A well-executed turnaround is an intricate thing, and it always requires careful coordination with stakeholders, both internal and external. Capital providers are skeptical, suppliers simultaneously desperately want you to succeed and hope to quietly reduce their exposure should you fail, management is resentful, and employees are afraid. Despite the pressing nature of external issues, experienced turnaround practitioners understand the value of focusing on the internal first. By carefully working to shift the mindset of internal stakeholder groups, companies greatly increase their likelihood of a positive outcome.
Successful turnarounds are ultimately determined by operational improvement often made possible through financial maneuvering (cash management, incremental financing, etc.) and facilitated by a revised strategy, but absent a hearts and minds campaign to establish a mindset among employees that is conducive to success, a turnaround initiative may fail under the weight of employee fear, indifference, and internal politics.
Areas of Focus
There are five areas of focus that bear attention when seeking to foster a turnaround mindset, some that must be attacked and reset, some that must be fostered, but all of them should be addressed:
Sacred Cows. There is nothing more damaging to a turnaround than a long list of things that cannot be changed. Every instance of “don’t look over here”, “we can’t possible change ‘X’”, etc. imposes artificial constraints on the nascent turnaround strategy that most struggling businesses can ill afford. A winning approach to turnaround design should leverage a company’s unique mix of strengths and weaknesses. Every change, no matter how unthinkable it may have been previously, is worthy of consideration in a turnaround scenario.
Silos. Fostering a shared sense of purpose for employees at a company undergoing a turnaround is crucial, but it is just as crucial to foster that communal sense at the right organizational level. For most companies, the key unit that comprises “us” is the department, or even a sub-set of a department, whereas “them” is not the competition, but fellow employees of the same company, ostensibly working toward fulfillment of the same overall strategy, but in a different group, office, department, etc. Siloed thinking leads to toxic internal politics, and a level of shortsightedness that is counter-productive to any transformation initiative.
Know Yourself. The optimal way to design a viable turnaround strategy is to chart a path to bolster/leverage a company’s strengths while ensuring that its weaknesses are the results of rational trade-off decisions and do not represent a threat to the success of the company. This can only be achieved when a company and its employees wholeheartedly embrace the need to objectively assess both strengths and weaknesses. Experienced turnaround practitioners understand how to navigate the cognitive biases that prevent too many organizations from learning from failures, and instead help their clients glean valuable lessons from past results, both positive and negative.
Embrace Trade-offs. Normal course strategic planning generally results in one of two crucial errors. It either: 1) embraces an incrementalist view in which the “strategy” becomes merely an extension of the current state, more a forecast than a plan to compete and win in a shifting competitive landscape, or 2) approaches strategy at such a high level, and such at remove from the operational, financial, and competitive constraints which the company faces in the real world that the resulting plan has no workable path to implementation.
A turnaround strategy, by contrast, is inherently a strategic rebalancing whereby a company retreats from one set of inter-locking advantages (that, due to market shifts, no longer generate economically viable performance) to another, more attractive set of advantages. Assumptions must be explicit, and the trade-offs highlighted, for this more rigorous approach to succeed.
Be (Pragmatically) Optimistic. The job description of a turnaround practitioner is to accomplish something that incumbent management has come to believe is impossible. Somewhat counter-intuitively, doing so fosters a sense of humility in those who do it. A turnaround represents a near-perfect instance of a moneyball approach to business: rigorous analysis, willingness to act in defiance of conventional wisdom, the flexibility to either double-down on successful initiatives or pull back and reset when performance is negative, and a focus on constantly learning.
By the time key decision makers at a company have concluded that a turnaround is necessary, there is often little time to spare. A repeat of past performance will doom the organization, and resources are frequently far less than what might be wished for. But turnaround practitioners juggle those challenges all the time. The need to first win over the hearts and minds of employees, and then engineer a shift in mindset along the dimensions discussed in this article, does not always get the attention it deserves. A turnaround mindset is truly the foundation upon which successful a turnaround effort rest. Companies seeking change and change agents seeking to foster change would both benefit from devoting additional time and attention to this under-appreciated building block of turnaround success.
About the Author
David Johnson (@TurnaroundDavid) is Founder and Managing Partner of Abraxas Group, a boutique advisory firm focused on providing transformational leadership to middle market companies in transition. Over the course of his career David has served as financial advisor and interim executive to dozens of middle market companies. David is also a recognized thought leader on the topics of business transformation, change management, interim leadership, restructuring, turnaround and value creation. He can be contacted at: firstname.lastname@example.org.