By: Robert A. Gappa
President, Management 2000
The word turnaround means to produce a noticeable and
durable improvement in performance, to turn around the trend of results from
down to up, from not good enough to clearly better, from underachieving to
acceptable, from losing to winning.
When a company, either as
a whole or in one of its divisions or departments, is consistently performing
below the average or midpoint in its industry group, then for that portion of
its business or for the total company its report card is below the average for
its class.
What it takes to set the stage for a turnaround are
high standards, a freedom from self-delusion and defensiveness, and an appetite
for challenges, accompanied by energy and determination.
Far from being seen as a calamity or disgrace, the
turnaround opportunity should be recognized as a normal part of everyday
business life.
The time span of a turnaround begins with the
recognition of the need and the opportunity, and continues with the development
of a total program of action, which in time leads to the achievement of
consistent performance improvement and an upgrading of position in the
industry.
We must recognize, therefore, that most major
turnarounds take about five years to get through the tunnel and move onto solid
ground—one to three years to bottom out, then two years of improved earnings
taking the company toward its desired level of performance.
Retro-thinking management doing
the things that worked in the past buy don’t seem to work anymore. Management
is driving with its eye on the rear-view mirror.
Management prides itself on
not losing its people and on having a wealth of experience in its management,
thanks to long-time incumbency.
The sacred cows that inhabit
such a company have gained the lasting affection not only of their own
management but also of their competitors, who love them just where they are.
The prevalence of a
defensive posture in the top management.
If results over the last
three years are tracked, it will have achieved these plans no more than one or
two months out of the year.
A poor flow of communication
between the functional divisions of the organization.
The combination of hostility
and low achievement leads to entrenched management enclaves with little
constructive communication with others.
Instead of decision making
being spread throughout the organization, it is confined to the top echelon.
Much time is taken up with
regular and specially called meetings that go on for hours.
What are the results of
these meetings? Usually few decisions, plus a prevailing state of mind that the
meetings themselves seem to matter more than agreed-upon action.
The dictatorial chief
executive officer surrounded by submissive managers whose main objective is
staying on the payroll by doing the boss’s bidding.
Samuel Goldwyn’s dictum, “I don’t want any yes-men
around here. I want everyone to tell me the truth even if it cost him his job.”
The management is given to
sounding dire warnings that are not accompanied by a program of action. People
get used to hearing that calamity is on the way and yet nothing seems to be
done about it.
When decisions are made in a
climate of underachievement, they are apt to be cautious and limited by fear of
change.
1. Management
determination
With a firm resolve
management must stand ready to pay the price of a turnaround by being willing
to do the things which will be difficult.
2. Dispose
of the enemies
We must be ready to
dig ourselves out of habit-ridden grooves, to remove incorrigible
under-performers, to let in the fresh air of participative management, and to
move the business toward first-rate professional standards.
3. General parameters of the shortfall
We must quantify our
overall performance shortfall so that we begin with a clear understanding on
the part of all concerned of the distance between us and our objectives.
It is helpful to
agree at the outset as to where we are on the industry performance curve on
profit margins, expense, pretax profit percent to sales, return on equity, and
the debt to asset ratio, so that the general parameters of our shortfall are
understood and recognized.
4. Identify underlying causes
Identify the
underlying causes of the shortfall, not in great detail, but the key factors
that have brought us to where we are.
5. Establish standards and timetable
We must screen out
unwarranted optimism and pie-in-the-sky euphoria.
Nothing will kill
our undertaking quicker than destroying credibility by making campaign promises
of a turnaround backed by hope alone.
Durable turnarounds
are rarely accomplished as quickly as expected.
Even in the
best-managed turnarounds, things will often get worse before they get better,
because the remedial steps may temporarily have a negative effect that is
unavoidable as part of the transition.
6. Milestone communication to the organization
We are ready to make
a milestone announcement to the entire organization to the effect that the
company will be taking a new direction, that a comprehensive renewal program
will occupy center stage for the next few years, aimed at moving company
performance ultimately into the upper echelon of the industry where it belongs.
Experience has shown
that the resultant surge in morale and will to win have a positive effect on
results almost at once.
What do the franchisees need? What do their customers want?
In our competitive industry
environment, each member of your team should be thought of as being in a
contest with his/her counterparts on your competitor’s teams.
