Businesses are complex entities. There are a series of internal, external, and environmental factors that must be aligned in order to achieve success. Some businesses succeed in the long-term, but the overwhelming majority fail. Why is this? The leaders of a struggling business must realize they are heading for failure, right? Why are they unable to turn the ship around in order to save the company?
The answer is it depends on the specific factors and ailments of that business as well as the timing in which they determined there was a problem and executed a remediation plan. Failing businesses are marked by unsustainable operating expense structures and/or less than adequate top line results. However, for these businesses, it is clear that any turnaround efforts were unsuccessful. A typical turnaround involves fundamental business structure, functional, and potentially organization cultural changes intended to reverse failing results, either on the top line, bottom line, or both.
What is key to remember is normal business seasonal/cyclical ups and downs do not call for a turnaround. If significant turnaround efforts are undertaken based on cyclical or seasonal factors, more damage to the business can occur when the factors revert in the business’ favor. Therefore, as a turnaround executive, the first step is to do a full assessment of the business and the specific results to determine whether a complete turnaround is actually necessary. This is part art and part science, but experience in turnaround situations helps immensely in delivering a proper assessment. The other important aspect to note is a business cannot wait too long to perform this analysis and any required turnaround actions if they want to stay in business. Time is of the essence.
In this article, I will present the methodology I have developed from wide experience as a transformational executive across verticals as well as someone who has successfully delivered short-term consulting engagements and roadmaps for companies in need of a turnaround. This article will focus on the four step methodology, whereas the equally important execution aspect will be covered in a subsequent article.
- Assessment: As with many things in life, it is vitally important to understand the full context of the business problem before taking any action. Measure twice, cut once. Therefore, we first try to completely and comprehensively define the problem(s) plaguing the business. Is it a distressed company who is in an unfavorable cash position? Is top line growth and new customer acquisition lagging? Are bottom line expenditures and margin outpacing the level of growth? The output of this phase will be a full and comprehensive sitrep (situation report).
- Benchmarking: Here, we try to understand the business performance relative to its competitors and industry averages. A list of competitors and their relative strengths/weaknesses is compiled as well as any regulatory considerations for the specific industry (e.g. financial services, healthcare, etc). The regulatory aspect is important as any changes we implement have to operate within those guide rails. Also, in this phase, we will also attempt to capture the voice of the customer if the issue is customer acquisition and revenue related. The output of this phase will be a benchmarking and customer perspective report to ascertain competitive and industry positioning.
- Root cause analysis: Based on the sitrep and the benchmarking analysis, the next step will be to take a deep dive into the underlying root cause of the performance. For example, if the main issue is poor bottom line performance, we will dissect and analyze the operating expense structure for waste, staffing, contract/vendor, procurement, and productivity related causes. If the main issue is top line performance, we will investigate potential causes in terms of the product/service mix, marketing, customer onboarding, sales, delivery, and customer support. The full life cycle of the business through customer delivery and support will be examined to ensure that a comprehensive list of root causes emerges. In this phase, it is important that you engage more than just senior leadership of a firm. Specifically, there are subject matter experts throughout the company as well as those with informal/referent power who may not have formal power. These are the key folks you need to engage not only to articulate the causes, but garner support for any broad changes required to address the root causes (i.e. change agents/champions). The output of this phase will be a list of the root causes as well as a relative weighting against the issue.
- Solutioning: Now, that we fully understand the situation, industry benchmarks, and the root causes, it is time to develop solutions to resolve the issues and execute the turnaround. The solutions developed will have a high correlation to the root causes and this is where you need to engage the change agent network you have identified to get support and also address any potential resistance across the organization. With the agreed upon solutions, the first few levels of decomposition of the underlying deliverables within each solution will be created. We will also assemble an execution team including change agents and ascribe accountability and responsibility to the main deliverables. There may be rounds of consensus building and revision, but it is important to do this efficiently and not lose too much time. The output of this phase will be a clear execution roadmap agreed upon by the major stakeholders with delineated acute milestones.
The next phases cover developing program/project plans, which go a few levels deeper than the decomposition we performed in the Solutioning phase, reporting, logical pivot points, and ultimately execution. This will be covered in a subsequent article.
My methodology and the underlying core strategies executed in these situations is very similar irrespective of industry, however the competitive landscape, regulatory considerations, and bench marking portion of the analysis is industry specific. Having performed this process successfully in dissimilar industries, I was initially surprised at how similar it was to complete my methodology with little revision. Feel free to reach out to me for advice or assistance if encountering a turnaround situation.
Note: Related to this is my article on transforming a department or team from low to high productivity. That was a micro analysis, whereas the process I perform in a turnaround/transformation situation is macro. You can refer to that prior article here.
-Jonathan Ozovek
