— October 11, 2017
My experiences with business turnarounds—one successful and one not?have added to my more general understanding of what it takes to create positive change in the real world. The elements of turnarounds can be more extreme and challenging versions of what’s required to effect business change in general. But are the key elements really any different?
The approaches to and lessons from them can also apply to less dramatic situations like lagging sales, revenues, and profits—before whispers of bankruptcy are ever heard?but the process and priorities can be worth following regardless of a situation’s severity.
Turnaround Insights Can Benefit Business Building Essentials
Core lessons emerged for me from my successful and unsuccessful turnaround experiences. The fundamental difference between a success and eventual failure was a fully considered and developed plan driven by clear lines of communication, responsibility, and expectations. For example, the successful turnaround had five critical and well-communicated goals for driving sales, protecting profits, and identifying responsibilities. Behind these five most critical goals were detailed and focused roles and expectations for each department from operations to marketing to human resources to real estate to menu development—and beyond.
In contrast, problems with the unsuccessful turnaround started at the top with four loosely defined lines of authority (that I can think of) with differing mindsets actively pushing for different goals. Even though the differences were not necessarily contradictory, they definitely created alternative priorities, confusion, and mistrust. To be sure, there was financial and strategic planning, but the priorities were not as clear, robust, or focused. And all this resulted in tentative and ineffective leadership and execution.
Turnaround or not, the successful case demonstrated good business practices that would be beneficial at any time, under any circumstances.
Four Factors for a Turnaround that Worked
How much of the primary and immediate attention is given to the financial situation depends, of course, on how close the company is to a liquidity crisis. As pointed out above, my comments here are driven by what might be considered a broader strategic or profit crisis that includes sales, revenues, and margins.
The following four elements can provide fundamental perspectives to guide a recovery, whether your most impactful factors are improving revenues, profits, and a competitive positioning or dramatic financial steps needed to avoid bankruptcy. They are elements to keep top-of-mind as the management team works to lead the organization to a brighter future.
1. The Business Plan
Whether your existing plan needs to be totally thrown out or just redone and updated will depend on the severity of the financial situation. However, a revised and refocused approach should look to the key customer touchpoints because those same touchpoints will need to be a fully supported priority. As the famous management guru Peter Drucker said, “The purpose of business is to create a customer.” Whether B2B or B2C, the customer will be driving topline revenues and bottom line profits, and the business plan needs to be aligned with the brand and culture and the customer experience as outlined below.
Financial planning is, of course, a critical part of the business plan and exactly how critical will depend on the depth of available resources.
It may seem obvious, but developing and maintaining a strong, “laser-like” focus is fundamental. Every management leader needs to understand and accept his or her role relative to the team’s expectations and the customer relationship. Each needs to be motivated and committed and ready to communicate and focus their team. The closer the organization can come to acting as one, the greater the chances for success.
There are three leading edge elements which I’ve seen followed to make this work:
- Each element of the business plan must be not only clearly described but also supported with meaningful metrics and action steps to guide progress. And the management team needs to consistently review the group’s progress (minimum of once a month).
- The internal financial structure and bonuses need to explicitly reflect the plan’s priorities.
- Management team members must understand and have enough confidence in each other’s roles to create trust, a level of trust that allows each to focus on their own role and be open to criticism (check out Patrick Lencioni’s The Five Dysfunctions of a Team).
To lean on Peter Drucker again, “Culture eats strategy for breakfast.” It may seem as though culture is “too big” to consider when the need is to rebuild sales or more purely financial fixes are needed, but consider how culture impacts motivation, innovation, teamwork, trust, and customer relationships for starters. In fact, culture is too important to be ignored as it can completely impact the execution of the new sales, product development, or HR hiring program?as examples. Understanding the strengths and weaknesses of a company’s culture will help to more fully define the business plans potential and the company’s relationships with its customers, guests, or clients.
Here’s an example: my successful turnaround company held meetings every Monday morning to go through a large, three-quarter of an inch-thick data deck. After a few weeks, the new management team recognized the data was great but nothing was being done with it! No real actions to change the results were being taken.
The old company culture was fine with that, but the new company culture would not be. The new company culture worked to define expected results as well as the customer relationship.
Effective pricing if often considered to be part of the financial, business, or marketing planning as it is critical to margins, competitive positioning, and revenues. It can deliver increased revenues or better value to customers as it drives increased customer satisfaction to build purchases or visit frequency. If it is dramatic, it can change brand perceptions?as Whole Foods may be doing with its post-Amazon purchase price drops which have led to a reported 25% traffic increase.
Regardless, in my turnaround and general business and marketing experience, pricing is, not surprisingly, extremely impactful even though it may not generally get sufficient attention. Regardless of where it “lives,” pricing is critical because it defines value, and customers buy value.
Winning the turnaround and watching sales increase by double-digits can be a great and exciting team triumph, but it is hard work and takes focus and discipline. To offer up another quotation, this time from Thomas Edison, “Vision without execution is hallucination.”