Rise like a phoenix: script­ing cor­po­rate turn­arounds

The Smart Manager - - Reading Room - By pradip chanda

De-growth and stag­na­tion be­gins when a com­pany be­gins to lose con­trol of its own destiny.

Mar­kets change, con­sumer habits and at­ti­tudes change, new prod­ucts of­ten rev­o­lu­tion­ize how cus­tomer needs are met, new com­peti­tors ag­gres­sively play preda­tory price cards and e-tail­ers dis­rupt busi­nesses through tra­di­tional chan­nels. Many com­pa­nies fail to re­al­ize the im­pact of these changes on their busi­ness model–prod­uct, po­si­tion­ing, price, cus­tomer pro­file et al. on time and make the car­di­nal er­ror of hang­ing on to tra­di­tional busi­ness mod­els and pro­cesses.

The re­sults are in­evitable, a slide down a tor­tu­ous path to­wards bank­ruptcy or sick­ness, as it is called in In­dia.

Many op­er­at­ing man­agers work­ing in well-man­aged com­pa­nies may at times feel the tremors caused by a tem­po­rary loss of mar­ket share or re­duced mar­gins on some prod­uct lines when com­pe­ti­tion forces them to run a ‘price off ’ or BOGOFF cam­paign. But few, if any, would have ex­pe­ri­enced the agony of con­tin­u­ous loss of mar­ket share, rapid and ir­re­versible ero­sion of mar­gins, se­vere cash flow crunches re­sult­ing in di­min­ish­ing work­ing cap­i­tal, in­abil­ity to pay sup­pli­ers and fi­nally to ser­vice debts es­pe­cially from banks and fi­nan­cial in­sti­tu­tions. For such man­agers, a turn­around chal­lenge would be a night­mare.

Norms vary from coun­try to coun­try, but fail­ure to pay bank in­ter­ests on time for two con­sec­u­tive quar­ters is by and large the red flag used by most lenders to de­clare loans to such com­pa­nies as non­per­form­ing as­sets and be­gin the loan re­cov­ery process. Bank­ruptcy laws are in place in most coun­tries to aid and abet lenders to re­cover their doubt­ful loans.

Own­ers and man­agers of such un­der-per­form­ing com­pa­nies of­ten wake up to the need to mount a turn­around of­fen­sive only at this stage, and reach out to con­sult­ing com­pa­nies. Con­sult­ing com­pa­nies are ac­tu­ally very good in ar­tic­u­lat­ing strate­gies for trans­for­ma­tion, re­struc­tur­ing and rein­ven­tion, and come up with a ‘sil­ver bul­let’, which fired from the right gun and aimed cor­rectly will cer­tainly turn the com­pa­nies around.

Un­for­tu­nately, most com­pa­nies at this stage are rarely in a po­si­tion to

use this bul­let ef­fec­tively, as the ‘fir­ing gun’—the com­pany—is of­ten in sham­bles by now and needs to get the launch pad ready first. This is the first and fore­most chal­lenge of a turn­around.

A sick com­pany’s per­son­al­ity is the first re­al­ity fac­ing the turn­around man­ager.

Mar­keters at­tach great value to the con­cept of brand per­son­al­ity. If your cake of soap were a car would it be a Mercedes or a Hyundai? One small step for­ward, and if it were a per­son would she be Gisele Bünd­chen or the lady next door?

Com­pa­nies also have per­son­al­i­ties. These are re­ally the man­i­fes­ta­tions of the com­pany’s cul­ture. A buoy­ant com­pany ap­pears con­fi­dent and sure in ev­ery­thing it does, and that rubs off on its peo­ple. Suc­cess seems to be des­tined for them.

Vir­gin is a good ex­am­ple. Its founder Sir Richard Bran­son has brought to bear his larger than life per­son­al­ity in all busi­nesses he has launched and peo­ple have no trep­i­da­tion in putting large sums of money up­front to re­serve seats on his pro­posed space flights which have been on the draw­ing board for many years.

Un­der-per­form­ing com­pa­nies on the other hand trans­mit their anx­i­eties, built up over a pe­riod of sus­tained in­se­cu­ri­ties, in ev­ery­thing they do.

If you were to walk into one, you would prob­a­bly ex­pect to see rusty, un­used ma­chines in its plants, peel­ing walls and grubby patches in its of­fices.

What you will not be pre­pared for will be the ex­pres­sions of the ut­terly de­feated, on the faces of the em­ploy­ees. They seem to per­son­ify the com­pany, a derelict wait­ing for its de­liv­er­ance or, more prob­a­bly, its doom.

To the turn­around man­ager, this in­ter­nal per­son­al­ity cri­sis is the big­gest chal­lenge.

Dam­ages which could have been caused by ex­ter­nal threats have al­ready hap­pened. Com­peti­tors have taken the busi­ness away, fa­cil­i­ties have be­come ‘ob­so­lete’ and good peo­ple have been poached. The en­vi­ron­ment has be­come more threat­en­ing with global play­ers of­fer­ing bet­ter and cheaper prod­ucts, more freely avail­able in mar­kets forced to lift cross-bor­der trade re­stric­tions.

If the com­pany is to re­vive, a change in its per­son­al­ity is the start­ing point.

The first ob­sta­cle is the mind­set of the mid­dle man­agers and the of­fice staff. They would be in­se­cure and re­sist changes. Of greater con­cern would be their cyn­i­cism, their re­fusal to ac­cept that a res­cue is pos­si­ble. This will man­i­fest it­self in in­fu­ri­at­ing re­sponses—it can­not be done, that’s not the way it works, we have tried it be­fore.

Pushed into adopt­ing new ways they will, at times in­vol­un­tar­ily, gang up to make sure that things do not work. They will re­sist ef­fi­cien­cies— the fear of re­dun­dancy is real. They will at­tend train­ing ses­sions un­der duress and the net take­out will be near zero. Gangs will form—some will be syco­phan­tic, oth­ers sid­ing with new man­age­ment, through back bit­ing and com­plain­ing against oth­ers. Only a very few will lend gen­uine sup­port to the changes. They need to be spot­ted early, pro­tected and nursed into change agents.

The CEO needs to be aware of these forces at work. He must have a plan to tackle this malaise. He has to trig­ger off a cul­tural meta­mor­pho­sis that will re­shape the mind­sets. Good ideas, in­tro­duced too early, with­out chang­ing the work cul­ture, will be buried un­cer­e­mo­ni­ously.

The hu­man re­source as­set au­dit process must be re­al­is­tic on this count. Too of­ten, ex­pe­ri­ence and ex­per­tise are neg­a­tive as­sets with­out the right mind­set.

The first ob­sta­cle is the mind­set of the mid­dle man­agers and the of­fice staff. They would be in­se­cure and re­sist changes.

Pradip Chanda Sage Re­sponse 2017, ₹395, 204 pgs, Pa­per­back

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