. Usually this is a company that has seen better days but has diminished over time to the point where its very survival is in question. Over my 30 year career I have been both on the giving end and the receiving end of several turnarounds. This month I want to share a short list of what I have seen consistently work and not work when trying to turn a company around and give it a new lease on life.

• Can The Patient Be Saved? - The most critical skills to bring to a turnaround are objectivity and honesty. My first step is always to execute an overall analysis of the company, its market, and its industry. If it becomes clear that the company has deteriorated too far to be realistically salvageable then I present this conclusion up front, along with the supporting data. The news may be unpleasant but is usually not a surprise. It is usually a waste of everybody's resources to attempt a turnaround at this stage. It is better to help the owner quickly explore other realistic options. What is really lousy is when this conclusion "suddenly" becomes apparent to everybody 6 months into a project. My recommendation to business owners is to have the consulting firm present summary data and a plan that convinces you join as an "investor" in this turnaround. Be skeptical and ask lots of "why" questions.
  
  
• The Playing Field - Assuming the company passes the above test the first area I recommend analyzing is the market. This includes an industry and competitive analysis. This critical step will help set everyone's expectations. If the company is competing in an industry of Fortune 500 gorillas then a realistic goal may be to carve out enough market share to build a solid and profitable small to medium sized company. It is probably unrealistic that the company will become a market leading player. This step may also help identify a viable exit strategy for down the road. The key is to fully understand the playing field and your position on it so a realistic and viable strategy can be developed. I've seen too many turnaround projects begin marching down the road where the owner is expecting one outcome and the consulting firm is aiming for another, usually lesser one.
  
  
• Start At The Top- One of the most critical first steps in a turnaround occurs in the minds of the employees. You need to consistently tell them that the company they are working for can be a winner, and why! Let them know exactly what you need them to do and that you are there to help lead and navigate the best course. Set realistic expectations; "No, we are not going to drive IBM into the ground, but we are going to grow revenue from $5M to $15M over the next 3 years, and become profitable". Ronald Reagan was a master at this. After the "malaise" of the Jimmy Carter administration, Reagan consistently hit the airwaves, drawing on history and patriotism to convince Americans that their best time was to come. It became a self fulfilling prophesy and resulted in one of America's greatest economic runs. Louis Gerstner did this at IBM. Lee Iacocca did it at Chrysler. Someone needs to do it at your company.
  
  
• Focus, Focus, Focus - One of the biggest causes of turnaround failure I have seen particularly in small companies is due to lack of focus. During a turnaround it is absolutely critical to identify and focus on the highest priority areas and let the others wait. Resources are always limited and people have limited mental bandwidth. You need to stop any bleeding (financial, market share loss, etc.), stabilize the patient, and then start physical therapy. You cannot work on all three areas at once. Let all employees know what is mission critical and have them focus on and support those first. When those are complete, roll out the next priority items. Don't even let employees waste time talking about lower priority issues during a turnaround; you cannot afford to lose the mental bandwidth.
  
  
• Houston, We Have A Problem - Every company I worked with or for seemed to have at least one absolutely "essential" worker who is also the employee from hell. While this is always a company culture and morale killer, during a turnaround it becomes especially dangerous. My usual rule for dealing with employees like this is "don't kill the pilot until the plane is on the ground". That is until you have his or her replacement ready. However, if during a turnaround I think the pilot is a suicide bomber I recommend shooting them immediately and grabbing the controls. These types often overtly and covertly sabotage a turnaround project because they are quite content with the status quo and they consider it a threat. You stand a much better chance of a safe landing if the person at the controls at least wants to land safely. It also sends an immediate message to all other employees that the company takes this situation seriously and intends to follow through with the plan. In other words, things ARE different this time.
  
  
• Smile and Laugh - Seriously. Darth Vader never turned a company around and there is a reason why. Turnarounds are hard, but they can be extremely interesting and ultimately very rewarding. Make sure to stop and celebrate small victories along the way. It has probably been a long time since these employees had anything to celebrate. Use humor and a smile to break tension when appropriate. You are turning a company around. No one is going to die or lose a loved one. Keep things in perspective. You can actually make a turnaround enjoyable. For the first time in a long time people will feel like they have some control. They will feel there is a real goal and, by God, it is achievable. They will feel like tomorrow, although challenging, will be better than today, and will be much better than a month ago. This creates momentum within a company. And like a train rolling down the tracks, momentum is powerful and hard to stop.

These are just a few of the tips I've learned over the years regarding turnarounds. There are, of course, many tactical levels below these which are important, but the list above is where I see most fail. Of all the root causes of company deterioration or failure that I see, human resource related issues top the list. After all, a company is really just a collection of talented people banded together by a common cause.

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