{"id":271,"date":"2024-05-24T23:29:17","date_gmt":"2024-05-24T23:29:17","guid":{"rendered":"https:\/\/www.sterlingcooper.info\/blog\/?p=271"},"modified":"2024-05-24T23:29:17","modified_gmt":"2024-05-24T23:29:17","slug":"business-turnaround-tips-and-strategies","status":"publish","type":"post","link":"https:\/\/www.sterlingcooper.info\/blog\/business-turnaround-tips-and-strategies\/","title":{"rendered":"BUSINESS TURNAROUND TIPS AND STRATEGIES"},"content":{"rendered":"

\u201cI\u2019ve seen my share of boiled frogs,\u201d<\/strong> says Sterling Cooper\u2019s CEO, comparing companies in crisis with the metaphorical frog that doesn\u2019t notice the water it\u2019s in is warming up until it\u2019s too late.<\/p>\n

\"\"<\/p>\n

As the chief restructuring officer for turnaround situations over nearly four decades, he has witnessed firsthand how managers back right into a crisis without recognizing that their situation is worsening. \u201cThey\u2019re not bad managers, but they\u2019re often working under a set of paradigms that no longer apply and letting the power of inertia carry them along.\u201d And if they don\u2019t realize they\u2019re facing a crisis, they won\u2019t know that they need to undertake a turnaround, either.<\/p>\n

He\u2019s also heard the regrets: sometimes managers underestimated how critical their situation was\u2014or they were looking at the wrong data. Others took advantage of easy access to cheap capital to stay the course in spite of poor performance, believing they could push through it. Still others got so caught up in the pressure for short-term returns that they neglected to ensure their company\u2019s long-term health\u2014or even willfully sacrificed it.<\/p>\n

Rare among them is the executive who stepped back to review his or her own plans objectively, asking \u201cIs this what I thought would happen when I first started going down this road?\u201d That\u2019s a problem,\u00a0 because acknowledging that your plan isn\u2019t working is a necessary first step.<\/p>\n

\"\"<\/p>\n

Here, are some suggestions of ten-ways ailing companies can get started on the turnaround work they need.<\/p>\n

    \n
  1. Throw away your perceptions of a company in distress<\/strong><\/li>\n<\/ol>\n

    It\u2019s next to impossible to come up with one working definition of a company in distress\u2014and dangerous to think that you have one for your own company. Depending on the situation, there are probably many different signs of potential distress. The problem is seldom made up of just one or two of these things, however. Rather, it is the result of a greater number of them interacting together and with other external factors.<\/p>\n

    There are numerous signs of distress\u2014and a distressed company is typically dealing with multiple signs.<\/strong><\/p>\n

    Criticize your own plan<\/strong><\/p>\n

    The biggest thing you can do to avoid distress is periodically review your business plans. When you\u2019re creating them, whether at the beginning of the year or the start of a three-year cycle, build in some trigger points. A simple explicit reminder can be enough: \u201cIf we don\u2019t have this type of performance by this date or we haven\u2019t gotten the following 12 things done by this date, we\u2019ll step back and decide if we\u2019re going down the right path, given what\u2019s happened since our last review.\u201d<\/p>\n

    Such trigger points should be oriented both to operational and market performance as well as to basic financial metrics and cash flow. Look at where you are as a company using basic financial and cash milestones, and then look at where you are with respect to your industry and competitors. If you\u2019re not moving with the rest of the industry (or not outpacing it, if the industry is struggling), then your plan may be obsolete. And don\u2019t forget to look back at your performance over past cycles to identify any trends. If you keep missing performance targets, ask why.<\/p>\n

      \n
    1. Expect more from your board<\/strong><\/li>\n<\/ol>\n

      The beauty of a board is that it has enough distance from the company to see the forest for the trees. Managers often treat their board as a necessary evil to placate so they can get on with their business, but that undermines the board\u2019s role as an early-warning system when a company is heading for distress.<\/p>\n

      It\u2019s also the board\u2019s responsibility to look the CEO, the CFO, and the chief operating officer (COO) in the eye and say, \u201cOK, we like your plan. Now let\u2019s talk about what it would take to cut costs not just by 3 percent but by 20. Let\u2019s talk about all the things that can go wrong\u2014the risks to the business.\u201d Sometimes significant events happen that no one could have foreseen, of course.<\/p>\n

      But. in a typical distress situation, a company has usually just had 18 to 24 months of poor performance, and the board hasn\u2019t been aware or hasn\u2019t asked the right questions. Independent board members\u2014truly independent ones\u2014can have a big impact here.<\/p>\n

      \"\"<\/p>\n

      The senior team at one company maintains a list of risks to the business, employees, and the plan. They review those risks with the board on a quarterly basis to ensure that they\u2019re staying top of mind. It\u2019s an excellent way to have conversations that you wouldn\u2019t normally otherwise have in a business operation.<\/p>\n

