Turnaround Mindset

Enough to get into trouble...not enough to succeed: the problem with underinvesting

2008-04-28T21:56:15-07:00

Not investing a minimally sufficient amount of human or financial capital in a given initiative or business, overall, can be as devastating to success as having the wrong strategy or the wrong team on board.

I was recently reminded of an experience I shared in a non (or, quasi-) business environment during the summer between my first and second years at business school where the point of this lesson was very much driven home...

That summer, I opted to work in Vietnam for CARE International, a leading global humanitarian organization aimed at stamping out poverty. CARE places a special emphasis in addressing poverty among women - based on a core belief that women, particularly in many lesser developed countries, are at the heart of the family and community. It was a wonderful experience - fascinating, rewarding and beyond frustrating all at the same time.

One of the tasks I was assigned entailed running a small microenterprise lending program that was responsible for evaluating business plans and making funding decisions. The authors were the tragic cases of women who had been incarcerated - far too often for their husbands' doings or in just trying to survive. As a result, and for very understandable reasons, these women were forced to turn to any available means of making living, including prostitution.

At that time, I recall that the funding amounted to $50 per person, for those selected. However, I quickly discovered there was a problem with this approach. The dollar amount had been set some time prior to coming into the picture and had not been reconsidered in, at least, a few years. Meanwhile - in 1995 when this took place - Vietnam was beginning the transformation that has accelerated to this day and the cost of living was beginning to grow quite rapidly. In further examining the situation, it became quite apparent that the $50 sum was, indeed, quite dangerous for the beneficiaries. It turned out that $50 was insufficient to get even the most basic business up and running at the time and, yet, simultaneously quite enough to place a serious financial burden on the borrower - making it almost a given they would be forced to once again turn to the streets for "salvation."

In presenting this situation to the country director, I recommended that we give more funds to fewer women and, at least for those we could offer to help, we would be able to provide adequate resources to give them a fighting chance.

This lesson is one...often, without quite realizing it...I've lived repeatedly since then. Funneling the right amount of dollars and individual effort on those undertakings that are most critical to the businesses success is just another means of focusing on the few priorities that make a difference. No business can adequately resource all of the great ideas it may have. Even if large cash reserves are available (and, putting aside desires or needs to manage earnings), organizations often find it extremely difficult to manage so many efforts simultaneously.

Unfortunately, this problem can manifest itself in a more serious condition...that of the "walking dead." I've seen it with product features that are under invested in to get them out in some arbitrary time frame to actual businesses that have been inadequately capitalized and, coupled with the wrong priorities, are simply surviving month to month. The problem is, whether features, projects or entire businesses, this cycle can be very challenging to break out of. Only by facing the stark reality of the situation and the tough choices necessary to change it will a manager or organization be able to course correct.

Combatting ignorance and complacency in the workforce

2008-03-27T22:09:25-07:00

John Baldoni, leadership author and consultant, posted a brief but poignant piece today on Harvard Business' blog "Conversation Starter," entitled The Three Rules of Employee Engagement. The post discusses how far too many employees are less engaged [and, thus, productive] due to a lack of understanding of how they, and their role, fits into the grander scheme of things. Baldoni offers a few fairly straightforward - and, in my experience, effective - ways to combat this.

Engaged employees are more productive - undoubtedly. They're also more content in their jobs and likely to stay with the company longer, as well. So, why do managers so often fail to take seemingly easy steps to ensure otherwise? Perhaps it's lack of know how, an assumption that they already do understand where they fit in, or even just plain neglect.

Regardless, Baldoni's prescription is simple and doesn't require much effort. In fact, building his suggestions into any ongoing operating mechanisms - your planning cycles, company, team or staff meetings, performance discussions and periodic business reviews - is one way to ensure they're incorporated into your organization's practices.

Baldoni suggests three key tenets:

Explain the big picture

Communicate

Celebrate

"Explaining the big picture" is all about providing the context of the employee's role as it pertains to what the group, function or company is trying to achieve overall. Without it, individuals are more likely to wander off on tangents, focus on lower priorities and, above all, not share the same sense of urgency that hopefully senior leaders have. Steve Bennett, former CEO of Intuit, called this "line of sight" and it was all about making certain that each individual understood from the company strategy all the way down to their unique role and the connections linking them.

