Credibility The Real Key to Turnaround Success

Credibility The Real Key to Turnaround Success

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In a crisis or turnaround situation, the turnaround manager is focused on controlling cash, obtaining the necessary liquidity to maintain operations, stabilizing its supply chain, retaining key managers and identifying operational deficiencies, cost-reduction opportunities and unearthing pools of noncore sources of cash—all nearly simultaneously. There's a lot of work to do, and very little time to get it all done.

Before the turnaround can gain traction, the turnaround manager needs to establish credibility—as quickly as possible—in order to fix everything that must be fixed before time runs out. A turnaround manager walking into this situation must establish credibility and an environment of positive attitudes that spreads to all areas of the company and creates a confident buzz that says, "We are on the right track." But this is far easier said than done. This article shares some specific techniques for professionals to establish credibility, and offers some thoughts on how turnaround managers can avoid the typical mistakes that hinder their leadership role.

Establishing the Ground Rules

To establish credibility on day one, turnaround managers need to communicate an important message to employees:

The turnaround you are about to embark upon is a change in the company's direction; it will start with a new strategy and vision, and will require specific tactics to be executed in the coming weeks and months ahead. For the turnaround to be successful, all our efforts must be aligned and consistent. It will be a lot of hard work, but once completed, we will see results.

This first meeting represents an opportunity for the staff to start believing in the turnaround process. It also presents an opportunity to empathize with the staff. Make an effort to understand their problems and issues, including their likely collective feeling that they are overworked and underappreciated. While empathy about past situations is important, the turnaround manager must quickly focus on the future and be firm in establishing the ground rules:

1. The turnaround manager must establish one "plan" by which the company will operate and maintain one general ledger to record the "actuals." Together, the plan and the actuals form a bible for the turnaround. It is the foundation for everything moving forward, must be consistent and aligned with the strategic and operational objectives of the turnaround, and record the execution and achievement of these objectives. Change initiatives are embodied in the plan with a description and quantification of what benefits will come to the company once they are completed. If the turnaround manager and the client are "true" to the plan and the actuals, the turnaround has a much better chance of being successful.

The turnaround manager must be clear that there is only one plan and one set of actuals, and no one can change them except for the turnaround manager in close counsel with the CEO or CFO, and only when there are fundamental changes in the company's business. This ensures consistent communication of the vision and strategy, establishes a mechanism for accountability in its execution, and serves as the vehicle to help achieve effective management of the turnaround. It provides the turnaround manager with some measure of authority and respect.

2. With the plan and actuals firmly in place, the turnaround manager is now poised to build and lead his or her team and must squash any impression of "you vs. them." The best way to do this is to build the team one "believer" at a time. First, find at least one person in each department who really "gets" what the turnaround manager is trying to do, who is not defensive about the past and who is truly excited about being part of the turnaround going forward. Empower these believers and use them as the go-to people when it comes to merging new ideas and processes with past practices and initiatives.

The believers will bridge the gap, if one exists, between the old and the new and encourage the entire team to view the turnaround activities as their program, not the turnaround manager's program. Certainly, every team will have its "skeptics"—and the turnaround manager must know who they are—but he or she must focus on "working the middle," and with the help of the believers convert everyone to the plan.

For example, a European firm was in financial distress, nearly out of cash and in default of numerous debt covenants. As some team members focused on these matters, others on the team concentrated on the lack of published accurate and supportable financial statements for over six months. Two individuals on the team, the chief accountant and the accounts receivable supervisor, both of whom spoke English well in addition to the local language, accepted an approach to turnaround and crisis management that had rarely been implemented in this European country. Their enthusiasm and very visible acceptance of the approach helped eliminate the "us vs. them" mentality in the majority of the staff and provided nearly immediate credibility.

3. The turnaround manager must not tolerate interpretations of actual financial results or modifications of budgeted or forecasted results, especially as they relate to comparisons of performance, or justifications for new spending programs or continually losing ones. Modifications of actual results or budgets to "correct mistakes" or to "establish clarity" are merely smokescreens attempting to hide poor performance, or even worse, to hide incompetence. The turnaround manager's credibility will be evident to the client through his or her specific acts of professionalism—starting with insisting on honest work.

