Management Direction and the Turnaround

With the necessary financial and operational restructuring, plus the marketing re-positioning, it is easy to overlook a key factor that often proves to be critical to successful turnarounds: staff motivation. Reorganizing and involving not just the management team, but also the rank-and-file  are two essential tasks. The entire company must be pulling in the same direction to achieve optimal success. Involvement creates a “can-do” atmosphere that spreads to vendors, customers, and other stakeholders.

Involving Staff

It is imperative that appropriate changes be made to show that the executive team is committed to “doing whatever it takes.” Key employees should be encouraged to take an active role in the turnaround process, ensuring that they feel they are a vital part of the solution. Regularly scheduled management meetings are the new norm. In times of crisis, these meetings may need to occur daily; in profitable times biweekly should be adequate. Finding yourself and the team somewhere between crisis and optimization may be reason to vary the frequency of meetings, but they should never be more sporadic than once every two weeks.

Motivation

Do not be afraid to ask employees their opinions about what motivates them to perform. These opinions can be used to develop performance measurements and incentive plans. Scrutiny of company policy manuals and benefits offered can help identify ways to enhance engagement. Also, discovering the most frequently encountered problems can reveal how managers are applying–or failing to apply–useful solutions. Project descriptions, summaries of the company’s performance in adhering to budget and time constraints, and brainstorming time to recommend better methods are good synergy building activities.

Evaluation

Some companies like to administer tests of ability to prospective employees. Yet, once the prospects are hired, there is very little training and development. Close supervision should yield observations about areas for improvement. It is the responsibility of management to find ways to challenge employees to grow in their capabilities–both technical and soft skills–throughout their careers. Developing professional growth plans and holding folks accountable to execute them is good for all. Tying performance measurement to the plans shows employees that you are serious about continuous improvement and results-based management.

Teamwork

The team is also responsible for cultivating the management team concept in hiring employees, meeting goals and objectives, and conducting individual performance reviews. In addition, management’s performance should be reviewed to locate and remove any team members who are preventing goals and objectives from being met.

Hiring people who complement one another is the first step in forming a cohesive management team. Effective hiring is accomplished through a careful planning and implementation process that parallels the general turnaround effort. Write down job requirements before the hiring process begins. Solicit qualified candidates; throw out applications/resumes that are out of scope. Referrals from suppliers and customers tend to be the best sources of candidates. Objective measurement of qualifications against standards you have developed will shorten the list to be interviewed. Personal references and one-on-one assessments with the prospect’s proposed work team will verify compatibility.

Employee participation in the decision-making process is needed–more so during a turnaround. While key employees should be encouraged to contribute actively during meetings, they may not be asked to vote on issues affecting them directly. Meetings should also be an opportunity to thank employees for a job well done. Rewarding a manager for adherence to budget and schedule without also recognizing her team detracts from the team concept.

Reorganizing Staff

Reassigning personnel and restructuring responsibilities demands management team decision-making. Decisions about incentive and performance programs require outside assistance in so far as tax and legal consequences are concerned, but the ideas and proposals should come from management team meetings.

Management should not exclude themselves from the reassignment process! It may be that the president, for instance, is most valuable to the company in a different capacity or focus area. Like all staff members, she should be prepared (especially during a turnaround) to work in a role where strengths can be put to maximum use!

 

Recognizing a Declining Business

In the past week, we have taken the time to look at characteristics of successful companies. In case you missed one of the posts, feel free to catch up by reading them in order (links below):

  1. How Successful Businesses Plan For Growth
  2. How Successful Companies Market
  3. How Successful Businesses Manage Their Finances
  4. How Successful Businesses Manage Their Operations
  5. How Successful Businesses Create Positive Cash Flow
  6. Revenue, Cost & Capital In Your Business
  7. How Successful Businesses Maintain Organizational Morale

This week, we are “flipping the equation” on you and examining what a business in decline looks like. As you track with the principles shared and lessons learned, you may find yourself to closely resemble a declining business in one way or another. Don’t despair! Knowing what needs to be fixed is important. You are that much closer to success than someone who doesn’t even realize that crisis is around the next corner because of ignorance.

No one is consistently successful. When things start to go wrong, however, the shrewd executive must recognize those events that are catastrophic and those that are not. Early warning signals of imminent business decline can occur both inside and outside a business. Changes in the operating environment due to external and internal elements may signal the beginning of decline. Once an executive team determines that the business is showing some symptoms of decline, the next step is to determine whether the decline is shaping up to be a twenty-four-hour bug or a terminal disease. Can it be treated? Can it be cured?

The Stages of Decline

Stages of decline include early, mid-term, and late periods, and recognition of these stages has an impact on the steps to reverse the decline. In early decline, it is very probable that the business can be totally saved and profitability restored quickly–often within a matter of months. In mid-term decline, the business has been suffering some erosion of value, and it may take a year or more to restore the value and resume profitable operations. Finally, there is a late decline. Sadly, fewer that one-third of companies in this type of serious trouble are able to reverse their decline and emerge on the other side “whole”–with existing management, ownership, and operations intact.