This principle suggests you
develop an industry-wide yardstick in appraising your people and a heightened
awareness of each team member’s opposite number in the competition.
In a turnaround situation,
you must move toward better-than-industry average sales growth. In effect, you
must gain share-of-market from your
competitors in order to pass them in earnings improvement.
Another characteristic of
high-achieving management is that it is results-oriented.
It starts with the CEO convincing all layers of management that the team is out
to win and will live by the score, with each team member being responsible for
his/her results. Bottom-line responsibility is spread down into middle
management ranks, and bottom-line results receive great emphasis and wide
currency throughout the organization. Results achievement then becomes the key
to individual advancement as well as company growth.
Superior performance begins
with superior planning. The cause and effect relationship of planning skills to
results is so strong as to make it a competitive factor in any industry.
Short-range achievement of plans should not be allowed to overshadow the vital
importance of long-range planning. A durable turnaround cannot be achieved
without a five-year road map to provide guidance for the management in its long
and difficult mission.
Make a real effort to get as
much detailed information as possible about your competitor’s performance.
There is no better group motivator toward bold action than the cold facts about
how your competitor has outstripped you in a segment of the business.
Everyone is expected to make
mistakes, though not to repeat them.
In the necessary pursuit of
success, remember that success itself can be destructive.
Complacency marches in to
take the place of questioning, self-criticism, seeking fruitful change. Before
long you become vulnerable to the upstart competitor who is pursuing success
with open-end vigor.
One in four things is apt to
go wrong.
Pursuit of growth requires
bold action, but always tempered by a sensible appraisal of the risks.
1. Avoid bold moves in an area of the business where you
are weak.
2. If it is a big change involving hard-to-measure
risks, test it in a small part of the business.
3. the soundest growth is organic, that is, related to
the nature of the organization, its strengths, natural tendencies, and
characteristics.
If you want initiative in
the pursuit of objectives, authority is a bad word because it becomes an excuse
of turning off energy, of foregoing an opportunity to move toward constructive
goals simply because the activity is not in your job description and you could
not be blamed for not doing it. Management is getting results through people,
only some of whom report to you.
The effective manager has a
multifaceted leadership role that includes direct supervision of the people
reporting to him/her and a constructive awareness of how lower levels in the
hierarchy are doing. Don’t be a prisoner of
your organization chart, insulating yourself against contact with
different levels of your pyramid. What is known as skip-level communication
involves a top executive’s skill in keeping in touch with, inspiring, and
monitoring people in middle management without undermining reporting lines.
Too often the general
concept of any undertaking gets most of the thought, the execution less.
“Don’t confuse activity with
achievement” is a useful maxim that is unfortunately not observed enough in the
ominously growing public sector. When results orientation is weak in a
business, management’s consciousness tends to be filled with process instead of
goals, and this is reflected throughout the organization.
Advances in the behavioral
sciences applied to business have thrown much light on the dynamics of
leadership and teamwork and are an important resource for the professionally
managed company.
What we are looking for as
the underlying cause is the thing that, if it were removed, would cure the
problem.
All too often management
ducks the issue by trying to get better results through replacing subordinates.
Moreover, better people
poorly led may do worse than average people under gifted leadership.
In recasting management,
what we are looking for are skills that are in short supply, skills that make
for winning the competitive battle, in short, the classic skills of the
entrepreneur; and instinct for risk taking, sure decision making, the habit of
leadership, and being at home with difficulty.
In addition to the
entrepreneurial skills mentioned, these are some of the turnaround-effective
qualities to be sought in a manager:
1. A good team
builder with the knack of finding people with strength in them, and the
ability to make these people grow through getting results.
2. A sure hand on
priorities, the ability to manage time so as to get results in a difficult
situation, and to avoid squandering energy by developing cures for which there
is no know disease.
3. The ability to
handle failure by putting it to work for him/her through exploiting the
power of correctable errors.
4. Intensity
and urgency to get to the heart of
the problem and absorb enough details to plot a sure-footed course to the goal.
5. The ability to set
the right standards and motivate his/her team toward their achievement.
6. The sensitivity to work with the existing management firmly but considerately and
without causing them to lose face.
1. In-depth knowledge
of competitive performance at each job level.