In the second principle - communicate - it can't be emphasized enough that repetition is a key ingredient to its successful application. It often takes several times for key messages to truly become ingrained in an organization's DNA. Using regularly scheduled company or team meetings to review strategy, operating plans and priorities helps reinforce the linkage created in step 1. Of course, communication is most effective when it's two-way. And, providing forums for dialogue - particularly where employees can discuss or debate performance and priorities - is not only highly empowering but also fairly exciting to watch. For this reason, I tend to favor monthly operating or business reviews where each function or group delves into the the performance of the prior period, the "whys" behind it, and how priorities for coming period may require fine tuning. These meetings are most effective when all participate. When people are able to partake in the conversation, they're more invested in what's behind it.

The final area is that of celebrating. Celebrating the successes - of any size - is not something that always comes easy to type A driver personalities. Yet, very few people really enjoy environments where little to no positive feedback is received for extended periods of time. In tougher situations, such as startups or revitalization efforts, it's even more critical as team members need to feel they're making progress or hope can dwindle and become a self-fulfilling process.

Ironically, I was discussing the latter point with a company I advise earlier this evening as they struggle to meet the first quarter's goals. However, in delving beneath the numbers, some fairly positive [and, new] signs emerged that breathed a bit more optimism into the forthcoming period. We agreed it was important to share these insights with the larger team in the upcoming business review for exactly that reason.

There's no rocket science behind John Baldoni's ideas here. But, then again, that's somewhat the premise behind this blog to begin with - applying simple, basic principles to better manage your business.

And...these work.

So, what is a "turnaround mindset" all about, anyway?

2008-03-21T20:48:00-07:00

What exactly does having a "turnaround mindset" really mean? And, why is it important to embrace, even for healthier companies? Aren't the tools and techniques employed in a turnaround situation vastly different from those required in thriving firms?

To address the last question first, the answer is largely, no. In fact - while I'd love to take credit for this concept of applying turnaround thinking more broadly - John Whitney (and, probably even many others before him) penned a great article on the concept in the September-October 1987 issue of Harvard Business Review entitled, "Turnaround Management Every Day." In it, he states,

"...the management fundamentals for turnarounds and stable companies differ only in emphasis and execution." (p. 55)

Moreover, he begins his thesis with the thoughts:

"Turnarounds are superb management schools. Everything needs fixing...

But turnaround lessons aren’t limited to troubled companies. Turnaround opportunities exist everywhere—in retail stores, in product lines, in corporate divisions and subsidiaries. In today’s world, you have to earn your right to compete every day, day after day. And the basics that help you do that are the same ones that turnaround managers use to bring failing companies back to life." (p. 49)

And, fundamentally, that's what it's really about...having a turnaround mindset means employing a similar sense of urgency, action and focus everyday that is so necessary when faced with real crisis situations. In the present era of "internet speed" (arguably, an even faster, more globally competitive environment than existed two short decades ago when Whitney first wrote this article), this approach is essential. In fact, I might argue that Whitney's comment on the difference required in "emphasis and execution" between troubled and stable firms has indeed narrowed since then. Again, these aren't novel ideas...highly respected and successful executives including Jack Welch, Larry Bossidy and James Kilts have all espoused these very same themes. However, as an avid reader and student of business, I've found that the experience and knowledge contained within the turnaround management profession to best synthesize and teach them.

Conceptually this makes sense but what's it look like in practice? There are a number of frameworks offered to address this question but I've distilled the elements I've personally found to work best into the the list below:

Assess the situation...quickly: Whether consulting to a company, starting as a new executive on the team or taking on a new role at any level, quickly gaining a handle on what's happening and why is critical. Without a proper understanding of the causes or business drivers, subsequent action may not only be worthless but may even exacerbate the problem(s).
Develop a compelling vision and a realistic strategy to support it: "You have to know where you're going if you want to get there." Trite as it may sound (and, it does), it couldn't be more true when it comes to guiding a business successfully. If the vision doesn't lay a clear [and attractive] goal for the company, division, team, product, whatever to achieve, then it will be difficult, if not impossible, to garner the commitment of others. If team members see the vision differently or lack sufficient buy-in, true alignment is unattainable. But, you can't stop there...a goal without a roadmap to get there is meaningless. That's where strategy comes into play and it must be as compelling as the vision. I can't tell you the number of times I've heard some of the most brilliant visions falter when it came to how the author would achieve that vision. They couldn't begin to articulate it.
Align - COMPLETELY - around that plan: Once the goals have been set and a clear plan of how to go about achieving them is established, the next step is to ensure that ALL resources available are in alignment with this plan. Steve Bennett, the former CEO of Intuit, calls this "line of sight" but it goes beyond just the people. Capital, time, any invested set of resources must also be linked to that plan.
Focus, focus, focus...on the levers that matter the most: One of the hardest things managers seem to wrestle with is narrowing down the "critical few" - that limited set of priorities that will most make a difference in the outcome. And, staying that way! All too often, we get excited about the new idea, or about an older one not fully tabled. The time needed to revisit or explore the option, assess it against current priorities and determine it's place, if happening too frequently can be distracting, disruptive and, ultimately, disastrous to the desired results.
Move fast: Executing swiftly in any environment is essential. Moreover, it should not only encompass typical functional areas such as marketing, product creation, operations, etc. but also, process ones such as strategy/business planning, decision making and, very importantly, the people process. I'm continuously amazed at the amount of analysis some, even very small companies, feel they need to go through to arrive at a decision. Rather, better match the rigor of investigation or analysis with the risk of the decision, itself.
Be candid: This is one of my most important principles, so much so, it warrants its own discussion. I am stunned at how few people truly recognize the power of creating an open, honest environment can be monumentally beneficial to their objectives. People know where they stand with each other, they're more comfortable discussing the realities of a given situation - particularly the negatives - and, they'll spend less time preparing for senseless meetings trying to justify things. This increases the organizational "confidence" as team members worry less about each other and more about doing the right things.
Measure the results! Adjust, measure again, and keep adjusting: Jan Leschly, former CEO of SmithKline Beecham (now, GlaxoSmithKline) as well as a professional tennis player prior to his business career, was fond of saying, "if you're not keeping score, you're just practicing." Measuring results is essential to holding people and teams accountable and employing meaningful incentive programs. More so, it provides an objective - and, thus, candid - view of how the business is performing. From that basis, corrective actions or even accelerating ones can be instituted.

As is hopefully evident by now, these principles are applicable in many business environments - not simply crisis situations. Whether a high tech startup, a struggling medical practice, a division within a larger company or a small team, these concepts work. I've seen them, I've used them and I have rarely been disappointed by the results.

Sequoia's "Elements of Sustainable Companies"

2008-03-20T21:30:34-07:00

Michael Arrington's TechCrunch post today is a great reminder of what it takes to help startups reach success. He refers to "Elements of Sustainable Companies" from Sequoia Capital, one of the most successful venture capital firms in Silicon Valley. While not everything discussed is applicable in troubled situations, the similarities between startups and revitalization efforts are unmistakable.

The more important common elements between them include the much needed clarity of purpose and focus on solving a key customer problem, the strength of the team - having the right and best people on board - and moving with both speed and fiscal discipline.

Arrington rightly asserts that these principles are even more critical in the current environment of the troubled capital markets. I've spoken with a number of VCs and the rumblings of a changing investment climate are undoubtedly present. Startups, as well as more established companies given the liquidity crisis seen in the debt markets, will clearly be forced to do more, with less for the foreseeable future. While it never hurts to follow such basic and yet timeless principles, as Arrington states, "ignoring them is a sure way to fail."

Fortunoff Bankruptcy...Really Poor Form

2008-03-11T22:11:34-07:00

Yesterday, Dealscape posted a blog entry, "In bankruptcy, seeing how the other half lives" discussing Fortunoff's rather misguided approach to employee communications during its present turmoil. It seems that, for reasons unknown (or, unexplained), the Fortunoff's executives or, perhaps, their advisors decided not to keep the employees informed of either Fortunoff's bankruptcy or supposed sale to a private equity firm. Rather short sighted, in my opinion.