Before examining the warning signals of decline, we should look at the root causes leading to those signals. The earlier these causes of decline are observed, the easier it is to resolve them. The most common causes of decline–from both internal and external elements–are as follows:

The Causes of Decline

  • management by exception rather than by flexible planning
  • delegation without inspection or control–no feedback, review, or reinforcement
  • vertical organization chart with little if any interaction between departments (silos)
  • managers with responsibility for more than five direct reports
  • employees with more than one boss
  • chain of command broken when employees think necessary
  • breakdown in formal communications
  • overreliance on strategic plan
  • overreliance on management by objectives
  • senior managers’ abuse of outside activities and company benefits
  • marketing the wrong products
  • marketing in the wrong locations
  • aging workflow management techniques
  • inadequate research
  • inadequate staffing
  • inappropriate sales methods
  • unresponsive financial information systems
  • loss of competitive advantage
  • displacement by competition
  • changing technology
  • buyer preference changes
  • regulatory changes
  • economic changes
  • inadequate understanding of buyer needs
  • inadequate information flows, both between business functions and between company and customer
  • one department or business function dictating the mission, goals, and objectives of the company

All of the above causes for business decline are valid, and any one of them can precipitate the downfall of even an experienced team. Recognizing the warning signals of decline is the next step in righting the ship…

How Successful Businesses Maintain Organizational Morale

 

 

Organizational morale builds quality products (and services). Employees who are well-paid, well-trained, and appreciated work harder than those who are merely trying to earn a living. Giving employees more and more responsibility as they develop skills and gain experience makes them feel wanted and valuable. training employees to do their jobs expertly teaches them the value of quality performance. Finally, rewarding an employee for continuing contributions to company profitability reinforces the company’s goals, mission, and objectives.

Some of the benefits to organizational morale include the following:

  • Employees are willing to work longer hours to ensure that a job is done correctly.
  • Customer service and sales are carried out with positive attitudes. As the company makes more money from these quick and repeat sales, the business can afford to hire the cream of the crop in employees. The appearance to anyone outside the operation is that of a well-oiled machine.
  • Rather than fending off mercenary plots and complaints all day long, management can plan for upcoming projects, ensuring the best use of employees’  talents.
  • Striving and bitter rivalries are easily ended when all employees are treated impartially and fairly.
  • Quality control is much easier to enforce with a group of hard-working, motivated workers than with uncaring employees who are simply filling a slot.

Training

Truly effective training and development programs make good employees out of average employees, and great employees out of good ones. When an employer takes the time and effort to teach employees how to perform their jobs better, employees usually respond with increased effort on the job.  Bonds between management and employees are created as an employee gains a greater sense of self worth. The employee begins to feel that his or her contribution to the overall business matters and is important.

Responsibility

Employees in successful companies have two types of responsibility–to their peers and to their bosses. Each is important to a smooth-running company. However, responsibility can prove an albatross around the neck of the employee who lacks the corresponding authority to make decisions. Good employers will therefore not only be creative in assigning work to employees, but also in providing the best possible environment for them–including adequate authority where appropriate–to help them succeed. Reporting to management helps employees feel they must do a good job and that someone is around who can help them if the going gets rough. Being accountable to peers in addition to bosses teaches employees to respect one another’s work and to learn how to work together to reach common goals.

Motivation and Reward

Bonus and incentive compensation programs are the rewards of excellent employee performance. Rather than threatening to discipline or even dismiss a problem employee, it is often better to motivate employees through encouragement. Fear of failing will not lead to successful work attitudes and performance–it will only lead to ultimate failure. On the other hand, building up an employee’s confidence has proven much more effective than criticism in raising performance levels. 

Once an employee has performed at or beyond the established level, successful management teams find a way to reward the employee. Not rewarding someone who has done everything requested and more makes the employee wonder a.) whether he/she has indeed done a good job, b.) whether the supervisor is a good enough manager to recognize the employee’s contributions, and c.) whether a “change of scenery” may be preferable. However, bonuses and incentives must reflect current and projected financial performance. A company experiencing financial loss must have a flexible plan to adjust employee compensation as necessary. 

A successful company becomes a self-perpetuating entity–the more successful it becomes, the more successful it can become. Executive teams who maintain high organizational morale and plan for growth will create positive cash flow from efficient operations. While your business may not be in a position to always do what larger businesses do, remember to run your organization in a professional manner any you will meet with greater success!

 

Do Your Cultural Diligence in M&A!

Of course the merger was a success. Neither company could have lost that much money on its own.

-Steve Case, Former Chairman of the Board
AOL/Time Warner

Competitive markets create an environment wherein companies strive for revenue growth. When organic (internal) growth is hard to come by, inorganic growth becomes a target. Inorganic is a category that includes merger and acquisition (M&A) activity as a primary strategy.

While business exigencies demonstrate the “need” for change, often the hard facts found in classic due diligence processes have far less to do with ultimate success than the cultural fit of a transaction between parties. Consequently, organizations that understand their core values are much more likely to reach the kind of growth and success that nearly all businesses seek [Gallangher 2003].

