The sooner you stop the bleeding, the better your chance for success
October 22, 2010
If your company is bleeding cash, there's no time like the present to start a turnaround effort. The sooner you start, the better, and know that the company's future is at stake.
Are you in a crowded market? Are you no longer profitable? Waiting for the economy to right itself isn’t the solution. Instead, initiating change now will make your company stronger during this tenuous economic recovery. If you fabricate your own product lines or perform significant contract work for certain product line manufacturers, take note of the products’ maturity. They may be on the downward slope toward becoming commodities.
If you’re waiting for business conditions to return to the way they used to be, your business will just fall farther behind. The time for change is now. You need to stop the bleeding, but you can’t stop there. For a truly effective turnaround, you need to change both the focus and culture of your entire enterprise.
The right people can make a turnaround happen; the wrong people can make it falter. So before anything else, choose managers who will help drive the vision of the new company and stand beside you during adversity. Ensure they truly understand and believe in your plan. In fact, it would be helpful if they formulated the plan with you, so they feel ownership and can effectively sell that plan to everybody else in the company, every day.
Your team then must determine who will make up the rest of the new company to get through the first phase of the turnaround. Keep those who have developed an open mind and a range of transferable skills, and remove those who historically have resisted change. Put personal relationships aside and the greater good of the company first.
Some may resist change, openly or secretly, and may not have the desire or capability to drive change and lead the company into the future. This isn’t to say these individuals aren’t talented. The company’s new direction just isn’t what they signed up for.
For instance, some talented managers may have grown up wanting to work in the car business. It’s a tough sector, but it’s gotten in their blood. What if your plan involves leading the organization away from the automotive sector and toward other industries, such as heavy equipment and power generation? How receptive will these managers be to lead the company into new industries? This is why, no matter how well you communicate with people about how they are part of the future, some may not want to be part of a different or smaller company, or do not share your confidence about their future with the organization.
Make sure that you have created a succession plan. Some managers may leave immediately; others may linger until they find another job. Develop an interim succession plan to indentify the gaps in your organization if any of your key people leave. You need to determine how you would at least temporarily fill those gaps. A long-term succession plan then can be developed over time. In the end, you reasonably can expect to lose 10 percent of the existing management team.
Keep and hire the right people; let the wrong people leave. People can make or break an organization. When you realize that the future of the company is at stake, it will be easier to make the tough decisions about who can help you make the transition and who will only impede it.
When you get right down to it, nothing communicates urgency more effectively than numbers. Business is about numbers, after all, and if the numbers don’t work, you don’t have a business.
This is why communicating those numbers to employees can be vital. Open-books management shows exactly why certain decisions are made. Most important, it moves the focus away from top-line revenue and toward what really matters: bottom-line profit.
This phase involves regaining control over costs and cash flow. If you are shutting down unprofitable business units, it likely will require some wind-down time to complete the work-in-process.
Maintain Focus and Discipline. It will be extremely tempting for a salesperson to persuade you to take one more order from a business sector you’re trying to move away from. For instance, a salesperson, after months of work, may finally land a large contract to build drying ovens for a certain automotive plant. It’s a big order, and though it doesn’t fit into your transition plan, it could keep several crews working a few more weeks.
What should you do? Turn down the order and help the customer find another supplier to do the work. Otherwise, there will continue to be “just one more order,” and the transition likely will never happen fully. Employees will think that if just a few more new orders like this one come in, change won’t be needed. But if this type of business wasn’t profitable before, why would it be profitable now?
Open-books management can help here. Showing how similar high-revenue work lost the company money—again and again over months and years—may make a salesperson think twice before bringing in the same type of work. A big commission might boost a salesperson’s paycheck in the short term, and the order may keep people on the shop floor busy for a few more weeks, but over the long haul, unprofitable work will only speed the company’s demise.
Cut Costs to Plan for the Future. Turnarounds often require temporarily shrinking the work force to cut costs and start the transition to a more profitable company. At the same time, you may have to hire those with the expertise needed to pursue new business. Creating room in your payroll for these new employees may require you to remove others who no longer fit with the organization’s new strategy. These aren’t easy choices, but remember, the company’s future is at stake.
Cash management must become a top priority, and this involves monitoring receivables and payables continually. Every week managers should conduct a six-month forecast of receivables and payables. This will help create a realistic budget for the new business approach. More important, it will allow you to determine the size the company must become to at least break even. It all simply comes down to this: Stop spending money that you don’t have or could need in the future.
