Rise like a phoenix: scripting corporate turnarounds
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