2. If necessary to fill out gaps in information, a
special effort should be made to gather input
from search firms and consultants.
3. Obviously, this special appraisal of the team must be
a departure from past annual performance ratings. What is needed here is a new objectivity that takes a fresh
look at each team member’s performance as well as a professional consistency in
the use of the same yardstick throughout the organization.
4. There must be an understanding from the beginning
that in this evaluation there are no
sacred cows, and that past favorites, friends, and relatives will be rated
on the same basis as all others.
5. It goes without saying that the most important source
of input for the evaluation is within
the organization itself. It needs to be gathered from both line and
staff people who work with the team member, and the information needs to be
tempered by the credibility of the source.
6. An excellent source of candid, un-slanted information
is the employee opinion survey, and
the franchisee climate audit.
1. In addition to a thorough grounding in the whole
procedural side, which we need not go into here, the personnel head should
develop a good working knowledge of how
the business functions, what its major strengths and weaknesses are, and
what kind of talent it takes to achieve top results in the various phases of
the organization.
2. Through interviews in the field and work with the
most competent search firms, he/she should develop informative files on the outstanding performers among
the competition, their state of mind, and approximate compensation.
3. This should provide the background for judgment about
the profile of requirements for each
major job in the company as well as the range of compensation.
4. His/her personal
characteristics ought to include self-confidence, warmth, enthusiasm,
persuasiveness, and tact.
5. He/she should be fearless about taking strong positions with the chief executive and the other
pyramid heads. He/she should furnish independent thinking about casting people
in management roles and should come up with imaginative selections that the
boss would not have thought of.
6. He/she should read
widely in management literature and know how to use the help of the
behavioral sciences in management building.
7. Finally, he/she should cultivate action skills and develop a sense of urgency.
1. First of all, the kind of personnel executive we are
describing should report directly to the
chief executive.
2. The CEO should not have the person in the job unless
he/she respects their judgment and
will not make personnel decisions without their input.
3. He/she relies
on the professional skills he/she has hired to come up with the best
possible design to achieve the objectives.
4. The boss should expect the personnel head to keep
his/her finger on the pulse of employee
morale in the company.
5. The CEO should look to the personnel head for counsel on compensation standards and
methods at all management layers in the company.
6. The CEO should expect the personnel head to lead the motivational programs of the
company, especially Management by Objectives and Performance Appraisal.
7. Although this is not as prevalent in management
circles as it might be, there is much to be said about a final key role for the
personnel head: that of the “manager of
the CEO” himself/herself.
In the long run, a company
will perform more consistently and have more staying power if it does a
superior job of building management from within, for the following reasons:
1. There is less risk of miscasting because you know
your own people better.
2. It creates an atmosphere of personal growth, a big
help in recruiting top beginner talent.
3. It results in better morale and team spirit.
4. You wind up with a more reasonable, balanced
compensation level, less distorted by the high price of luring outside talent.
1. Leadership
is an essential ingredient. In any
case, the responsibility of the leader of the team is all-important: to see
that the group is functioning participatively and is doing its job well.
2. Size
3. Meeting technique
4. Task-force strategy
5. Self-appraisal
6. Line vs. staff
7. Tandem top management
He/she needs to communicate
to the executive team that the company is embarking on a new planning process
that will become a major force in improving performance, and that he/she
expects full support and participation throughout the company in making it
work.
Employee suggestion program
Spend money to make money
Clarify objectives
Eliminate roadblocks
Streamline programs
Go after sales
Expense reduction program
Modernize methods
Managing time
Use task forces
Talk bottom line
The plan must include all of
the profit components from sales and revenues down to the bottom line of pretax
and after-tax profit.
These are suggested steps in
developing the short-range, or tactical, profit plan:
1. In a turnaround situation, begin by reviewing the
existing plans and laying bare the reasons why the company has not been
achieving them. The determination must be to break the destructive chain of
unachieved plans by adopting a firm policy of conservative planning that will
be achieved and exceeded.
2. As in all planning, the process should be top down and bottom up.
3. The economic outlook as it affects the industry, and
the level of total company sales for the planned period.
4. This overall company sales profile is then reflected
in each profit center’s planning.
5. In putting the
component plans together into a total company plan, top management
frequently finds that the bottom line is shockingly disappointing.