I was introduced to the corporate strategy turnaround framework on a recent strategy elective. Once you understand the framework it is interesting to analyse turnarounds in the business press and see how closely they followed the steps.
Step 1: Build a leadership team
There should be no surprise here. The first thing that a new turnaround CEO needs to do is quickly build a senior team, this usually means replacing the existing senior team with a new handpicked one.
Step 2: Simplify the problem
It is rarely possible to focus on more than one area in a turnaround situation, so simplification is essential. This can be achieved by selling non-core business units, retreating from geographic markets, focusing on the product instead of whole system, consolidating units etc. A good example is when Steve Jobs returned to Apple in 1997, he radically simplified the product line, and focused on a small number of core products.
Step 3: Cut away waste
Remove non-core costs, reduce marketing budgets, remove excess workforce and close underperforming businesses. This is done in order to create a platform for growth. This tends to be exemplified by private equity firms when they acquire a business.
Step 4: Catch-up by building competencies belonging to competition
The next stage is a process of playing catching up. This may mean working on product development or improving customer service. Other than financial restructuring the reason most companies require a turnaround is because they have fallen behind the competition, lost sight of the customer or missed an industry trend. Whilst it is tempting you cannot miss or bypass this step it is essential to take the time to build the core competencies of the competition to move back to a level position. Intel did this very effectively when they exited from D-rams and had to build competency in RICS.
Step 5: Change the game
Up until now all the steps have involved little or no change by the industry competitors. Once you have moved back to level you need to change the game and build competencies that are different and make new rules. If this is done effectively then it will force the competition to respond at great cost. Again Steve Jobs did this when he unveiled the iPhone and iPad, he changed the rules of the game and made competitors scramble around to catch up.
A note of CEOs
A turnaround follows distinct phases which may or may not be performed by just one CEO. It may be necessary to change the CEO once a particular phase has been achieved. There are many cases of CEOs being highly effective getting a company back to level par but the same person may not be able to change the game and take the company forward.
Some other aspects might be helpful in the first three stages:
- Scrap wrong information systems. They are expensive and after a huge internal change they probably need to be redesigned from the ground up anyway.
- Undermine political systems. There will be big resistance to change especially from the people whose jobs are on the line. It is the role of the senior team to disrupt the power base in order to make the required changes.
It may seem from this framework that there is little regard for the men and women whose jobs are in danger and may have had many years of faithful service at the company. For most companies their people are their most prized asset (or should be) and in a turnaround you cannot ignore the fact that you are going to disrupt a lot of people. I guess the flip side is that without a turnaround there would be the real possibility of the company failing and everyone losing their jobs.