Successful M&A has been known to grow markets, build on complementary strengths, and eliminate inefficiency. But what ultimately matters in an acquisition is what happens in the hearts and minds of the people who remain with the new organization and what culture these formerly distinct entities choose to build while moving forward [Gallangher].

The Mercer Consulting Group, in studying M&A activity, finds that, among unsuccessful ones that many of the failures are caused by not conducting the same kind of “due diligence” on the culture, structure, and processes of an acquisition target as they do on the financial balance sheet [Gallangher]. 

Traditional due diligence typically analyzes the following:
– Historical performance,
– Ownership and organizational structure,
– Management team,
– Products and services, 
– Assets and liabilities,
– Information systems and technology, and
– Organizational culture [Bouchard, Pellet 2002].

J. Robert Carleton, management consultant and senior partner of the Vector Group, says, “Unfortunately, little or no time is generally spent analyzing the nature, demeanor, and beliefs of the people who will be involved in carrying out the business plan”. He believes that standard due diligence does not address some of the key questions that must be asked to accurately assess organizational readiness for a major change, such as a merger or acquisition. Even when some of the “right” questions are asked, Carleton argues, they are often limited to brief interviews with key executives, who likely have differing views from the rest of the employee group. The people in the trenches, the ones doing much of the actual work are not even involved. He  finds it interesting that “in financial and legal due diligence no such ‘act of faith’ is acceptable” in terms of the investigative procedure [Bouchard, Pellet].

“Cultural due diligence” is a phrase that more strategists are using  to assess what stumbling blocks may hinder successful integration of entities and their operations. Key factors to be considered include:

– leadership and management practices, styles, and relationships,
– governing principles,
– formal procedures,
– informal practices,
– employee satisfaction,
– customer satisfaction,
– key business drivers,
– organizational characteristics,
– perceptions and expectations, and
– how the work gets done in your organization

[Bouchard, Pellet; see also Carleton, Lineberry 2004].

When HP and Compaq decided to combine forces, they used schematics like the one below to help them discuss the salient issues–

After looking through these issues and discussing each company’s culture, the merger team put together a chart like the one below to begin developing tactics to plan for a smooth post-closing integration.

As you look at this chart, think about key M&A transactions in your industry or local community. Of the ones that did not pan out as planned, do you think they would have stood a better chance had they systematically worked through these type issues during due diligence?

Cultural due diligence is vital to successful M&A processes. If earnest consideration were given to culture as it is to financial and other factors, inorganic growth and increased market share would be a realized outcome far more often!

(Thanks go out to Agata Stachowicz-Stanusch, who wrote of the value of cultural due dilgence and detailed a case study of the HP-Compaq merger in the Journal of Intercultural Management’s April, 2009 edition.)

Resilient Leadership Anticipates Challenge

Leadership is full of challenges. It’s not so much whether problems will crop up, but how the leader responds. The ability to push through and come out on top is a hallmark of a resilient leader. Claudio Morelli, Superintendent/CEO of the Burnaby School District in British Columbia, thinks the ability to maintain resiliency is defined by elasticity, bend, stretch and not “breaking” during challenging situations:

All organizations encounter challenges, issues and difficulties everyday including financial shortfalls, downsizing, increased workloads, and succession issues. These challenges force the organization to turn inward and look at itself and its effectiveness. It is a time to regroup and assess where the organization stands.

If the organization embeds and nurtures a culture based on mutual trust and where all members of the organization strive to be trustworthy and treat one another with respect and caring, then you have a solid foundation to deal with the challenges and issues you face. But where do you begin? It begins with a focus on people and building/enhancing positive relationships.

Most people want to be part of the solution. They would like to have a sense that their ideas are heard, not necessarily accepted, but considered with some action taken. They want to be part of the team, participating, engaging and solving some of the challenges.

Inclusive leadership involves followers and teams. It engages the hearts, minds, and wills so that resiliency is imparted into the work group. 

Morelli’s 6 Steps to Lead When Facing Challenges

  • Make personal connections
  • Build important relationships
  • Interact face to face when possible
  • Be open, transparent and authentic
  • Model integrity with the right intent
  • Act on feedback and deliver results

When a leader takes the time to connect on a personal basis with followers, it demonstrates care and concern in something more than the task at hand. The investment of time in getting to know others pays off in multiple ways, not the least of which is learning about talents and interests that may lie beneath the surface. In the realm of human resources, the term “high potential” is used to identify those who strategically merit the attention of an organization’s leaders. Talent management is not the only reason to build strategic relationships…clients, key vendors, referral partners all are worth the effort to go deeper, beyond superficial workplace conversations.

The types and frequency of interactions are important in preparing a support structure to succeed in the face of challenge. Whenever possible, open up to those with whom you are working to build strategic relationships. Become more vulnerable, let them know what concerns you have, admit when you don’t have a solution and elicit the help of others.

Getting into the habit of acting with complete integrity is helpful in setting a good example, establishing an expectation, and creating a culture of trust. When others within the organization (or strategic relationships outside it) offer constructive input, be gracious. Listen, then act on what has been shared and communicate back the outcome(s) of implementing the advised course of action.

These leadership practices will enable your organization to withstand challenges through better collaboration and increased resiliency.