The Covid panic/lockdown disaster has confronted many businesses and other organisations throughout the UK with an existential challenge. A long dark winter of spreading and harsher lockdowns is crushing large numbers already and others will go the same way if they do not making the right decisions sooner rather than later, and I thought I should write this article as a follow up to my March article warning about the business consequences of lockdowns because the decisions businesses make today will either doom them or help them get through a very difficult period of indeterminate length.
Every business, every organisation, can be better run and more successful. I have never seen one that is near optimal (and I have seen quite a few close up). Those that think they are great are almost certainly already in decline – some are successful largely because of luck – right time/right place – but what really sorts the wheat from the chaff is leadership, especially depth of leadership. You can be successful despite indifferent leadership, but it’s less likely and dependent on inherent market position, luck or a brilliant idea someone had that came at the right time.
But, in the end, especially in very challenging markets and times, good leadership will be the difference between success/survival and failure. Over couple of decades ago, a business book called “The Fish Rots from the Head” was published and, unlike most business books, is worth a read. Almost all business or organisational failure is down to poor leadership, often over generations of management.
So, how does a failing business/organisation turn itself around? It’s needs new leadership as the first step, but the right sort of leadership, and such leaders are far less common than those who look good running an already successful company – they may be competent at keeping things going but taking something broken and fixing it in the eye of the storm is quite a different thing.
By happenstance/Fate/Providence I have sort of ended up making a career of turning around businesses and so far (touch wood) have not lost one, but when much more junior I saw from the inside how poor leadership could wreck a company with good prospects. At the time, I could not understand how the directors and senior managers could let it happen, or why no one would listen to me when I tried to tell them.
Later, as I gained more experience in other businesses I grew in confidence in my own judgement. After 8 years in another company as Strategy Director (being recruited by a new Chairman to sort out the lacking strategy) and staying essentially to drive the rebuilding of the company from the inside out into sector leadership – the Chief Executive naturally took all the credit – I joined the Board of what became a FTSE 100 company. Again, I soon saw the warning lights flashing as what turned out to be an egomaniac Chief Executive, indulged by a supine and sycophantic Board of Directors, ended up destroying several £ billion of shareholder value and the company itself in the end. Again, nobody would listen – many knew I was right, but they were far too invested in the status quo even as the ship of fools was streaming straight onto the rocks. After a final terrible row with the Chief Executive, I was fired with a nice big pay off and, flatteringly, a Lexus comment in the Financial Times questioning the sanity of the company’s Board in letting me go.
Then came a series of concurrent appointments. After the successful turnaround of the last full time one I resolved to work with smaller private companies which knew they needed some form of major change, whether financial structuring, strategy, to develop new avenues of growth, or a full blown turnaround of a company sliding into crisis. Normally they couldn’t afford me but I was now in a position to work for much lower remuneration and for a sense of achievement.
None of the above is to blow my own trumpet but to demonstrate that I know a little of that of which I am writing and that the things that are needed to turnaround struggling organisations are common across industries and even the public sector because at root they are about people. Everything else is secondary, although a business can be too far gone for even far better leaders than I to save.
What is a ‘turnaround’? Broadly it’s a catch all term of picking up a struggling/failing/failed business, saving it from liquidation, although it might already be insolvent, and making it viable/stable/successful once again. Within a turnaround there may be different phases and leadership skills required, and it may need new leaders for each phase, but if an organisation is lucky the right leadership may be able to see it through. Broadly, they are:
- Insolvent/on the edge of insolvency – the company will need financial reconstruction, an accommodation with creditors who will usually insist on management changes. Specialists in this phase are often called ‘company doctors’, they focus on stabilising cash flow by reducing cost reduction and cash flow, negotiating with banks etc. Such people are usually accountants because in these situations one often cannot not trust the company’s own accounting information, but they rarely have the skills to lead a business beyond immediate financial stabilisation. In the rush to stabilise it they can sometimes throw the baby out with the bathwater and personally I would rather appoint a good general manager with strong financial skills who can take a more balanced view of what is really needed in the midst of the crisis.
- Realignment/strategic change – the company is not in financial crisis, perhaps some way from it, but life is getting much harder, the strategy if it has one is failing, things aren’t working like they used to. It needs significant, probably radical change. The directors intuitively feel this but don’t know what’s wrong or what to do, so they need new leadership, perhaps to work alongside the existing leadership. This involves swallowing pride and I have huge respect for those companies that do this. This is how I got started and ended up with different roles working back to cliff edge situations.