        \n
      1. Focus on cash<\/strong><\/li>\n<\/ol>\n

        A successful turnaround really comes down to one thing, which is a focus on cash and cash returns. That means bringing a business back to its basic element of success. Is it generating cash or burning it? And, even more specifically, which investments in the business are generating or burning cash?<\/p>\n

        I like to think about this in the same way one would if running a local hardware store. By that, I mean asking fundamental questions, such as whether there is enough cash in the register to pay the utility bill, for example, or to pay for the pallet of house paint that will arrive next week, or how much more cash I can make by investing in a new delivery truck. When you bring a business back to those basic elements, the actions you need to take to get back on track become pretty clear.<\/p>\n

        In many of the cases I have seen, the management team and board are focused on complex metrics related to earnings before interest and taxes (EBIT) and return on investment that exclude major uses of cash. For example, variations on EBIT commonly exclude depreciation and amortization but also exclude things like rents or fuel. These are all fine metrics, but nasty surprises await when no one is focused on cash.<\/p>\n

        Keeping track of cash isn\u2019t just about watching your bank balance. To avoid surprises, companies also need a good forecast that keeps a midterm and longer view. For example, failing to pay attention to the cash component of capital investments routinely gets companies in trouble.<\/p>\n

        Projecting net present values can look the same whether the return begins gradually at year two or jumps up dramatically at year five. But if you\u2019re not focusing on the cash that goes out the door while you\u2019re waiting for that year-five infusion, you can suddenly find yourself with very little cash left to run the business, sending you into a spiral you may not recover from.<\/p>\n

          \n
        1. Create a great change story<\/strong><\/li>\n<\/ol>\n

          Companies in distress don\u2019t focus enough on creating a change story that everyone understands\u2014and that creates some sense of urgency.<\/p>\n

          Here\u2019s an example. I recently did a turnaround as chief restructuring officer of a mining company. It was profitable, returned a decent margin, and was cash positive. But the commodity price was dropping, and the board was worried about generating enough free cash flow to drive the capital needs of the business. The change story we created said, \u201cYes, we are profitable. But the whole point of profitability is to generate enough cash to expand, grow, and maintain operations. If we can\u2019t do that, then we\u2019re headed for a long, slow decline where equipment breaks down and lower production becomes the new reality.\u201d<\/p>\n

          If you can tell that story in a paragraph or less, in a way that means something to the average guy on the front line, then people will get on board. In this case, employees wanted to have their children and their grandchildren work for this company in the same remote mining location, and the change story spurred them to action. The key was a simple message, not fancy metrics.<\/p>\n

            \n
          1. Treat every turnaround like a crisis<\/strong><\/li>\n<\/ol>\n

            Without a crisis mind-set, you get a stable company\u2019s response to change: risk is to be avoided, and incrementalism takes over. Your workers are asked to do a little more (or the same) with less. More aggressive ideas will be analyzed ad nauseam, and the implementation will be slow and methodical.<\/p>\n

            In contrast, a crisis demands significant action, now, which is what a distressed company needs. Managers need to use words like crisis and urgency from the first moment they recognize the need for a turnaround. A company that\u2019s in true crisis will be willing to try some things that it normally wouldn\u2019t consider, and it\u2019s those bold actions that change the trajectory of the company. Crisis drives people to action and opens managers up to consider a full range of options. Consider cash bonuses for positive results based on a successful plan executed.<\/p>\n

            \"\"<\/p>\n

              \n
            1. Build traction for change with quick wins<\/strong><\/li>\n<\/ol>\n

              The tendency of most managers is to put all of their focus and resources into three or four big bets to turn a company around. That can be a high-risk approach. Even if big bets are sometimes necessary, they take a lot of time and effort\u2014and they don\u2019t always pay off.<\/p>\n

              For example, say you decide to change suppliers of raw materials so you can source from a low-cost country, expecting 30 percent lower direct costs. If you realize six months later that the material specifications don\u2019t meet your needs, you\u2019ll have spent time you don\u2019t have, perhaps interrupted your whole production schedule, and probably burned a bunch of cash on something that didn\u2019t pay off.<\/p>\n

              In addition to going after big bets, managers should focus on getting a series of quick wins to gain traction within the organization. Such quick wins can be cost focused, cutting off demand for some external service they don\u2019t need. Or it could be policy focused, such as introducing a more stringent policy on travel expense.<\/p>\n

              Not only do such moves improve the bottom line, they also generate support among employees. In any given company, you\u2019re likely to find that a fifth of employees across the organization are almost always supportive. They work hard. And they will change what they\u2019re doing if you just ask them.<\/p>\n

              These are the people you\u2019ll want to spend most of your time with, and they\u2019re the ones you\u2019ll promote\u2014but you\u2019ll probably spend too much time with the bottom fifth of employees. These are the underachieving ones who actively resist change, look for ways to avoid it, or are simply high maintenance.<\/p>\n