Note...this was AFTER the proposed sale became a matter of public record which was also part of the bankruptcy filing, as early as February 4th of this year. While it's unclear from information available publicly how widespread - even internally - their troubles really were and thus how quickly they moved into the packaged bankruptcy asset sale to private equity investor NRDC Equity Partners, one thing is perfectly clear...management is going to need the employees on board with any planned turnaround effort.

And, turning around this business is exactly what they intend to do. Last week, the New York Post reported, "the Fortunoff business is poised to double in size over the next five years, its new owner, NRDC Equity Partners, told The Post." Clearly, big expectations given the less controllable issues of slowed economy and the resulting reduced discretionary spending from consumers as the primary culprits of its current woes.

Leading turnaround practitioners are quite consistent - and, emphatic - on the point of communicating frequently and honestly during times of crisis. Steve Miller, one of the most recognized turnaround executives whose credits include Chrysler and Delphi and the author of the forthcoming "The Turnaround Kid: What I Learned Rescuing America's Most Troubled Companies," repeatedly hammers this point home.

There's good reason for this consistent view: open, timely communication to employees reduces fear (fear of the unknown tends to far outweigh fear of the known even when the latter is not necessarily good news), helps management to establish credibility and thus engender trust, all of which aids in motivating the remaining workforce to help repair, rebuild or revitalize the previously languishing firm. The management team can't do it alone.

By virtue of their actions - or, rather, inactions - Fortunoff's leadership team and investors have undoubtedly steepened their climb toward a successful turnaround.

Aligning Around One Operating Plan Saved $5MM

2008-03-04T20:35:57-08:00

A global agricultural chemical producer was losing sales due to product shortages in some locations while also watching their warehouses and the rest of the distribution pipeline filled with an excess of product in others. Meanwhile, the sales, product management, distribution, production and finance functions were all pointing their fingers at the others.

What was wrong and how could we get everyone on the same page to address the issues?

Problem: A $2 billion global producer of agricultural chemicals was experiencing significant issues in managing it's reseller demand forecast all the way back through its own distribution and production. Inventories were a mess as frequently there was too much of the wrong product and insufficient quantities of those more in demand. Product line profitability was severely impacted by the excess costs of carrying the unneeded inventory, coupled with the lost sales from the out of stock situations. I was tasked specifically with helping out a $50 million product family.

A diagnostic review of the business indicated several clear but related drivers of the issue at hand. First, the business was organized functionally, around product management, distribution, finance, sales and production. Each was accountable up through their own chain of command, solving for different things at any given moment. There was little to no cooperation, so to speak, as each product line had to fight within a specific function to achieve their objective(s). Second, tied to the functional structure, each function held their own operating plans. Obviously, utilizing different operating plans, created from varying data sources can result a much confusion - and, it did. Third and final, as a result of the first two, communication (and relationships) between the various functions were tolerant, at best, and more frequently, downright hostile as each party blamed another for their woes.

Solution: One of the great things around good problem and root cause identification is that the solutions often become quite apparent. In this case, getting all of the functions on the same page, aligning their objectives and improving the communication across the team were the requisite actions. We implemented, as a result, a formal Sales & Operations Planning process to address these issues. At its heart, S&OP creates a single, unified and cross functional view of the entire supply chain, beginning with demand generation and driving all the way back through raw material sourcing. Determining the best data source for each "stage" in the pipeline, and amassing it all into one information tool (Lotus, for those of you who may recall those days), we were able to generate a single view of the business.

Then, we worked on the communication facet by facilitating weekly meetings where the plan was reviewed in detail and adjustments based on new information or managerial experience were factored in accordingly.

Finally, we restructured the organization around the product family teams with direct line accountability to the team and dotted line back to the functions. This ensured tighter alignment around what each product team needed to achieve.

Results: Team dynamics improved dramatically as the functions worked together more collaboratively. As a result of streamlined, more accurate information - one operating plan, that is - we shaved $5MM tied up in inventory and increased sales as a result of reduced stock-outs.

Lessons Learned/Principles Applied: In a prior post, "The Importance of Dialogue", we touched on content as a critical element of effective dialogue and, thus, problem solving. In this case, the content was the single operating plan that enabled each functional group to view the business in a similar manner. There was one set of data that all agreed on and, rather than spending time debating the source and quality of that information, the collective team was more empowered to tackle the bigger issues affecting business performance.