To illustrate this point, a U.S. firm was experiencing large financial losses, much to the surprise of the foreign majority owner, who was contemplating a 100 percent purchase and assumption of much of the client's significant debt. The owner couldn't understand why individual monthly and quarterly reports made by product managers and business-unit controllers described profitable operations and successful business plans when the consolidated results of the company reported huge losses. The owner was getting cold feet over the lack of reliability in any operating results.

A member of the turnaround management team noticed that very few of the numbers in the operating presentations agreed with the general ledger balances of these business units. The business unit controllers and product managers were modifying either the business plan or the actual results to account for mistakes or forecast revisions. The team froze the plan numbers and required that all financial results presented be drawn from the general ledger. Once this happened, the owner had confidence going forward.

4. Forecasts are important in any organization, but in a turnaround and crisis situation the turnaround manager must not allow forecasts to replace the plan when assessing a manager's individual or a business unit's performance. The overuse of forecasts tends to muddy performance analysis to a point that managers lose sight of what is expected of them. Forecasts are useful to establish expectations in the investment community, especially when the news is bad, since no surprises are good for public companies. However, perpetual forecasting and re-forecasting takes a company's eye off where it really is going versus where it wants to go or where it promised its stakeholders it would go.

Avoiding Credibility Pitfalls

In a turnaround manager's eagerness to accomplish the vast amount of turnaround work that needs to be done quickly, opportunities to establish credibility may be overlooked with potentially devastating results. Here are some of the pitfalls:

1. A turnaround manager must establish a regular schedule of staff meetings, which emphasizes his or her willingness to listen to the staff's ideas and utilize their collective wisdom and experience for the good of the entire company. The staff's participation in the planning process will make for better decisions and develop a critically important "esprit de corps," which will help the team hang together when inevitable crises occur.

However, limit staff meetings in number and in length, as it is imperative that you make the impression that you are helping get things done and not just talking about it; everyone instinctively knows that leaders are doers. Also, avoid getting caught up in a multitude of endless "strategic planning meetings." Instead, spend as much time as possible each day in the trenches with the staff members, supervisors and managers. The turnaround manager must be visible to everyone in the company. He or she must be welcome in top management meetings for sure, but also needs to feel comfortable and be welcomed into the company lunchroom.

2. A turnaround manager must establish that everyone is accountable for their actions. If someone makes a mistake because they don't care or are sloppy and lazy, it will not be tolerated. Irrational intolerance of mistakes is damaging to the team. The turnaround manager must make it clear that they realize that "no one bats a thousand," and mistakes are a part of life. However, mistakes must not be hidden or obscured, but instead turned into a learning opportunity. In doing so, the turnaround manager must blend an objective treatment of the problem with a customized approach to resolving it. Ultimately, the turnaround manager must show that a key driver of success is how a company responds to mistakes.

For example, the turnaround management team should establish regular monthly review meetings with the board or owners as well as with the CEO and CFO to review actual results vs. budget. In these meetings, mistakes should be addressed. The company should, however, accept the openness in discussing the mistakes, and learn about the activities and processes instituted to fix them.

3. Finally, the turnaround manager must carefully manage any situation where a disgruntled employee attempts to undermine or "bad-mouth" the turnaround process. Inevitably, the turnaround manager will have identified skeptics early in the turnaround process. The turnaround manager may choose to manage the situation instead of terminating a disgruntled employee after weighing the costs of termination against the benefits of making the change.

[T]urning around a company is not an easy task, and it becomes nearly impossible if the turnaround manager does not have credibility with key internal stakeholders throughout the client's organization.

In sum, turning around a company is not an easy task, and it becomes nearly impossible if the turnaround manager does not have credibility with key internal stakeholders throughout the client's organization. He or she must keep these guiding principles in mind when establishing a leadership role:

* Communicate the strategy, vision and tactics to everyone.
* Build the team one "believer" at a time.
* Be a part of the team—not above it.
* Be an excellent role model: Do good, hard, honest work, and insist that others do the same.

Journal Date: 
Sunday, October 1, 2006