Turning around distressed companies (3/3)

In the previous two posts, we covered the first four stages we see in successful turnarounds: establishing the facts about the business and its market; working out what went wrong to get the business into its distressed state; and, once the problems have been identified and solutions proposed, taking control of time and taking control of money in the turnaround process.

Once in control, the turnaround team needs to make the first steps to develop some momentum in the right direction.

5. Make a series of promises you know you can keep

At the start of a turnaround every party with an interest is worried: employees, shareholders, banks, creditors, business partners, customers and suppliers. Increasing their confidence is critical to making any progress.

It is in management’s interest to be proactive and make a series of promises, which it knows it can keep. Hitting these checkpoints is the most effective tool management has to build its credibility. The most basic, and likely required, is a revised budget, but other forward-looking checks are also helpful. With every check management hits and promise it keeps, it builds credibility and confidence, financiers become less stringent and heavily involved, customers and suppliers go back to their regular relationship with the company.

To be successful, this approach naturally works its way down the organisation. For the CEO to promise a series of financial achievements to investors, he needs to be confident that his team can deliver on their promises in each of their areas, and so on.

This approach also has enormous and innate internal benefits - hitting promises helps organisational self-belief when the company needs it most.

The most important characteristic of such promises is not that they are ground-breaking, but that they are achievable in short time. As the mantra went in IBM’s turnaround “win small, win early, win often”.

6. Change the team

We have never seen a dramatic change in the fortunes of a company without a corresponding change in the senior team. This means at least two or three changes in senior personnel, almost always including the CEO.

It is usually self-evident, and often self-selecting, who is engaged in the turnaround and who wants out. We believe it is the job of the CEO to check the attitude of each member of the team and make the decision quickly. We have yet to come across a successful turnaround CEO who has regretted changing the team or has said they did it too quickly. We also find that getting the right turnaround team together is predominantly a matter of attitude; aptitude rarely comes into it.

7. Simplify

Complexity is a double-edged sword in turnarounds. Companies often get into trouble when they have taken on too much; and when they are in trouble they try extra things to get out of it.

By definition, many of these are not working and at best create a mass of distraction that the business can do without.

When cash and time and goodwill are constrained, the business needs to concentrate on doing a small number of things well. This can mean reducing product lines, cutting or selling business units, outsourcing business processes or numerous other simplifications depending on the situation. Whatever is done, the process of simplification needs to go far enough to give the remaining activities the focus of management time and investment required to do them well.

So there we have it, the seven stages we have seen successful turnaround teams take that distinguish them from the 70-80% of turnarounds that fail:

1. Establish the facts
2. Understand what went wrong
3. Take control of time
4. Take control of money
5. Make promises you can keep
6. Change the team
7. Simplify

All of these things are common sense and relatively obvious, but all of them are also easy to duck or delay. Hopefully, this article illustrates that our clients that have performed successful turnarounds simply do the sensible things that experienced managers know they should be doing anyway.

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Please email steve@latitude.co.uk for the full pdf.