Turnaround Process: Flexible Approach for Corporate Renewal

"Failure is not fatal, but failure to change might be."
John Wooden
Legendary UCLA basketball coach

In today's harsh economic environment, businesses can face a wide range of strategic and operational challenges. If the situation is sufficiently severe, a corporate turnaround may be necessary.

Every corporate leader should understand the fundamental steps involved in a turnaround for three critical reasons:

1. By understanding the turnaround process and tactics, you may be more effective at heading off problems that contribute to turnaround situations (e.g., unrealistic business assumptions, failure to promptly address financial under-performance, tolerating less than top-notch talent in key organization roles)
   
2. If your company or business unit is involved in a turnaround, you will be a more effective participant if you understand the process that will be followed (and in a turnaround, you definitely want to be part of the solution)
3. For new business unit managers, the turnaround process (absent the capital structure elements) is useful to quickly size-up the business issues and set the organization on a new path

Turnaround Process

Turnarounds involve the formulation and execution of a strategy and action plan to drive corporate restructuring and renewal, typically in an environment of financial distress.

Every turnaround is unique and merits an approach tailored to its specific needs. However, most turnarounds roughly follow the steps in the following table.

Process Step	Description	Output
1. Ensure appropriate turnaround leadership is in place	New leadership is essential in most cases Anoint an insider or outsider depending on the specific challenges of the organization Supplement gaps (e.g., legal, finance, operations) with external specialists	Change-oriented leadership with the know-how to drive a turnaround
2. Assess the situation and future viability of the business	Quickly assess the balance sheet, the cash burn rate, market dynamics, customer satisfaction, organization strengths and weaknesses, and turnover of key employees Are you making buggy whips?	Inventory of life-threatening issues
3. Communicate the case for change	Get organization leaders on board first, followed by the broader business Include rationale for change and the associated benefits Engage with key external stakeholders (e.g., creditors, customers, suppliers) Set realistic expectations (i.e., there will but pain but there's light at the end of the tunnel)	Organization readiness for swift, dramatic change
4. Implement emergency steps to stop the bleeding	Strategically reduce costs (e.g., headcount, opex, capex) Shut-down hemorrhaging business units Rescind egregious policies Stem customer / employee defection Reassess anything considered a "sacred cow"	Stabilized business with the breathing room to develop and implement the longer-term survival plan
5. Develop a strategic survival plan	Rework corporate strategy as required Assess fit of existing portfolio of business units / products / services with new strategy Develop "get well" plan for lagging operating capabilities Determine viable capital structure and create appropriate negotiation strategy with creditors Demonstrate a viable on-going business model Communicate plan to key internal and external stakeholders Identify key performance metrics Emphasize realism in all elements of the survival plan	Realistic, implementable survival plan that will position the company for future success
6. Ensure appropriate functional leadership is in place	Identify critical roles Assess fit of incumbents against requirements of turnaround Replace mismatches with internal or external talent as required to ensure "A players" are in all critical roles	Motivated, change-oriented functional leadership who are capable of executing the long-term survival plan
7. Restructure the business and execute the survival plan	Sell non-core and underutilized assets Restructure debt Raise capital Rationalize product / service portfolio Re-engineer and align key processes Invest in core elements of business model Strategically acquire to fill business model gaps Reposition corporate brand in marketplace Invest in valuable customer relationships Upgrade talent in organization	Recovering business with new strategic focus, improving operating performance, and more secure financial position
8. Monitor key performance metrics and adjust plan as required	Establish process for monitoring and publishing key performance metrics Religiously track metrics to measure momentum Initiate corrective action as required	Near-time visibility into performance with a corrective feedback loop
9. When business conditions dictate, transition organization leadership from turnaround specialists to sustaining management	Recruit or promote candidates who possess the skill set to build upon momentum created by turnaround Stagger leadership transitions to minimize disruption to the organization	Sustainable business

You may have noticed some similarity between the turnaround process and the critical catalysts for organization change. That should not be surprising, because a corporate turnaround is essentially organization change on steroids.

At the end of the day, turnarounds are built on the foundation of business fundamentals, realism, and ruthless execution -- characteristics that every leader must master.

Monday Morning Actions

If you're involved in a turnaround:

• Passionately engage in the turnaround process; be a part of the solution!
• Identify opportunities to reduce operating and capital expenditures; think cross-functionally to avoid sub-optimization
• Invest extra effort in relationships with customers and key employees -- they are both critically important for a successful turnaround!
  

If you're not yet involved in a turnaround:

• Quickly analyze your business from the perspective of a turnaround specialist; proactively pursue corrective action within your span of control
  
• Initiate steps with HR to replace under-performing individuals in all key organization roles; accept nothing less than "A player" replacements
• Identify one underutilized asset or unproductive sacred cow; build organization support to address it