After six months, cost cutting should be complete, and if appropriate actions were taken, the company should be turning a profit or at least be breaking even. You now have fewer people and perhaps new hires focused on the company’s new direction. At this point, be on the lookout for broken processes and systems. Certain legacy procedures may no longer make sense under the new business model and must be adapted or thrown out entirely.
And though you may have a good idea about the new opportunities you want the company to pursue, you may not have uncovered all the details behind the new business model. That comes later. For now, though, you’ve stopped the bleeding and maintained the core business that covers costs and, most important, provides the best potential runway for the future.
Analyze Management. A flattened hierarchy can help during a turnaround. Although unrealistic for large corporations, a top manager may have 12 or 13 direct reports. With this structure, you can get most information directly from the source, and not filtered through an upper manager.
At what level do you need the management team to be operating for you to achieve your vision for the future? This will require tremendous effort on your part. You must maintain constant pressure to make changes happen and keep momentum. Perform a gap analysis on your management team, and create a development plan to remediate any gaps identified. Distinguish between those who don’t have the appropriate skills and those who do, but lack motivation and conviction.
Recognize Employee Effort. Align your company’s recognition and reward systems with the new vision. Tell stories and reward employees who work hard and do right. Make it plainly obvious that those who receive promotions and raises are the ones helping the company realize the new vision.
For instance, every month a manager may nominate an employee for special recognition for doing work that goes above and beyond. If one week a salaried employee stayed consistently until midnight working on equipment drawings to meet a deadline, personally thank the employee with a gift card or tickets to an event (baseball or football game tickets, for instance) that the company may sponsor for customers.
Continually Communicate. All managers must participate in the communication process, provide a consistent message, and reinforce that message frequently. This will be a very confusing time for the employees. You are changing the culture and the way people think. Let them know what the company is doing and how they are doing; this will reinforce the positive changes that are beginning to occur. Create performance metrics, and discuss progress made each week. Make sure everyone understands his or her role in how the metrics are tracked and what is achieved.
In other words, people must know that what they do matters.
At the same time, talk to customers and describe how recent and planned improvements will help your company provide better products and services. Be ready with a marketing campaign and press releases. A company turnaround, especially one involving work force reductions, will make some unhappy. Stay ahead of any negative press and other negative information your competition might be communicating to the market. Respond quickly and communicate the company’s message clearly and completely.
Get out of the Comfort Zone. Push people out of their comfort zones, and continuous improvement can flourish. In their comfort zones, people tend to think the same way they always have. A janitor may see excessive shop scrap and may have an opinion on how to lower scrap rates. But in his comfort zone, he thinks that’s not his job—and continues sweeping.
But what if you asked that janitor for his opinion, or perhaps invited the janitor into a problem-solving session involving people at various levels of an organization, from top management to machine operators? That setting might encourage the janitor to think differently and voice his opinion. Moreover, having a cross section of employees engage with each other can help everyone buy-in to the business transformation. Everyone has a voice; everyone is in this fight together.
It’s an enlightening process. Most people love to share their ideas and thoughts, but usually they are never given the opportunity for their voices to be heard.
How exactly did your company get into this mess? Chances are everyone was looking at the successes of the past, and no one focused on the future.
As chief executive, this can be your job. However, what if daily challenges get in the way? If this is the case, try creating a new position, a business development manager focused entirely on opportunities three to five years out. That person should report directly to you and avoid the day-to-day firefighting. This manager can participate in trade groups, create strategic alliances, and meet with customers to discuss market trends. The person should steer the company toward becoming proactive and discovering new businesses, and away from just waiting for RFQs to come in the door.
Dedicating one person to this position may seem like a luxury you can’t afford during a crisis, but not doing so may cost the company its future. With someone always looking several years ahead, your business can jump on future opportunities before the competition.
This will help develop a sustainable growth plan for the company and determine what resources that plan will require. Identify opportunities in growing markets uncluttered with excess competition, and then match the demands of these markets with the expertise within your company. You will need a small foundation of market experts to start with and can hire on more over time.
Once the management team has a fully developed vision for the future, communicate it to employees and other stakeholders, such as suppliers, customers, and your credit providers. Recruit new talent who can help realize the vision. Finally, make sure everyone in the organization understands their importance. Employees are the company’s future, and their roles matter. People do their best work when they know they can make a difference and be rewarded for it.
It may never seem like the right time to start a turnaround, but if you have experienced years of stagnant growth with little or no profit, today is the day to start.
People must think anew and act anew. This may not be easy for everyone, especially for longtime employees accustomed to a certain way of doing business. However, most know something must be done. The more people share a singular vision for the company’s future, the easier the turnaround will become. Employees at all levels can make a difference, and if they are rewarded for these efforts, they will continue to embrace opportunities to make changes for the better.