Having everyone operate off of the same page - be it the company strategy, the operating plan or your department task list - is one of the most important steps you can take in achieving tighter alignment and better resource utilization. Results, of course, come a lot more easily, as well.

The importance of "dialogue"

2008-03-02T19:07:02-08:00

In my initial post, I ended with the desire that my readers and I partake in a dialogue - "an exchange of ideas and opinions" (Merriam-Webster). Well, the importance of dialogue extends into business and I consider it one of the most important elements in sustained peak performance.

John W. Garnder, former Secretary of Health, Education and Welfare under Lyndon Johnson and prolific author on leadership and renewal in the United States, wrote,

"Most ailing organizations have developed a functional blindness to their own defects. They are not suffering because they cannot solve their problems but because they cannot see their problems." (John Gardner, "How to Prevent Organizational Dry Rot", Harper's Magazine, Oct 1965, p. 24)

However, this blindness is more of a choice - based on a lack of openness to new or challenging information and ideas, or a culture that promulgates an inherent belief that there is no better way than the one presently embraced by the company - rather than some form of natural deficit. And, it is perhaps one of the most debilitating choices a company can, unwilling as it may be, make, so to speak. Shifts in the competitive landscape, changes in customer preferences or needs, tightening financial markets are just several examples of some of the external occurrences that may go ignored. More insidiously, however, are those internally including: decreased employee morale, key personnel retention issues, delays in critical initiatives, explanations of underperformance, etc.

In short, you can't "solve" what you can't "see" or, read differently, if leaders or a business are unwilling to confront the reality of their situation - whatever it may be - and engage in rigorously honest, critical dialogue around it, then there's little to no hope of achieving a workable solution. In this vein, the definition of dialogue can be extended to include 'discussing areas of disagreement frankly in order to resolve them.'

So, what's required for successful dialogue to take hold within a company's culture? There are several elements in fostering effective dialogue, including:

The content, itself
The environment surrounding the dialogue
What happens afterward

Welcome to Turnaround Mindset!

2008-02-18T17:51:10-08:00

Welcome to the inaugural post of my Turnaround Mindset blog, the premise of which is based on how the learnings, approaches and techniques embodied in turnaround management can help businesses before they fail.

Wait - did he say 'turnaround management can help businesses succeed before they fail?!?!' That makes no sense. To the contrary... We've all grown up being told that our mistakes may serve as some of our most invaluable lessons in life and, in business, this is no different. Clearly, examining the mistakes and failings of other companies, leaders and teams can help inform what not to do in certain situations.

However, my thesis extends beyond that. In the two decades I've served as a consultant, entrepreneur and executive, I have repeatedly witnessed many instances of firms that, after achieving some modicum of success, inevitably lose their way as they extend into areas in which they lack the capabilities or resources required to succeed, spread their "capital" (both financial and human) across too many - and, often, unproductive - fronts simultaneously, or fail to view the realities facing their core business critically and honestly, and respond accordingly.

In Donald Bibeault's "Corporate Turnaround: How Managers Turn Losers Into Winners!" (1999: one of, if not the, primary texts for the Turnaround Management Association's management section of the Certified Turnaround Professional examination), he indicates that in 7 or more cases out of 10 (p. 35), decline is more tied to management and their actions than any other cause, either internal or external.

The good news stemming from this research, and many years of numerous practitioners' experiences, is that if the problems tend to lie internally with management, they are therefore more within the control of either existing management, or an outsider, to change. In other words, there is a solution that management can embrace - and, again, to reiterate my primary thesis - before things reach the point of no return.

In this blog, I will address the principles of corporate recovery, primarily as they apply to "not yet failing" businesses. We'll discuss the strategic questions and challenges facing firms, the operational or executional elements they contend with to carry out those strategic choices and, of course, the human factors required to motivate individuals and teams through the sometimes tumultuous and occasionally frightening changes experienced during any transition.

It is my intent that this blog stimulate "dialogue" (a key principle I will discuss in a later post) - a two way conversation, between myself and you, the reader. All comments, input, ideas and, especially, debate are greatly welcomed.

Enjoy.