- Turnaround both occupies the space between (1) and (2) alike and also encompasses them. It’s about new strategy, new people, major financial and structural change, management development/succession planning, and can turn into long term ongoing role as it has for me a few times.
Effecting a Successful Turnaround
You will read a lot of nonsense in business books by egotistical ‘business gurus’ about 100 day plans etc when first appointed to organisation leadership etc. Disregard them all. Every situation is different, you may not have 100 days, you will need to start making changes within 30 days, ideally sooner, but neither should you think you can do it all in 100 days – it may take years. Here are a few things I learnt along the way:
Join in listening mode – abandon any preconceptions – things are never as they seem from outside. Spend as much time as possible one-to-one with your direct reports, their heads of department, all the way down to the shop floor. Not everyone, you don’t have time, but you soon work out who will give you straight answers – I always start by telling them that whatever they say to me is confidential and I want the complete truth, not games, and don’t tell me what they think I want to hear. It’s amazing the effect that has – so many people at all levels know something important but feel unable to divulge it. Being seen as trustworthy and approachable is essential.
Work out the good ones and the shysters quickly. Start getting rid of the worst straightaway – within a few weeks – the good people see this and get heartened by it. In my last full time role I had a hard-as-nails credit control manager – unsparingly honest – after the first wave of ‘changes’ which got rid of five of nine Regional Directors (either useless or corrupt) she came to see me smiling and said they would have been her choice too. She trusted me from then on.
Take a knife to excessive management controls, administration and bureaucracy. It frees up the good people to do the job and means you can reduce cost by axing the wasters.
Take out fixed cost and fast if it is not essential to daily operational performance – bye-bye HR, PR and IR departments! Most businesses breed fixed cost – it’s a constant war to minimise it. Look at cost like an onion – you take off a layer and there’s always another one beneath to go at. You only stop when the first-rate people start protesting – then you know you’ve reached the limit – and there will be one. Your margins and cash generation go up, as does your speed of movement as a team, spans of control become shorter and more effective. Be seen to reinvest much of the savings in new plant, better training and people, marketing etc – stuff that makes a difference and which leads to growth.
Never forget that business is more about cash flow than profit. Sure, they are linked, but in turnaround situations it’s more about cash flow. If it does not help generate cash, question it.
Start at the top and work down. Bad people employ bad people, good people good ones on the whole, and bad senior managers are expensive and disastrous while trying to transform a company. It’s amazing how quickly replacing bad with good people can begin to change a company’s performance. If you likewise cut the bureaucracy and give good people you can trust more autonomy, more good people want to join. Remember that other companies’ mavericks are usually first class people who are just too good for their average organisation.
Take the big decisions quickly. All organisations have a bandwidth for effecting change. You can expand bandwidth by employing better people etc, but there is still a limit to how much change any organisation can absorb and bed in effectively. Too much change means nothing gets done – we’ve all seen failing organisations that are in a constant flux of new initiatives which don’t change anything – they just cause chaos. I use a simple model – no more than two major strategic changes underway at one time – and they may take a couple of years – and a few smaller tactical ones which are not system-wide which may make a few months. Strategic self-discipline by the leadership team is vital.
Tell People. Explain to your team what you and doing and why at every turn. Talk about the future and how what we are doing will make it better for them as an employee. People want to feel part of a team that knows where it is going and is winning. Watching employee self-belief and pride in their company grow before my eyes has been one of the greatest rewards on my career.
Don’t think you know all the answers – ask others. Never tire of seeking feedback and constructive criticism. It’s amazing what others see what you don’t.
Bad and good luck comes and goes, but if you keep doing the right things it will come good in the end, so be prepared to be patient and hold your nerve if it doesn’t seem to happen as quickly as you had hoped.
Finally, when you come through and performance starts to improve, begin to:
- reward your people – they’ve earned it;
- invest in what I call foundational investment – the things that may not immediately increase profitability but which have to be done to make you a stronger business (companies that that never invest without a positive return on investment projection are mad and will one day fail – it’s like extending your house, putting in a posh kitchen etc while letting the roof fall in);
- find and develop your successor management, begin preparing them to take over when you’ve had enough; and
- build your capital reserves while paying down debt. I always try in the good years to build a cash reserve of at least 6 months’ of fixed costs – something that has been proven to be invaluable this year.
Try to remember always that business is a marathon without a finishing line, not a sprint, so pace yourself to last – let the competition self-destruct – they quite often do!
Well, that’s Turnaround. Easy isn’t it?
© 1642again 2020
The Goodnight Vienna Audio file