What are some of the key elements for a successful turnaround? People often describe trying to save a failing company like catching a falling knife, and, unfortunately, this metaphor can often be an accurate assessment of the situation. The starting point is to make a sober, dispassionate assessment of the situation, and accurately gauge if you and your board have the fortitude and the economic capacity to take on the challenge. One of the key failings of most turnaround efforts is a lack of realization (or acceptance) that it is a two-step process: first arrest the rate of decline of the business, and then make the structural changes and investment needed to enable the business to prosper.
In most instances, the keys to a successful turnaround are not readily apparent or easy. Typically, prior leadership was well intended, and made some meaningful efforts to improve performance. Despite this, the company is at a crossroad where the company is in “trouble” and it is believed more drastic measures are needed to change the direction of the company. In assessing the health of the business, one must accurately determine how bad things are that are readily evident, and then unearth underlying problems that may not be easily discovered. Unhealthy business often suffers from a whole series of issues due to neglect, as all resources are focused on addressing the most evident problems. In making this assessment, a leader needs to determine the current pitch and the velocity of decline of the business, and then determine a rough estimate of the time and the financial resources it will take to turn the business around. This can be a sobering exercise and needs to be grounded in reality, with a reasonable consideration that it may take longer and cost more than you hope.
In most instances, a board may look to make a change at the top, and believe that this singular gesture is what is needed to turn things around. While this may be the start, it is rarely the sole key to the problem. In order to lead a successful turnaround, the following are some of the key elements:
- Fierce alignment and resolve of the leadership: Does board leadership understand the true scope of the challenge, and do they have the financial and strategic commitment needed to succeed? Too often, a collection of wise and talented business leaders join a board, and are unwilling to do the work needed to provide valuable strategic council. This type of “drive by” governance can derail progress, and impedes management from making the right (and sometimes difficult) choices rapidly as the situation unfolds. A board that is aligned on the strategy and prepared to support propelling this effort with other stakeholders is critical to success.
- People: Do you have the right people, are they in the right roles, and what is the underlying culture? One of the most difficult realities is that in a turnaround, a struggling company generally has difficulty retaining great talent. In can take years to attract, train and develop outstanding talent. In the interim, you have a base business to run and you need to find a way to optimize the team you have. Often, many team members have a much greater capacity to contribute, but are in the wrong role or have lost faith in leadership. Your ability to stabilize the organization and suspend the perception of “freefall” as some may see it involves three main things; you need to be an active listener, communicate effectively and demonstrate a degree of resolve that builds confidence in the organization. Building a culture that engenders pride will optimize performance and attract talented people.
- Develop a plan and execute: Develop a plan with clear targets, communicate them effectively, and measure the results. Assess the plan regularly, and keep modifying the plan with better information. Wash, rinse, repeat. Burning a lot of time and resources defining the perfect strategy at inception can be akin to the captain spending excessive time plotting the perfect course to land, while the ship slowly sinks. While understanding the key strategic drivers for long term value creation are critical, you must first make a quick assessment on what tactics will enable you to suspend the rapid descent of the business, and then develop a more long-term strategic plan. Take this two-step process to approaching a turnaround also allows you some time to evaluate the current staff and identify specific gaps.. Early in a turnaround, the plan should not be a static document, but rather a starting point, and should be subject to regular updates as the situation unfolds.
Having led and been part of several turnarounds, I can attest that the deep satisfaction of the shared success can be unlike any in business. But this is not for the faint of heart, and all stakeholders must be committed to demonstrating the resolve need to endure the challenge.