              What often gets ignored is the remaining 60 percent of the organization. These are the fence-sitters, and they are tuned into action, not just talk. They see the changes going on, and if you proactively work with them, then 80 percent of the organization will be behind you. But if you don\u2019t give them a reason to stand up and be positive about the company, they\u2019ll go negative.<\/p>\n

              That\u2019s the importance of quick wins. When you quickly take real action, and when those actions affect the management team as well, you send a powerful message.<\/p>\n

                \n
              1. Throw out your old incentive plans<\/strong><\/li>\n<\/ol>\n

                Management incentives are often the most overlooked tool in a turnaround. In stable companies, short-term incentive plans can be a complex assortment of goals related to safety, financial and operational performance, and personal development. Many are so complex that when you ask managers what they need to do to earn their bonus, many just shrug their shoulders and say, \u201cSomeone will tell me at the end of the year.\u201d<\/p>\n

                In a turnaround, take a lesson from the private-equity industry and throw out your old plans. Instead, offer managers incentives tied specifically to what you want them to do. Do you need $10 million of improvement from pricing? Then make it a big part of your sales staff\u2019s incentive plan. Need $150 million from procurement? Give your chief purchasing officer a meet-or-beat target. Be willing to forgo bonus payments for those that don\u2019t achieve 100 percent of their target\u2014and to pay out handsomely for those whose results are beyond expectations.<\/p>\n

                  \n
                1. Replace a top-team member\u2014or two<\/strong><\/li>\n<\/ol>\n

                  Experience tells me that most successful turnarounds involve changing out one or two top-team members. This isn\u2019t about \u201cbad\u201d managers. In my 40 years of doing this, I\u2019ve only seen a small handful of managers I thought were truly incompetent. But, it\u2019s a practical reality that there are managers who must own the decline.<\/p>\n

                  And more often than not, they are incapable of the shift in mind-set needed to make fundamental changes to the operating philosophy they\u2019ve believed in for years. Whether they realize it or not, they block that change because they\u2019re bent on defending what they believe to be true. Although it\u2019s difficult, removing those people sends another signal to your stakeholders that there will be changes and you\u2019re not afraid to make tough moves.<\/p>\n

                  \"\"<\/p>\n

                    \n
                  1. Find and retain talented people<\/strong><\/li>\n<\/ol>\n

                    Beyond the leadership team, there are two types of people I look for immediately. First are those that have the institutional knowledge. They may not be your top performers, but they know all the ins and outs of the company\u2014and are vital to understanding the impact of potential changes on the business. Many times they are the disgruntled ones, unhappy with the company\u2019s performance. But you need people who are willing to point out the uncomfortable truths.<\/p>\n

                    A turnaround is also a real opportunity to find the next level of talent in an organization. I\u2019ve been through multiple crises where the people who added the most value and impact weren\u2019t the ones sitting around the table at the beginning. I have often found great leaders two and three levels down who are just waiting for an opportunity\u2014and the fact that they can be part of something bigger than themselves, saving a company, is often enough to attract and retain them.<\/p>\n

                    For both groups, it\u2019s important to realize that retention isn\u2019t always about money and bonuses. It\u2019s also about figuring out the individual\u2019s needs. Good turnaround managers actively look for those people and find a way to get them involved.<\/p>\n

                    \"\"<\/p>\n

                    Consider hiring the turnaround consultants at WWW.STERLINGCOOPER.INFO<\/p>\n

                     <\/p>\n","protected":false},"excerpt":{"rendered":"

                    \u201cI\u2019ve seen my share of boiled frogs,\u201d says Sterling Cooper\u2019s CEO, comparing companies in crisis with the metaphorical frog that doesn\u2019t notice the water it\u2019s in is warming up until it\u2019s too late. As the chief restructuring officer for turnaround situations over nearly four decades, he has witnessed firsthand how managers back right into a […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[],"class_list":["post-271","post","type-post","status-publish","format-standard","hentry","category-uncategorized"],"_links":{"self":[{"href":"https:\/\/www.sterlingcooper.info\/blog\/wp-json\/wp\/v2\/posts\/271","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.sterlingcooper.info\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.sterlingcooper.info\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.sterlingcooper.info\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.sterlingcooper.info\/blog\/wp-json\/wp\/v2\/comments?post=271"}],"version-history":[{"count":1,"href":"https:\/\/www.sterlingcooper.info\/blog\/wp-json\/wp\/v2\/posts\/271\/revisions"}],"predecessor-version":[{"id":278,"href":"https:\/\/www.sterlingcooper.info\/blog\/wp-json\/wp\/v2\/posts\/271\/revisions\/278"}],"wp:attachment":[{"href":"https:\/\/www.sterlingcooper.info\/blog\/wp-json\/wp\/v2\/media?parent=271"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.sterlingcooper.info\/blog\/wp-json\/wp\/v2\/categories?post=271"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.sterlingcooper.info\/blog\/wp-json\/wp\/v2\/tags?post=271"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}